6 Revenue from the Oil and Gas Sector: Issues and Country Experience
- Jeffrey Davis, Annalisa Fedelino, and Rolando Ossowski
- Published Date:
- August 2003
Oil and gas extraction plays a dominant role as a source of export earnings and, to a lesser extent, employment in many developing countries. But the most important benefit for a country from development of the oil and gas sector is likely to be its fiscal role in generating tax and other revenue for the government. To ensure that the state as resource owner receives an appropriate share of the economic rent generated from extraction of oil and gas, the fiscal regime must be appropriately designed.
The government, as resource owner, has a valuable asset in the ground. This asset—a crude oil or natural gas deposit—can only be exploited once. In order to convert this asset into financial resources, the government must attract capital on terms that ensure it gets the greatest possible value for its resources—under uncertainty about what the value of the resources will turn out to be.
There is a fundamental conflict between oil and gas companies and the government over the division of risk and reward from a petroleum project. Both want to maximize rewards and shift as much risk as possible to the other party. Nevertheless, the right choice of fiscal regime can improve the trade-off between each party’s interests—a small sacrifice from one side may be a big gain for the other. Oil and gas agreements and the associated fiscal rules establish the “price” of the resource in terms of the bonuses, royalties, taxes, or other payments the investor will make to the government over the life of the project. Designing fiscal arrangements that encourage a stable fiscal environment and efficient resource development maximizes the magnitude of the revenues to be divided.
In designing fiscal (tax and nontax) instruments, the government will need to weigh its desire to maximize short-term revenue against any deterrent effects this may have on investment. This will require a balanced sharing of risk and reward between the investor and the government. The aim should be for fair and rising government share of the resource rent as profitability increases, without scaring off potential investors.
This paper reviews the various fiscal instruments available to policymakers to design a fiscal regime for the oil and gas sector that will attract investment as well as secure a reasonable share of economic rent for the government. It is organized as follows. Section II discusses types of tax and nontax instruments used to generate revenue from the oil and gas sector. Section III provides an overview of current practices in a variety of countries and discusses the evolution of the fiscal regimes in selected countries. Section IV summarizes the policy implications.
II. Revenue Issues
The government can collect revenue from the oil and gas sector through a variety of tax and nontax instruments. Most countries collect the government share of economic rent primarily through production-based or profit-based instruments. In some countries, the government participates more directly in oil and gas projects by taking an equity interest. Policymakers will also have to decide on the treatment of indirect taxes such as value-added tax (VAT) and customs duties applicable to oil and gas.
Multiple fiscal instruments may be needed to create an identity of interests between the government and the oil and gas companies over the life of the agreement. Production-based instruments, such as royalties, can ensure that the government receives at least a minimum payment for its mineral resources. Profit-based instruments allow the government to share in the upside of highly profitable projects, but they also increase the government’s share in the project’s risk inasmuch as the government may receive no revenue if the project turns out to be unprofitable.
In addition to product-based and profit-based instruments, there may be bonuses and rental payments of various types. Bonuses can ensure some up-front revenue for the government and may encourage companies to explore and develop contract areas more rapidly. They are usually suitable only in highly prospective areas where there is strong competition among investors for petroleum rights. Annual rental payments typically are not a significant source of revenue but can be designed to encourage companies to explore and develop contract areas or to relinquish their rights.
In many countries with petroleum resources, revenues from different instruments accrue to different parties; for example, royalty payments may be made to local units of government, landowners, or the petroleum ministry.
A common way of taxing the oil and gas sector involves a combination of tax and royalty payments. A tax/royalty regime may involve three levies: (i) a royalty to secure a minimum payment, (ii) the regular income tax that is applicable to all companies, and (iii) a resource rent tax to capture a larger share of the profits of the most profitable projects.
Royalties are attractive to the government, as the revenue is received as soon as production commences and they are easier to administer than many other fiscal instruments, at least in the case of simple royalty regimes. Furthermore, they ensure that companies make a minimum payment for the minerals they extract. Royalties are typically either specific levies (based on the volume of oil and gas extracted) or ad valorem levies (based on the value of oil and gas extracted). Some countries have introduced a profit element in royalties by having the royalty rate depend on the level of production (e.g., Chile, Ecuador, Norway, and Thailand) or on a measure of nominal return such as the R factor (e.g., Peru, and Kazakhstan).2
As royalties raise the marginal cost of extracting oil, they can deter investors if imposed at too high a level. They may also discourage development of any marginal reserves that have been discovered and lead to early abandonment of productive oil and gas wells. Investors are resistant to the use of royalties, even on potentially rich deposits, partly on the grounds that royalty payments are only a deductible expense in determining taxable income in the home country and are not allowed as a foreign tax credit against the home country’s income tax.
A key issue for policymakers is to determine an appropriate method for the valuation of the extracted oil and gas used as a base for royalties and other taxes. Ad valorem royalties are generally levied on the sales price or the f.o.b. export price, at times after netting back certain costs.3 An overriding concern should be the use of an observable price. When using a generally quoted market price (e.g., North Sea oil), it should be adjusted to reflect differences in gas and crude oil quality and the wellhead value should be established by netting back transportation and other costs.4
The income tax should be levied on oil and gas companies, as on all other companies. It is not unusual for the profit tax rate for oil companies to be higher than the general rate for other companies. This is one way to capture a share of the resource rents from the project.
Many countries provide an incentive for exploration and project development by allowing exploration costs to be recovered immediately and allowing accelerated recovery of development costs, for example, over five years. Accelerated cost recovery brings forward payback for the investor and, possibly, retirement of debt. It can therefore reduce both investor risk and tax-deductible interest costs; it also facilitates project financing. Some countries offer special incentives to encourage exploration in particular regions.
