DOE upholds tax payment terms in new petrol contracts

Published April 7, 2019, 12:00 AM

by manilabulletin_admin

By Myrna M. Velasco

The government, through the Department of Energy, said the income tax to be paid by contractors in petroleum service contracts (PSC) that it will be underwriting under the Philippine Conventional Energy Contracting Program (PCECP) will be accounted to the National Government.

Department of Energy (DOE) logo
Department of Energy (DOE) logo

That essentially sustained the income tax payment terms enforced in the Malampaya gas field project when it entered into a production sharing agreement with the Philippine government in 1999.

In a PSC model contract released by the energy department, it was stipulated under Section 11.01 that “the contractor shall be liable each taxable year for Philippine income tax under the provisions of the National Internal Revenue Code and the Act, both as amended,” emphasizing that “the Philippine income tax shall be part of the government share, subject to applicable laws, rules and regulations.”

That is also in keeping with the provisions of Presidential Decree 87 or the Philippine Oil and Gas Law.

The integration of Malampaya’s income tax into the State’s royalty share was questioned by the Commission on Audit (CoA) – and that is now a subject of a pending $1.1 billion arbitration and dispute resolution proceedings in Singapore and the United States.

The unresolved income tax issue on the Malampaya project is one of the major concerns of investors that have been setting interest on the new petroleum blocks being offered by the country.

In the propounded contract for petroleum investors, two key provisions have also been fortified with the recommendation of the DOE’s Centralized Review and Evaluation Committee (C-REC): One is on the allotment of “signature bonus” and the other is on development assistance for the DoE.

As stated, the PSC shall “reflect the PSC bonus in the amount of $50,000 and the development assistance of $60,000 to the Office of the Secretary (OSEC) for the Secretary’s consideration.”

Under Section 17.04 of the model contract, it was prescribed that the contractor “shall provide a one-time developmental assistance for the department (DOE) in the minimum amount of $50,000 payable within sixty (60) days upon written request by the department.”

Further in Section 20.01, it was set forth that “the contractor shall pay the department a signature bonus equivalent to $60,000 within 60 days from the effective date.”

The PCECP solicits from investors for PSC applications on two modes: one is bidding for the 14 pre-determined areas previously tendered by the DOE; and the second is nomination of their preferred petroleum blocks.

The target submission deadline for the pre-determined blocks will be in May and that will also serve as “acid test” as to the scale of interest that investors really have on exploring the country’s oil and gas resources.