As a responsible operator, the Oil Search Group1 pays taxes in full compliance with both the letter and intent of the tax laws that govern our operations and commercial dealings. We seek to comply with statutory obligations and disclosure requirements on a full and timely basis.
Oil Search’s tax strategy is supported by our principle-based tax management approach. This aligns with the Company’s core values, including acting with integrity, acting responsibly, and respecting communities, partners and governments that we work with. It also supports our efforts to provide information to governments and their agencies, so they can review tax policy and enhance their tax systems’ equity, effectiveness, efficiency and administration in the jurisdictions where we operate.
Oil Search’s internal tax compliance procedures ensure our business is committed to implementing our tax management approach and meeting our tax obligations. The Board Audit and Financial Risk Committee (AFRC) is responsible for overseeing tax management and has endorsed our tax strategy. The Group's Chief Financial Ofﬁcer holds direct responsibility for tax management and communicates with and advises the AFRC on tax affairs and risks with support from our corporate tax team. The Group Head of Tax is responsible for implementing our approach to tax.
Our risk management approach to tax management includes the following core principles:
- Align tax principles with Oil Search’s core values, including: acting with integrity; acting responsibly; respecting communities, our partners and governments that we work with; and building mutually beneficial relationships based on openness and trust.
- Comply on a full and timely basis with statutory obligations and disclosure requirements.
- Comply with both the letter and the intent of the tax laws that govern our commercial dealings.
- Align Group structure and transfer pricing approach for international related party dealings with genuine commercial substance, risk allocations and value creation within Oil Search’s supply chains. Pricing of international related party dealings is determined through the application of OECD principles, as enacted, in each of Oil Search’s operating and/or investment jurisdiction. Our transfer pricing approach and outcomes are documented and disclosed to regulators in accordance with country-by-country tax reporting rules enacted in PNG and Australia.
- Foster high-quality engagement with regulators and other stakeholders.
- Support timely decision-making and dispute resolution.
Oil Search’s effective tax rate is disclosed in our Annual Report along with our income tax expense for the year. Our Annual Report is prepared in accordance with International Financial Accounting Standards and is independently audited.
The Oil Search Group includes seven subsidiaries incorporated in the British Virgin Islands, six of which were incorporated to hold exploration interests in the Middle East. This structure provides stability and flexibility in relation to potential future divestment or equity-raising in relation to each jurisdiction and has minimal effect on our tax obligations in all relevant jurisdictions. Any income from these investments is subject to tax in accordance with the tax laws of the jurisdiction where the exploration licences are located. The Group currently has minimal activities in the Middle East and the existence of these subsidiaries therefore has only a negligible effect on the overall tax position.
The seventh subsidiary is an in-house finance company in the British Virgin Islands with no material profits.
The Oil Search Group also maintains a dormant exploration subsidiary in the Cayman Islands.
Uncertainty in tax laws
Where there is a degree of uncertainty in relation to the application of a tax law, Oil Search applies a ‘more likely than not’ principle to determine the intended operation of the tax law and its application to the Oil Search Group. In doing so, we consider technical legal interpretive issues, established administrative guidance and precedents, all relevant facts, reasonable and generally accepted valuations methodologies and independent advice (where relevant).
Payment of ‘fair share of tax’
The amount of tax we pay in each of the jurisdictions in which we operate is determined by the laws of that jurisdiction, as enacted by the relevant governments. We are obliged to report and pay tax in accordance with these laws. Our approach is designed to ensure there is no difference between the tax that is expected to be paid in accordance with enacted laws and the tax we actually pay. Our approach to tax compliance and transparency is also designed to provide sufficient information for governments to formulate tax policy settings and enact laws that provide for a ‘fair share of tax’ in each jurisdiction.
The Oil Search Group does not receive any unique tax concessions. All tax liabilities are calculated in accordance with relevant legislative requirements. Some jurisdictions include provisions such as accelerated depreciation for capital equipment used in oil and gas production and/or fiscal stability. These provisions may be generalised or may relate to specific projects. These kinds of provisions are common in jurisdictions that seek to attract investment in large-scale, long-life oil and gas projects and each government determines its preferred tax settings based on its policy objectives.
Oil Search contributes to the socio-economic development of PNG by supporting critical infrastructure development through the PNG Government’s Infrastructure Tax Credit Scheme (ITCS). ITCS payments are voluntary pre-payments of income tax that contribute to the delivery of infrastructure projects selected by the PNG Government. The PNG Government pays no interest and the tax credits remain outstanding until we offset them against future income tax liabilities. Limits apply to the value of tax credits that can be claimed as a tax offset in a particular income year.
Engagement and disclosure
We maintain a transparent and constructive dialogue with governments and tax authorities regarding our tax approach and disclosures. This supports our efforts to enhance tax system effectiveness, such as through direct engagement on tax reform and the commitments associated with being an EITI Supporting Company.
As a long-time supporter of PNG’s journey towards compliance with the EITI, we continue to work with the PNG Government, communities and industry peers to support its implementation in PNG. In December 2016, the PNG Government published a roadmap highlighting the need to include beneficial ownership disclosure in its national priorities. We support this initiative as it makes a positive contribution to transparency and accountability in a manner that is consistent with EITI objectives.
Oil Search actively participates in formal consultations with the relevant tax authorities in countries where we have a presence. We are also a member of the PNG Chamber of Mining and Petroleum sub-committee that engages with the Internal Revenue Commission, International Monetary Fund and Department of Treasury on tax reform matters.
We voluntarily provide information on our payments to governments on a country-by-country basis in our Social Responsibility Report. Being open about these payments is in the best interests of our shareholders, employees, host communities and other stakeholders. Transparency allows for an informed debate on the integrity of tax regimes and highlights the benefits of contributions we make to our host countries.
1 The Oil Search Group operates primarily in PNG, but also has activities in Australia, the US, Japan and the Middle East