Many oil and gas taxpayers find it challenging to capture and report all information required to satisfy Petroleum Resource Rent Tax (PRRT) compliance obligations.
The Australian Taxation Office (ATO) recently released Practical Compliance Guidelines PCG 2016/12 and PCG 2016/13. These guidelines set out the ATO’s approach to allocating compliance resources to reviewing the deductibility of general expenditure within PRRT projects according to its assessment of the related risk. The guidelines apply to entities that derive assessable petroleum receipts, for expenditure incurred from 1 July 2015 in relation to a petroleum project. This provides an opportunity PRRT taxpayers to review their PRRT costing systems, processes and joint venture arrangements for consistency with the ATO’s guidelines.
The nature of the PRRT legislation means that a high degree of cooperation is required between commercial, finance and tax teams to ensure that relevant information is captured, recorded and reported. PCG 2016/13 provides useful guidance by setting out the types of expenditure which the ATO considers to be high and low risk. It also contains examples of common industry costing practices such as timewriting, and the allocation of remote head office and overhead costs.
PRRT reporting challenges are further complicated by the frequent use of unincorporated joint ventures in the oil & gas industry. This creates additional challenges for Operators to ensure that their systems accurately record and allocate costs to the joint venture for PRRT purposes, and report this information to joint venture participants. PCG 2016/12 outlines the ATO’s administrative approach in relation to reviewing joint venture arrangements.
Although current oil prices may result in PRRT projects being many years away from actual PRRT liabilities, the ATO’s guidelines provide a basis to assess current compliance processes and systems, and to consider changes where appropriate. In the context of greater M&A activity in the sector, the guidelines also provide a useful reference point for relevant issues for PRRT due diligence.