The Government announced on Fri 14.12.2012, amendments to the Petroleum Resource Rent Tax (PRRT) law to provide certainty to industry following the Full Federal Court’s February 2012 decision in Esso Australia Resources Pty Ltd v FCT [2012] FCAFC 5. [The Court unanimously overturned a decision at first instance and held that Esso Australia Resources Pty Ltd was not entitled to a deduction for contract payments made to a subsidiary for the provision of “operations and facilities in connection with a petroleum project” under ss 37 to 39 of the Petroleum Resource Rent Tax Assessment Act 1987.]
While the case was decided in favour of the Tax Commissioner, the Treasurer said the Court also made a number of broader observations regarding the operation of the PRRT law that would have significant implications for the PRRT deductibility of expenditure. He said that applying the Court’s interpretation in full “could have significant financial implications for the industry, resulting in many taxpayers being unable to deduct legitimate expenditures”.
The proposed amendments are intended to:
- restore the capacity for taxpayers to apportion expenditure consistent with the PRRT’s policy intent; and
- allow PRRT taxpayers to deduct expenditure incurred under contract for project services or operations where the taxpayer is unrelated to the contractor, consistent with past administration; but
- preserve the requirement to look through arrangements in circumstances where the taxpayer contracts with a related entity (for instance a group company) or with an operationally related entity (for instance, a joint venture participant or its related entities). Consistent with the previous point, look through would not apply for unrelated subcontractor costs.
As with past amendments to clarify the operation of the PRRT consistent with the underlying policy intent, these amendments will have retrospective effect.
Source: Treasurer’s press release No 126, 14 December 2012
[LTN 243, 14/12]