Steinitz demands tax exemption on gas for transport | Globes

Israeli Energy Minister Yuval Steinitz says that only a full exemption can encourage public transport to switch to natural gas

03/01/2016, Hedy Cohen and Dubi Ben-Gedalyahu

Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz is demanding that members of the ministerial committee for examining fuel taxation policy (Environmental Taxation III Committee) grant a full 10-year tax exemption on natural gas for public transportation, sources inform "Globes." While the committee is expected to recommend a lower tax for natural gas than for diesel fuel, the Ministry of National Infrastructure, Energy, and Water Resources is asserting that only a total exemption can encourage a transition to natural gas.

Even though the Tamar gas reservoir was discovered seven years ago, public transportation in Israel is run entirely on refined oil products. The Zemach Committee, which formulated the government's policy on development of the gas sector and gas exports, predicted that by 2040 a third of all private vehicles and two thirds of all public transportation vehicles would be converted to natural gas, while consumption of gas for transportation would reach 40 BCM.

According to transportation and energy sectors sources, however, there are several barriers that have hitherto prevented the penetration of gas-powered vehicles. The most important of these is the absence of any policy concerning the taxes to be levied on gas-powered vehicles.

For the past three years, the Environmental Taxation Committee in the Israel Tax Authority has been considering the proper purchase tax, what taxes should be levied on imported systems converted to natural gas (including trucks and buses), and how much the natural gas itself used as fuel for transportation should be taxed. The committee was scheduled to submit its recommendations more than a year ago, but has not yet done so.

As reported exclusively in "Globes" last week, the committee is expected to submit its recommendations in the near future. These are likely to include reduced excise tax on natural gas for transportation (between one third and one half of the excise tax on diesel fuel), accelerated depreciation for natural gas filling stations, accelerated depreciation for natural gas-powered commercial vehicles of more than 4.5 tons, a safety net for natural gas filling stations for supplementing income below a given threshold, tax benefits to encourage methanol fueling infrastructure, and more.

Sources inform "Globes," however, that in internal talks between Steinitz and officials in his ministry he is demanding a full exemption on excise tax for natural gas used in transportation for at least 10 years. Steinitz is asserting that this is the only way to encourage a massive switch to natural gas in public and private transportation. Only when 40% of the trucks and buses are powered by natural gas can the tax be increased slightly, ministry sources claim. Sources close to the committee said that Steinitz's demands were unreasonable, since a full tax exemption for natural gas meant the loss of NIS 4 billion a year in state revenue.

State revenue from taxes on fuel in Israel totals NIS 17 billion a year. According to Steinitz, the state receives the same billions is loses in taxes through the tax it levies on the gas companies through the Sheshinski tax. Imposing any excise tax whatsoever on natural gas for transportation, even if it is significantly lower than the excise tax on diesel fuel, is in effect a double tax.

Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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Israel exposed to lawsuit from Noble Energy's Cypriot co | Globes

Israel exposed to lawsuit from Noble Energy's Cypriot co

The State Comptroller is probing whether Noble Energy asked to transfer ownership of its Israeli licenses to a Cypriot subsidiary.

15/12/2015, Hedy Cohen

The State Comptroller is probing the sequence of events that led to Israel being exposed to a huge lawsuit by Noble Energy Inc. (NYSE:NBL) in Cyprus, sources inform "Globes." Among other things, the State Comptroller will examine whether ownership of the natural gas reservoirs in Israel has been transferred to a Cypriot company, whether Noble Energy requested permission for a transfer of ownership, and if it did, whether the Ministry of National Infrastructures, Energy, and Water Resources approved it. A "Globes" inquiry shows that there are different versions of the required permits and processes.

Perpetual threat

Three months ago, Noble Energy president and CEO David Stover said, "Noble Energy remains fully prepared, and is well positioned, to take the actions necessary to protect the value of its assets." Indeed, Noble Energy is well prepared. As Deputy Attorney General Avi Licht said in a Knesset Economic Affairs Committee meeting two weeks ago, Noble Energy has established a subsidiary in Cyprus, which enables it to sue Israel if the gas plan is not approved, according to the bilateral convention for protection of investors.

