TIMOR GAP ZONE OF CO-OPERATION TREATY: TAXATION ISSUES ARISING FROM THE CONDUCT OF PETROLEUM OPERATIONS IN AREA A

Abstract

It is commendable that our governments have reached agreement on the delicate and difficult issues which are the subject of the Treaty and have provided a leading example of international co-operation. Nonetheless, whilst oil industry participants may be pleased at this major development and encouragement to future exploration for oil reserves, many practical issues still need resolution during the legislative stage of 'bedding down' the Treaty initiatives.

Other authors have reviewed the legal and operating regimes of the Timor Gap Zone of Co-operation Treaty.

This paper is therefore only concerned with a review of the taxation implications which are likely to arise for those petroleum explorers and potential producers who will hold contracts to explore for and produce petroleum in Area A, and an identification of questions on tax issues which require resolution at an industry and government level. Needless to say not all issues are recognizable at this stage and thus some time will elapse before it is possible to be totally comfortable with the taxation arrangements in a technical sense.

This review is accomplished by generally overviewing the Zone of Co-operation Treaty. The reader is then introduced to concepts of the Australian and Indonesian petroleum tax regimes, with explanation as to how those concepts will apply once overlaid by the Taxation Code for Avoidance of Double Taxation. This review raises various tax issues and questions which require resolution during the legislative phase. Perhaps industry will take up some of the questions raised so that when legislation is enacted to incorporate the Taxation Code into Australian tax law, the majority of issues will have been settled.