MOSCOW: American ExxonMobil company demanded to reduce 35 percent to 20 percent income tax rate for the Sakhalin-1 project off Russia’s Pacific coast.
The company says that for the last six years it has been paying taxes at a higher rate than necessary. The overpayment may amount to hundreds of millions of dollars. Experts believe that other international participants of the Sakhalin-1 project may now follow suit.
American oil company is also threatening to file a lawsuit with the Arbitration Institute of Stockholm.
The issue first arose in 2009, when the tax rate was lowered to 20 percent. However, participants in the project continued to pay income tax of 35 percent based on the original agreement signed in 1995, despite the new rate.
“Income tax in the Russian Federation is 13 percent and another 22 percent is paid to the Sakhalin Region, unless rates are reduced by corresponding laws, decrees or regulations introduced later,” explained Deputy Finance Minister Sergei Shatalov in a letter.
ExxonMobil has a 30-percent stake in the Sakhalin oil and gas project. The other shares belong to the Japanese company Sodeco (30 percent), India’s ONGC (20 percent) and Russian oil giant Rosneft (20 percent). The project is based on a production-sharing agreement.
“The Americans’ claims are justified because when the tax rate for the project was established, it was announced that it might be lowered in the event of a future change to the corresponding legislation,” says Yelizaveta Belugina, a leading analyst at the FBS brokerage company. “And since the change has occurred, ExxonMobil has the right to be compensated.”
However, Begunina believes that sanctions have also played a role in this story. “The company tried to lighten the tax burden in 2009, but lobbied its interests rather weakly. The rhetoric strengthened only after the introduction of anti-Russian sanctions.”
ExxonMobil’s cooperation has by and large been frozen as a result of the sanctions, with the company estimating its losses in Russia at $1 billion. As Kommersant points out, “ExxonMobil’s management is now faced with the challenge of reducing costs and closing old stories.”
