North Sea: High oil prices benefit the state
To ensure continued balance between hydrocarbon producers and the state in the case of future high oil prices, a reimbursement system is established. Companies that choose to use the investment window, are imposed an additional tax on particularly high oil prices.
Starting in 2022, a surtax of 5 percent will commence if oil prices is $75 USD (2017 prices) or more in average over a year. If the oil price is $85 per barrel (2017 prices) or more, the surtax will rise to 10 percent. The prices of $75 and $85 per barrel in 2017 is gove rned from 2018 by 2,0 percent annually.
Surtax is paid by profits from hydrocarbon recovery before taxes and interest expenses (EBIT) whereby the companies will pay back more quickly if the oil price is high.
Companies must determine a separate repayment balance, which represents the overall recovery, which cannot exceed the value of the calculated tax relief. Repayment balance bears interest at 4,5 percent from 2022.
The investment window expires in 2025, when the last attribution to the repayment balance is completed. The companies are expected to have repaid the total tax relief by 2031 by state expectations.
The repayment requirement won't expire until 2037 when a repayment balance lapses. The repayment will be less or happen over a longer period, if the oil price falls below the state's current oil price estimates.
There will also be introduced rules that a buyer of hydrocarbon activities takes over the seller's obligation to pay surtax. The companies cannot organize or restructure their way out of the obligation to repay.
Furthermore, rules on joint and several liability will be implemented, so the seller is liable for any non-payment. The repayment balance is calculated as 20,1 percent of the companies' investment expenditure made in the period 2017-25.
Source: Finansministeriet / Maritime Denmark