Abstract
This paper aims at exploring the different fiscal effects of field decommissioning in the Brazilian regulatory archetype and unveils the comparative law angle and resulting effect in country competitiveness and attractiveness.
Concessions and Sharing regimes (PSC) come with the inherent obligation of infrastructure decommissioning at the end of the contract. To meet such obligations, concessionaires and contractors plan the ways and costs to do so and the Regulator (ANP) approves such plan. The mechanics of how those plans are undertaken are, however, different in each of the mentioned regimes and will result in different tax impacts. These methodologies and its inherent effects will play an important role with regards to how attractive the country is for Upstream investment.
On Concessions, due to accounting rules, a provision is to be made in relation to these estimated costs. Because there are no legal grounds for deducting such a provision for corporate income tax (CIT) purposes, the deduction can only be taken at the effective cash disbursement moment, usually at the end of the field life.
The PSC law and contract provide for a decommissioning fund to be formed by the Contractor in installments. Once cash is put into the fund, the Contractor cannot take it back; even if the actual expenditure later proves to be lower, case in which the remaining funds will be reverted to the Federal Union. In the PSC, rather than a provision a definitive expense (cash into the fund) is made by the Contractor. Therefore, the definitive cash put into the fund is more inclined to generate a tax deduction.
The IMF (International Monetary Fund) has published a paper in 2012, Fiscal Regimes for Extractive Industries: Design and Implementation, where it suggests special fiscal rules for decomissioning tax deductions. Not only special rules will cause projects and countries to be more competitive and attractive, but also society may gain from its positive effects, which range from more jobs and higher income to responsible environment practices. Brazil could benefit from more competitive rules, especially after many other jurisdictions have prepared more welcoming regimes for the current low oil price world.
