19. psc taxation -slide

19.PSC TAXATION Sutadi PU - Understanding PSC - LDI-Slide 19

Sutadi PU - Understanding PSC - LDI-Slide 19

Sutadi PU - Understanding PSC - LDI-Slide 19F:/Boss/Kabppka/Gtw02/JkBP-MIGAS ShareGross RevenueCONTRACTOR ShareDMOIndonesiaShareTotal Contr.ShareNet Contr.ShareRec.Oper CostRec.Operating CostEquity to be SplitDMO FeeGovt TaxFTP20%28.85%25%x28.85%71.15%48% COST STRUCTURE AND REVENUE SPLITPSCINCOME TAX AND FINAL TAX ON PROFITContractor Gross Income(+) Recovery of Operating Cost(+) FTP & Equity Share(-) DMO(+) Fee DMO(+/-) Over/Under Under Lifting

2. Cost/Tax Deductions- PSC Operating Cost- Non PSC Cost

3. Taxable Income (1) (2)Tax Payments:- Income Tax- Dividend/Branch Profit TaxOTHERS TAXES AND LEVIES


Sutadi PU - Understanding PSC - LDI-Slide 19F:/Boss/Kabppka/Gtw02/JkThru 198445.0%20.0%56.0%

Ordonantie 1925KMK 267/012/1978

Income TaxTax on PBDR or Branch ProfitTotal

Reference When a partner in a PSC is subject to a tax treaty with a foreign country tax regime, the rate of Tax on Interest, Dividend and Royalty or Branch Profit Tax may be so affected that the total tax rate changes to a lower rate.Example of 10% Rate of Tax on Interest, Dividend and Royalty or Branch Profit tax due to tax treaty: INCOME TAX AND FINAL TAX ON PROFIT1985-199435.0%20.0%48.0%

UU PPH No.7/1984 KMK 458/012/1984After 1995-201130.0%20.0%44.0%

UU PPH No.10/1994

Income TaxTax on PBDR or Branch ProfitTotal

Reference

45.0%10.0%50.5%

Ordonantie 1925KMK 267/012/1978

35.0%10.0%41.5%

UU PPH No.7/1984 KMK 458/012/1984

30.0%10.0%37.0%

UU PPH No.10/1994

- The application of tax treaty result in lower net after tax shares for government - Some, including new contracts revise production splits to have the same net after tax shares After 201125.0%20.0%40.0%

UU PPH No. /20111

25.0%10.0%32.5%

UU PPH No. /2011


Law No. 22/2001 (Applicable to PSC signed following 23/11/2001)Business entities shall pay Income Tax and Final Tax on Profit and levies. PSCs signed after Oil and Gas Law contains the following clauses:Contractor shall pay to the Government the Republic of Indonesia the income tax and the final tax on profit after tax deductible imposed on it pursuant to the Indonesia Income Tax Law and its implementing regulations.BPMIGAS shall, except with respect to Contractors obligation to pay Income Tax and the Final Tax on Profit after tax deductions as set forth in this Section V, assume and discharge all other Indonesia taxes of Contractor including value added tax, transfer tax, import and export duties on materials, equipment and supplies brought in to Indonesia by Contractor, its contractors or subcontractors,..One argument : The terms and conditions of PSC (i.e 85/15, 70/30 and others are based on the assumptions that Contractors are not obligated to pay taxes and levies other than income taxes and final tax on profit, as spelled out in the contractAnother argument :Compliance with the Law and prevailing regulations



Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATION (1)Operating cost computed based on PSC Accounting ProceduresPre-signing contract costs are non PSC Costs

Intangible Drilling Costs are chargeable when they incurCrude Oil sold to affiliate is valued at ICP

Tax paid monthly based on actual lifting, adjusted at end on March, the following yearTariffs : Income Tax 30%, Final Tax on Profit 20%, effective tariffs 44%Un-recovered costs are carried over to succeeding yearsPSC Accounting ProcedureGeneral Tax Accounting PrincipleOperating cost computed as spelled out in the Income Tax Law, Article 6Pre-establishment costs having >1 year benefit shall be capitalized and amortizedCosts having more than 1 year benefit shall be capitalized and amortizedCrude Oil sold to affiliate is valued at the actual price, but tax office has the right to determine the value

