Current Trends and Optimal Taxation Arrangements in the International Petroleum Industry

Abstract

In order to attracl the interest of international oil companies and to protect Croatia's legitimate national interests in the opening of this key upstream petroleum sector (exploration and development), a definition and an international clarification of legal, economic and political conditions is needed, as well as knowledge of technical-geologic exploration characteristics of exploration areas. The need to do so, in the eyes of interested international factors, emerges from the incompleteness of existing legal, and parlty financial regulations, and difficulties in following up their amendments in recent years. Croatia's Mining Law with supplemental acts encompasses too broad a range of mineral resources, especially in the part treating production and market. Explanation of ambiguities connected to guarantees of exploitation rights to the company that has made the discovery by investing the risk money, as well as removal of anachronous obligations of the company to participate in further explorations is necessary. On the other hand, the reporting requirements have to be more comprehensive, detailed and rigorous, especially in the definition of income and expenditures. Some of the existing conditions for joint ventures are too generous, due to the liability of the national oil company to cover the production tax, especially in the areas with already established production. Due to the aforementioned, and in order to exclude some overcomplicaled production-sharing types of arrangements, a modern fiscal regime for the upstream sector of petroleum industry in question is suggested and explained in detail. In this fiscal package, the existing system is augmented with an Additional Profit Tax. The government take, thereby automatically grows in the case of substantial additional profit. At the same time, some marginally economic fields would pay only revenue taxes at a modest rate. A foreign currency fiscal regime specially designed for the oil industry is also suggested. The definition and an international promotion of the role of a national oil company as an independent and directly accessible partner of international companies, and as a meeting point of domestic private initiatives that are gaining more importance is an important political decision. Solution of this set of conditions would enable Croatia to aggressively implement an effective international oil promotion campaign.