The company in Cyprus was apparently founded after the Sheshinski Committee completed its work and substantially raised the tax rate on gas. "What is happening is that one of the companies in the Noble Energy ownership structure is a Cypriot company, and it is therefore utilizing our trade agreement with Cyprus. They argue that they have grounds for this - that it is not based on the Israeli law, but on international trade agreements - and we are exposed there," Licht explained.

In other words, even though the rights in Noble Energy's oil licenses are registered in the name of Noble Energy Mediterranean, incorporated in the Cayman Islands, Noble Energy is liable to institute legal proceedings against Israel through its Cypriot company, in accordance with a convention that went into effect in 2003.

Noble Energy will probably demand international arbitration with Israel if the gas plan is not approved, but that is not the end of the story. Even if the plan is approved, Israel will always be under the threat of such a claim. Under the stability clause inserted into the gas agreement, for example, Israel will not be entitled to change its regulation in the gas sector for the next 15 years, and if it does so, it will be exposed to an international lawsuit that will continue for years. Two questions now arise: was Noble Energy required to obtain approval from the relevant parties in Israel for recognition of the Cypriot company's rights, and if it did require such approval, was such approval legally granted?

Among other things, obtaining state approval for changes in the ownership structure of rights is required in order to prevent a company's oil rights from being transferred to a hostile company. For example, Prime Minister Benjamin Netanyahu recently told MK Stav Shaffir (Zionist Union) that such a transfer of ownership would not be possible without the consent of the Minister of National Infrastructures, Energy, and Water Resources.

A clarification of Article 76 of the Israeli Petroleum Law, published in October 2010, states that a change in the control of a corporation holding oil and gas rights, whether direct or indirect, as well as the granting of a benefit related to such control, requires approval from the Antitrust Authority director general, after consultation. A benefit in this context can be any economic benefit arising from the right, including through direct or indirect holdings, royalties, information, liens, etc.

"Globes" asked Noble Energy and the Ministry of National Infrastructures, Energy, and Water Resources whether approval for the transfer of ownership had been obtained, and received contradictory answers. Noble Energy said that it had "been operating in Israel since 1998, and had always complied with the legal regulations and obtained all the legally required approval for all of its activities." The Ministry of National Infrastructures, Energy, and Water Resources said, "The Ministry has received no request for a transfer of rights, and therefore none was approved."

The Ministry of Justice declined to respond, and referred the question back to the Ministry of National Infrastructures, Energy, and Water Resources. The Cypriot embassy in Israel was unable to answer the question.

"Grave failure"

A perusal of Noble Energy Mediterranean's deed of incorporation for the purpose of identifying the company's owners shows that it states only that the company is based overseas and has no board of directors or shareholders. A search for the Cypriot subsidiary that owns the company in Israel also turned up nothing. According to the Bloomberg news agency, Noble Energy has several subsidiaries in Cyprus.

Noble Energy International also owns the rights to the Aphrodite gas reservoir in Cyprus. "Someone has to answer for the opening of a company in Cyprus that can sue Israel. If the Ministry of National Infrastructures, Energy, and Water Resources allowed Noble Energy to transfer its rights to a Cypriot company, it is a grave failure. If, however, it turns out that Noble Energy transferred the ownership without obtaining such approval, the failure is even worse - it is gigantic," says Van Leer Institute Chazan Center for Social Justice and Democracy research fellow Amnon Portugali. "The Cypriot subsidiary was set up just after the Sheshinski Committee for a single obvious purpose - to sue Israel when necessary."

Indeed, sources inform "Globes" that the State Comptroller's Office intends to probe the matter. The State Comptroller's Office said, "Although the matter was not raised in the report published on the development of the natural gas sector, we plan to conduct an initial query in this matter as part of the State Comptroller's policy of continual monitoring of the natural gas sector."

Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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EMGC ’15: Deloitte tax experts dissect regulatory laws for Cyprus gas | Hydrocarbon Processing

EMGC ’15: Deloitte tax experts dissect regulatory laws for Cyprus gas

03.18.2015  |  Adrienne Blume,  Hydrocarbon Processing, 

Cyprus is an interesting location from which to operate because it is part of the EU and is strategically located at the center of the developing Eastern Med energy industry.

