Announcement date
16 November 2023
Link to announcement
Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023 – Parliament of Australia (aph.gov.au)
Problem being addressed
There have been significant developments in global energy markets and local energy demand since 2019, including the increasing importance of gas in supporting the transition to low-emissions energy generation and the changing role of LNG in supplying gas to Western Australia and the Northern Territory.
Given these developments, and the Callaghan Review finding that ‘a change to the transfer pricing arrangements could have major implications for existing projects’, The Petroleum Resource Rent Tax: Review of Gas Transfer Pricing Arrangements Final Report (GTP Review) has considered alternative approaches consistent with the overall intent of the Petroleum Resource Rent Tax (PRRT) to ensure the Australian community receives an equitable return for the extraction of its oil and gas resources, while not discouraging investment in exploration and development in the industry.
Proposal
The Government will proceed with 8 of 11 recommendations by the GTP Review.
- Recommendation 1c: Limit deductible expenditure of PRRT assessable receipts in respect of each project in the relevant income year (applied after mandatory transfers of exploration expenditure).
- Recommendation 3: Require projects to make an irrevocable election to use the shorter or longer asset life formula.
- Recommendation 5: If the Residual Pricing Method (RPM) is retained, equalise the treatment of the notional upstream and downstream entities between loss situations and profit situations.
- Recommendation 6: Update the comparable uncontrolled price rules to align with the OECD guidelines.
- Recommendation 7: Modify the Advance Pricing Arrangement (APA) rules to provide guidance to industry and the Commissioner of Taxation on the principles that the Commissioner must have regard to in agreeing an APA.
- Recommendation 8: Update the regulations for tolling arrangements to support the effective operation of the RPM.
- Recommendation 9: Update both the PRRT general anti-avoidance rule and the arm’s length rule to clarify that they apply to the GTP Regulation.
- Recommendation 11: Update the GTP Regulation to ensure that where an LNG facility enters the PRRT regime (either solely for the purposes of the GTP Regulation or for broader PRRT calculations) for the first time for backfill or tolling purposes, the value of the plant for use in PRRT calculations is the historical cost of the LNG facility, uplifted by the GDP deflator to the date of first production for PRRT purposes.
Assessed Impact Analysis outcome
Impact Analysis Equivalent
Assessment comments
The Office of Impact Analysis (OIA) does not assess the quality of reviews and documents used in lieu of an Impact Analysis (IA). Impact Analysis Equivalents (IAE) are assessed by OIA for relevance to the recommended option(s) and for the coverage of the 7 Impact Analysis questions conducted.
The OIA assessed that the options analysed in the certified review—Petroleum Resource Rent Tax: Review of Gas Transfer Pricing Arrangements Final Report—and additional analysis prepared by the Department of the Treasury—Evaluation Plan—are sufficiently relevant to the regulatory proposal to meet the requirements in the Australian Government Guide to Policy Impact Analysis.
Regulatory burden
The Department of the Treasury estimates these measures will lead to a minimal increase in the regulatory burden for the impacted entities.