Gas exports tax issue nears resolution

The Finance Ministry-Tax Authority committee's model is based on the normative netback on investment for each export deal.

The end of the Antitrust Authority investigation into suspicion of a cartel in the Leviathan gas field removes one of the main uncertainties for its partners in their relations with the government. Another subject which is moving toward resolution is taxes on gas exports.

The Sheshinski Committee, which drew up the model for taxing natural gas profits, decided that the tax on exports would be based on the "transfer price". In the past few months, a Ministry of Finance and Israel Tax Authority committee has been figuring how to calculate the transfer price. In the latest meetings, the committee realized that it was impossible to set a uniform transfer price for all export transactions, because of the large differences between the deals in their internal rates of return and risk-reward ratios.

For example, the price of an export deal to the Far East reflects a higher return on the capitalization than the price of gas in an export deal with a country in the Middle East, but the return on investment is slower because of the high cost of building onshore or offshore liquefied natural gas (LNG) facilities.

The model reached by the committee is based on the normative netback on investment for each export deal. It is based on the following formula: the price of gas in the target market, less the set-up and operating costs of the gas transportation infrastructures.

Published by Globes [online], Israel business news - - on January 7, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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