Keywords:

By ADRIENNE BLUME

Managing Editor

NICOSIA, Cyprus -- Day 2 of Gulf Publishing Company's third annual Eastern Mediterranean Gas Conference (EMGC) opened with a breakfast workshop sponsored by Deloitte. The workshop covered tax and regulatory considerations for the Cyprus gas market.

The workshop included perspectives from Deloitte partners George Pantelides, Head of Consulting Services and Oil and Gas Specialist; Pieris Markou, Head of Tax and Legal Services and Oil and Gas Tax Leader; Nicos Papakyriacou, Partner in charge of Nicosia Office and Oil and Gas Leader; and Christos Papamarkides, VAT Leader and Oil and Gas Specialist.

Tax considerations for Cyprus energy sector. Pantelides (pictured) discussed the tax and value-added tax (VAT) aspects of doing business in Cyprus. He asserted that Cyprus is an interesting location from which to operate because it is part of the EU and is strategically located at the center of the developing Eastern Med energy industry. The country's legal system is based on the UK's legal system, and it contains one of the best tax systems in the EU, according to Pantelides.

Cyprus is also friendly to international investors. A corporate income tax rate of 12.5% is in force, but this excludes dividend income, profits on disposal of securities, overseas branch profits and profits from the disposal of immovable property outside of Cyprus. A unilateral tax relief is also available, and no withholding taxes or controlled foreign company rules are in force. Interest deductibility is available without restrictions.

There is no specific tax regime for companies operating in the oil and gas industry; rather, taxes are based on general tax rules for companies. Income is taxed on an accrual basis. Also, special rulings are available for plant and machinery rates.

Additionally, the Cyprus government is seeking to make certain expenses deductible for energy firms, such as seismic survey costs, exploratory costs, drilling costs, dry hole/decommissioning costs, capitalization of general administration costs, capital allowance rates and signature bonuses.

Value-added tax rules. Cyprus' VAT is harmonized with EU VAT legislation. VAT is chargeable on any local supply of goods and services made by a taxable person in the course of business, the import of goods from the EU, and other actions.

A business is obliged to register for Cyprus VAT if the value of its taxable supplies for the last 12 months exceeds the registration threshold of €15,600, or if it is expected that taxable supplies in the next 30 days will exceed €15,600. Input VAT is incurred on local supplies of goods and services, on import of goods from EU countries and on the application of the reverse-charge provisions on services received from outside Cyprus.

Oil and gas export rates for VAT dictate that the supply of hydrocarbon products by an operator within Cyprus must be subject to VAT at the standard rate. Supplies of goods to be admitted into Cypriot waters that are to be incorporated into drilling or production platforms for maintenance repair, construction, alteration or fitting are subject to a zero-VAT tax. Also, goods and equipment to be transported directly to drilling platforms are not subject to customs tax.

Maximizing human capital. Next, Markou talked about human capital services in the Cyprus energy sector. As of January 2015, 16.1% of Cyprus' population was unemployed—a very high percentage, which the government is working to reduce.

Employment terms for reputable organizations in the oil and gas sector are favorable and go "over and above the legislative requirement," Markou said. Local employment laws tend to rule in favor of the employees. Cyprus also plans to offer specialized courses for blue-collar workers in the energy sector to increase employment in the industry.

Lastly, to increase energy-sector employment in Cyprus, the government is encouraging the transmission of knowledge and expertise to the local workforce with the help of specialized and highly skilled individuals who gained their oil and gas work experience overseas.

Source: http://www.hydrocarbonprocessing.com/Article/3437258/EMGC-15-Deloitte-tax-experts-dissect-regulatory-laws-for.html

Israel's finance ministry approves model for taxation of gas exports | Platts

Israel's finance ministry approves model for taxation of gas exports

Jerusalem (Platts)--26Nov2014/914 am EST/1414 GMT

Israel's finance ministry has approved a proposed model for gas export tax, Finance Minister Yair Lapid said on Tuesday. 

The draft was prepared by a finance ministry team of experts headed by Finance Ministry director general Yael Andorn. Lapid said in a statement that the draft proposal was approved by the ministerial committee on legislation. The proposal will now be presented to the Knesset for final approval in the coming weeks.

The proposal calls for a netback model for determining the transfer price for taxation purposes on exports. The state would determine the expected profit for each export deal and then subtract the accepted return on investment on this kind of transaction. In addition, a mechanism would be established to guarantee that the gas price in export deals is not lower than the average price in the domestic market. 

