Shelf tax haven for Gazprom and Rosneft

Russian business daily reports that the competent ministries within the Russian government agreed on the main provisions of the future law regulating taxation of the shelf oil and gas fields. Deputy Minister of Finance Mr. Sergei Shatalov stated that the Ministry of Finance, Ministry of Energy and Ministry of Economic Development came to terms on the principal issues of the new law. All that remains to be done is to put the law on paper, Shatalov said, which the Ministry of Finance should do by the end of the year.

The Russian Government instructed the Ministry of Finance to develop a draft of the respective law in April and outlined the main principles of future tax breaks for oil and gas projects within the shelf. The projects will be broken down in four categories according to their complexity: from „basic“ to „Arctic“. The mineral extraction tax for basic projects will be set at 30 percent of the value of extracted minerals, while the most complex projects will enjoy a reduced mineral extraction tax rate of five percent. The law will guarantee that the tax rates, once set, will remain unchanged for a period lasting between five and 15 years. In addition, oil and gas concessionaires within the shelf will enjoy a zero oil export tariff and will not be required to pay customs and VAT on imported high-tech equipment used in their projects. Tax breaks will be applied to projects where the extraction will begin no earlier than in 2016. The Russian Ministry of Natural Resources proposed to introduce an increased profit tax rate for oil and gas extraction projects within the shelf, but the proposal was rejected.

Experts stated that the tax breaks are unprecedented, but justified, as it is necessary to make the oil and gas extraction projects within the Arctic shelf attractive. By giving up the oil export tariffs and reducing the mineral extraction tax, the Government reduced the tax burden for the shelf concessionaires by 2.5-3 times. Some analysts believe that this was a forced move, as there are less and less traditional oil fields and it is necessary to speed up the development of the shelf projects.

Currently, only Rosneft and Gazprom are licensed to develop oil and gas fields within the shelf, while other companies can become minority partners. Neither Rosneft nor Gazprom were available to comment on the proposed tax breaks.


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