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Tax uncertainty in the energy sector offers a mixed outlook for multinationals

Tax uncertainty in the energy sector offers a mixed outlook for multinationals
26 Jun 2013

First published in Offshore Technology International, 26 June 2013

Governments worldwide could be doing more to encourage investment

A survey examining global energy tax trends, conducted by Taxand, the world’s largest organisation of tax advisors to multinational businesses, reveals that uncertainty regarding future tax legislation is hindering energy sector investments.

As well as facing pressure from an ever reducing supply of fossil fuels, energy multinationals are dealing with increased caps on carbon emissions and renewable energy at the same time as reduced clean energy subsidies from governments. Taxand’s global energy survey explores how tax conditions are helping and hindering the commercial development of the energy sector focusing on 4 key areas: carbon trading, renewable energy, emerging markets and decommissioning.

Read more highlights and download your copy of the Taxand Global Energy Tax Survey report

Carbon trading

  • While carbon caps and credit trading have been used by many governments as an attempt to tackle the issue of climate change, there is extensive variation between jurisdictions on the treatment of VAT relief on the trading of carbon permits.
  • 75% of countries surveyed confirmed there is no VAT relief on the acquisition or disposal of emission permits or units, although 42% said there was a reverse charge mechanism in place.
  • Recent controversy in Australia around the fixed price of carbon has led to further uncertainty regarding future government policies on carbon prices.
  • Through careful tax planning, taking account of local variances in incentive schemes, opportunities can be seized by multinationals.


  • Renewables are a long term solution to coping with potential future energy shortages.
  • Despite clean energy investment falling 11% in 2011, after governments cut many renewable energy subsidies, 2012 was still the second most successful year on record for the global clean energy sector.
  • 81% of countries surveyed said their government did provide tax incentives for renewable energy with financing and grants being the most commonly used methods to promote investment.
  • Most countries have now set minimum standards for renewable energy which multinationals are expected to meet.
  • Multinationals should assess their investment portfolio from a global perspective, modelling tax incentives country by country, to ensure tax benefits can be leveraged.

Emerging markets

  • Emerging markets are now a critical destination for energy multinationals. However, emerging markets present their own tax issues.
  • Only 50% of those surveyed said that the emerging market in which they operate offered any economic or investment development initiatives. Of those that were in place, energy and high technology sectors were the areas in which incentives were most readily available.
  • However, developing countries with emerging economies face considerable challenges in establishing effective and efficient tax systems. Many have not adopted the OECD model tax convention for bilateral tax treaties, making investment in these areas a higher tax risk for multinationals.
  • Only through considered tax planning can multinationals fully identify the tax incentives, opportunities and tax risks when investing in emerging markets


  • Uncertainties surrounding decommissioning of established oil and gas installations in the mature economic markets of Europe were highlighted as a particular issue facing multinationals.
  • 57% of respondents felt that uncertainties over the tax treatment of decommissioning has been damaging., Increases in taxes and continued procrastination has discouraged late entrants and encouraged the premature closure of oil and gas fields.
  • The UK is addressing these concerns to ensure a fair return for taxpayers. Multinationals and governments worldwide can learn from the UK’s experience

Your media contact for further queries is:
Barnaby Fry, MHP
T. +44 (0)203 128 8215

First published in Offshore Technology International, 26 June 2013

Quality tax advice, globally

Taxand's Take

“Tax authorities are seeking more effective methods of collecting tax and energy businesses are traditionally major contributors to national budgets. However, governments are quickly learning that excessive taxation can hinder economic development in the energy sector in their countries.

While there are some tax incentives in particular energy sectors, industries and countries, across the board governments could be doing more to drive economic investment and secure future energy supply by offering more clarity around tax structures and payments in their jurisdictions.

“Balancing supply and demand, sustainability, security risk, cost and the need to act responsibly is challenging for multinationals. Establishing tax efficient structures to drive energy business performance is therefore key.” Jimmie van der Zwaan, Taxand global energy tax service line leader

Taxand's Take Author

Jimmie van der Zwaan
Taxand global energy tax service line leader