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Global oil and gas sectors — a taxing business
First published in BNA Bloomberg Tax Planning International, July 2015
The past year has been a turbulent one for the energy sector, with oil prices from June 2014 to the beginning of 2015 decreasing by more than half. An increase in merger and acquisition (M&A) activity, tax concessions instigated by governments and major oil companies announcing ravaged profits, are just some of the consequences afflicting the oil and gas sector— and this is without considering the gathering momentum of the OECD’s initiatives in respect of international tax planning under the rubric of Base Erosion and Profit Shifting (‘‘BEPS’’).
The effects of price volatility across the sector will be long term, particularly as company tax policies were not engineered to cope with such unpredictability and internal tax functions did not have enough time to respond to falling prices. In many cases the damage has already been done with some companies announcing that their value has more than halved or that they are facing insolvency as a consequence. Although tax concessions instigated by governments will come as a welcome relief to the ailing industry, the implementation of BEPS presents an upcoming hurdle to companies, particularly those which operate in multiple jurisdictions, as profits could be hit harder and deeper through taxation.
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