Tax due is paid no later than end of March the following year

Tariffs

Losses may be compensated for 5 years


Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATION (2) PSC Accounting ProcedureGeneral Tax Accounting PrincipleCommunity Development is non capital costs and tax deductibleInterest on loan may only be applicable to capital investment and requires approvalConsumable items are chargeable when landed in IndonesiaDepreciation starts beginning in the year when an asset is placed into serviceAssets belong to the State

Acquisition costs of economic interest are charged to Operating Costs according to PSC Accounting Procedures Books and Accounts are reported in English language and in US Dollar currencyCorporate social responsibility is not tax deductibleAll interest on loan is tax deductible

Consumable items are deductible when they are issued for usageDepreciation starts in the month of payment or completion of assets

Assets belong to business entityRevaluation of assets is possible Acquisition costs of economic interest shall be amortized based on unit of production

Financial Reports in Bahasa Indonesia and in Indonesian Rupiah.


Law No. 22/2001 (Applicable to PSC signed following 23/11/2001)Business entities shall pay Income Tax and Final Tax on Profit and levies. PSCs signed after Oil and Gas Law contains the following clauses:Contractor shall pay to the Government the Republic of Indonesia the income tax and the final tax on profit after tax deductible imposed on it pursuant to the Indonesia Income Tax Law and its implementing regulations.Sutadi PU - Understanding PSC - LDI-Slide 19


BPMIGAS shall, except with respect to Contractors obligation to pay Income Tax and the Final Tax on Profit after tax deductions as set forth in this Section V, assume and discharge all other Indonesia taxes of Contractor including value added tax, transfer tax, import and export duties on materials, equipment and supplies brought in to Indonesia by Contractor, its contractors or subcontractors,..One argument : The terms and conditions of PSC (i.e 85/15, 70/30 and others are based on the assumptions that Contractors are not obligated to pay taxes and levies other than income taxes and final tax on profit, as spelled out in the contractAnother argument :Compliance with the Law and prevailing regulations



Ministerial Circular (SE-75/PJ/1990, 12 October 1990) affirms KepMen 267Cost of obtaining, collecting and maintaining income shall be deemed as costs computed under the PSC Accounting Procedures (Exhibit C)KepMen 267(1) Contractor Gross Income, consists of:Recovery of Operating CostEquity and FTP Share(-) DMO and (+) Fee DMO(+/-) Over/Under Lifting (2) Costs of obtaining, collecting and maintaining income = PSC Operating CostCurrent Year Non Capital CostsCurrent Year depreciation of Capital CostPrior Year Un-recovered Others Costs(3) Taxation Income = (1) minus (2)



Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATION PSC Accounting ProcedureOperating cost computed based on PSC Accounting ProceduresPre-signing contract costs are non PSC Costs

Intangible Drilling Costs are chargeable when they incur

Crude Oil sold to affiliate is valued at ICP

General Tax Accounting Operating cost computed as spelled out in the Income Tax Law, Article 6Pre-establishment costs having >1 year benefit shall be capitalized and amortizedCosts having more than 1 year benefit shall be capitalized and amortizedCrude Oil sold to affiliate is valued at the actual price, but tax office has the right to determine the value


Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATION PSC Accounting ProcedureTax paid monthly based on actual lifting, adjusted at end on March, the following yearTariffs : Income Tax 30%, Final Tax on Profit 20%, effective tariffs 44%Un-recovered costs are carried over to succeeding yearsCommunity Development is non capital costs and tax deductible

General Tax Accounting Tax due is paid no later than end of March the following year

Tariffs

Losses may be compensated for 5 years

Community Development is not tax deductible


Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATIONPSC Accounting ProcedureInterest on loan may only be applicable to capital investment and requires approvalConsumable items are chargeable when landed in IndonesiaDepreciation starts beginning in the year when an asset is placed into service

General Tax Accounting All interest on loan is tax deductible

Consumable items are deductible when they are issued for usageDepreciation starts in the month of payment or completion of assets


Sutadi PU - Understanding PSC - LDI-Slide 19PSC ACCOUNTING VS GENERAL TAXATIONPSC Accounting ProcedureAssets belong to the State

Acquisition costs of economic interest are charged to Operating Costs according to PSC Accounting Procedures Books and Accounts are reported in English language and in US Dollar currency

General Tax Accounting Assets belong to business entityRevaluation of assets is possible Acquisition costs of economic interest shall be amortized based on unit of production

Financial Reports in Bahasa Indonesia and in Indonesian Rupiah.


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19. psc taxation -slide

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