In March 2011, the Knesset passed a new tax law for the oil and gas sector, which was based on the recommendations of a finance ministry appointed committee. The committee, however, left open the issue of taxation on exports.

The law raised the government's share of tax from oil and gas production, for the local market, from less than 30% prior to the new law to 52-62%. In addition, the law includes a tax on profits -- ranging from 20% to a maximum of 50% -- accelerated depreciation and a lower level of taxation on oil and gas fields that begin production by 2014, retaining the 12.5% royalty tax and cancellation of the depletion allowance.

The issue of exports has become relevant after the signing in the past year of letters of intent for gas sales to customers in Egypt, Jordan and the Palestinian Authority. Last year, the Israeli government approved the export of up to 40% of the country's offshore gas resources. 

--Neal Sandler, newsdesk@platts.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com

Similar stories appear in Natural Gas Alert See more information at http://www.platts.com/products/natural-gas-alert

Link to source: http://www.platts.com/latest-news/natural-gas/jerusalem/israels-finance-ministry-approves-model-for-taxation-26945128

Leviathan partners push for better export deal | Haaretz

Leviathan partners push for better export deal

The foreign partners are demanding that Israel change the draft production lease, saying it is too strict for them to attract financing.

By Avi Bar-Eli | Mar. 13, 2014 | 3:56 AM

Drilling platform of the Leviathan natural gas field. Photo by Albatross

The foreign companies involved in developing the Leviathan offshore natural gas field are pressuring Israel to make it easier for them to export gas.

The partners in Leviathan, U.S.-based Noble Energy and Ratio Oil Exploration and Israel’s Ratio Oil Exploration and Avner Oil Exploration, part of businessman Yitzhak Tshuva’s Delek Group, say the draft production lease will not allow them to raise the financing they need to develop the massive field, located off the coast of Israel in the Mediterranean Sea. They say the conditions the government included in the lease will prevent the export of gas, torpedo an anticipated deal to sell gas to Turkey and cause Australia’s Woodside Petroleum to cancel its 25% stake in Leviathan for up to $2.7 billion.

On Tuesday, Noble CEO Charles Davidson met with Harel Locker, the director-general of the Prime Minister’s Office, and Eugene Kandel, the chairman of the National Economic Council. Woodside CEO Peter Coleman is scheduled to arrive in Israel on Wednesday for a two-day visit. The CEOs are not scheduled to meet with Energy and Water Resources Ministry officials.


“Projects of this scale require certainty — certainty of policy and of all the aspects that go along with it. That’s the most important thing,” Davidson told the Eastern Mediterranean Gas Conference in Tel Aviv on Tuesday.

Discovered in 2010, about a year after the Tamar field, Leviathan is the biggest gas-field find of the past decade. It is estimated to hold some 19 trillion cubic feet of gas, enough for Europe for a year. Last month, the partners signed a 20-year, $1.2 billion deal to supply gas to planned a Palestinian power plant once
Leviathan starts production in 2016 or 2017. Developing the field is expected to be the largest infrastructure project in Israel’s history, and the partners’ investment in it will likely amount to billions of dollars.

After a lengthy and heated debate, Israel’s government last year agreed to allow 40% of the field’s gas reserves to be exported. The production lease is the final and most important remaining regulatory step and will serve as the basis of the partners' rights to produce and sell the gas for up to 30 years, setting a strict timetable. Once issued by the Petroleum Commissioner in the Energy Ministry, the production lease will replace the partners’ existing exploratory license.

The Leviathan partners are most upset by section of the draft lease that controls the export of gas. The draft lease states that in time of national necessity, the Petroleum Commissioner can limit or halt gas exports and direct the gas to the Israeli economy. The partners claim this clause will make it impossible to finance their plans, as no customer will agree to it.

The Leviathan partners are also challenging the draft lease's requirement that they build large enough facilities, like pipelines and gas-handling centers, to serve smaller fields nearby. They say this will commit them to enormous expenditures that cannot be accurately estimated at this point.

Finally, the partners say it is excessive to ask them to post guarantees of $100 million to cover potential future damages they cause.

Link to source: http://www.haaretz.com/business/.premium-1.579470