Extending the tax exemption for non-resident offshore oil rig and seismic vessel operators

Issue: Extending the exemption to other vessels

Clause 30

Submission

(Ernst & Young)

The exemption should be extended to also cover vessels that operate electromagnetic surveying, not just seismic survey vessels.

Comment

The exemption, as drafted, applies to non-resident companies “… operating a ship to provide seismic survey readings…”.

The submission suggests that the reference to seismic surveys does not adequately cover new forms of technology that provide a comparable or substitutable function – in particular, electromagnetic surveying.

Officials agree that it is generally desirable for substitutable products to be given the same or similar tax treatment whenever possible. Officials also agree with the submitter that electromagnetic and seismic surveying are two techniques that achieve broadly the same result for the same purpose. The policy justifications for extending the exemption for seismic vessels appear to be equally applicable to electromagnetic vessels.

Recommendation

That the submission be accepted.

Issue: Modular rigs

Submission

(Petroleum Exploration and Production Association of New Zealand)

The exclusion for modular drilling rigs should only apply if the rig is in New Zealand for 183 days after December 2014.

Comment

The bill proposes to remove from the scope of the exemption modular drilling rigs, on the basis that these smaller rigs (that are designed to be installed on an existing platform) do not have the same high mobilisation and demobilisation costs associated with other rigs in operation. These were never intended to be covered by the exemption.

For these rigs, the exemption will expire on 31 December 2014. Officials consider this expiry date to be appropriate. Operators of these rigs have had plenty of notice of the intended change. Given they were never intended to be within the exemption, effectively extending the exemption for a further 183 days appears unnecessarily concessionary.

Recommendation

That the submission be declined.

Issue: Prospecting activities

Submission

(Petroleum Exploration and Production Association of New Zealand)

Section CW 57 should be redrafted to explicitly cover “prospecting” with seismic vessels.

Comment

Officials consider that the words “identifying and developing” are appropriate. These words have always been used to define the scope of the exemption and to change them now may cause unnecessary confusion. Subject to the earlier recommended changes regarding electromagnetic surveying vessels and modular rigs, the policy is to roll over the exemption – not to change the relevant activities it applies to.

Recommendation

That the submission be declined.

Issue: Extended exemption

Submissions

(Corporate Taxpayers Group, Deloitte, Petroleum Exploration and Production Association of New Zealand, PricewaterhouseCoopers)

The extension of the exemption is supported. (Corporate Taxpayers Group, PricewaterhouseCoopers, Deloitte)

The extension should be made permanent. (Corporate Taxpayers Group, Deloitte, Petroleum Exploration and Production Association of New Zealand)

Comment

Officials consider that the extension of the exemption will provide the industry with a considerable degree of certainty in the medium term. The appropriateness or otherwise of a permanent exemption can be revisited at the expiry of the proposed extension.

Recommendation

That the submissions be noted.