To protect the tax base, countries may place limits on the use of debt financing to limit “earning stripping” through the payment of interest abroad.5 To limit abusive transfer pricing between related companies, the tax authority should have the power to adjust income and expenses where under- or overpricing between related companies has resulted in a lowering of taxable profit (Box 6.1).
A related issue for the taxpayer is the treatment of tax credits. Many multinational companies expect to be subject to an income tax in the producing country, as this tax will be creditable against the income tax levied in the home country. Absent an income tax in the producing country, the multinational may be subject to higher tax payments in the home country. Whether or not a tax is creditable depends on the particular tax law in the home country and on any tax treaties in place.6 However, a tax paid in the producing country that in nature resembles a home country tax is most likely to qualify for a tax credit. Some specialized mineral taxes, such as a resource rent tax, may be deemed to differ in nature from a standard corporate tax and, therefore, could face difficulties in qualifying for a tax credit.
It is important to determine the extent of “ring-fencing” of tax accounts. Ring-fencing means a limitation on consolidation of income and deductions for tax purposes across different activities, or different projects, undertaken by the same taxpayer. Some countries ring-fence oil and gas activities, others ring-fence individual contract areas or projects. This can become complex if a project incorporates extraction, processing, and transportation activities. If the oil and gas tax regime is more onerous than the standard tax regime, the taxpayer could seek to have certain project-related activities treated as downstream activities outside the ring-fence. If they are treated as a separate activity, the taxpayer through transfer pricing may attempt to shift profits to the lightly taxed downstream activities.
Box 6.1.Transfer Pricing
Through transfer pricing, a taxpayer seeks to minimize income and maximize deductible expenditures in high-tax jurisdictions and vice versa in low-tax jurisdictions. A transfer pricing mechanism that could affect revenue in the oil and gas sector is, for example, the creative use by firms of price hedging mechanisms perhaps involving transactions between related parties, causing great difficulty in assessing whether hedging instruments are used for transfer pricing purposes rather than to reduce risk.
More common measures to maximize expenditure deductions include the following:
- The provision by related parties of highly leveraged debt finance at above-market interest rates.
- Claiming excessive management fees, deductions for headquarters costs, or consultancy charges paid to related parties.
- The provision of capital goods and machinery in leasing arrangements at above-market costs charged by a related-party lessor.
- If the petroleum tax rate is above the standard tax rate, there may be an incentive to establish a domestic shell firm that will on-lend financing capital from related parties to the oil company giving rise to an interest deduction at a higher tax rate than is charged on the interest earnings in the shell company.
Abusive transfer pricing can be very difficult to detect and prevent. Properly designing the tax code, though, is an important first step. At a minimum, the tax legislation should include safeguards requiring that transactions between related parties be assessed on an arm’s-length basis, or perhaps that certain deductions be capped as a share of total costs. Some countries also impose a limit on the allowable (for tax purposes) debt leverage of a project. It is also advisable to seek close cooperation with the tax authorities in the home countries of the more important investors.
Ring-fencing rules matter for two main reasons:
- Absence of ring-fencing can postpone government tax revenue because a company that undertakes a series of projects will be able to deduct exploration or development expenditures from each new project against the income of projects that are already generating taxable income.
- As an oil and gas area matures, absence of ring-fencing may discriminate against new entrants that have no income against which to deduct exploration or development expenditures.
Despite these points, a very restrictive ring-fence is not necessarily in the government’s interest.7 More exploration and development activities may occur if taxpayers can obtain a deduction against current income, generating more government revenue over time by increasing the taxable base. The right choice is again a matter of balance within the fiscal regime, the degree of the government’s preference for (modest) early revenues over (larger) revenues later on, and the extent of the government’s bargaining power with oil and gas companies.
Resource rent tax
An innovative attempt both to provide the government with an appropriate share of economic rent and to make the tax system less distortive to investors is the resource rent tax (RRT). The RRT (as applied in Australia and Papua New Guinea, for example) is imposed only if the accumulated cash flow from the project is positive. The net negative cash flow (in the early years of a project) is accumulated at an interest rate that, in theory, is equal to the company’s opportunity cost of capital (adjusted for risk).8
The RRT takes a share of returns once the company has earned this hurdle rate of return. If the only tax imposed is the RRT, the government’s revenue stream becomes back-loaded, and for less profitable projects, the government may not receive any revenue at all. Therefore, a resource rent tax is usually combined with royalties and a standard profit tax to provide some early revenue.9 Only for very profitable projects will the resource rent tax then apply.
Conceptually, an RRT has strong economic features. When properly designed, an RRT captures a share of the natural resource rent, which is the return over and above the company’s opportunity cost of capital. Proponents argue that the RRT can enhance contract stability because it automatically increases the government share in highly profitable projects. For the RRT to be efficient, each contract area needs to be ring-fenced. That is, costs incurred in one contract area cannot be used to offset the revenues in another contract area. One exception to this rule may be to allow unrecovered costs from an abandoned contract area to carry over to a contract area that remains active. This helps to prevent an RRT from discriminating against exploration.
While the resource rent tax has much theoretical appeal, it has not been a significant revenue raiser in practice. There may be many reasons for this. It could reflect the difficulty of designing the tax, particularly the choice of the discount (or hurdle) rate and tax rate. If the hurdle rate is set too high, chances are that the resource rent tax will never apply; if it is set too low, the tax may become a major deterrent to investment.10 If either the hurdle rate of return is too low or the tax rate too high, the RRT will also increase the incentives for oil companies to engage in tax avoidance, which in countries with a weak tax administration may be very difficult to detect and control.11
An alternative to a tax/royalty regime is production sharing. Under a production-sharing arrangement the ownership of the resource remains with the state, and the oil and gas company is contracted to extract and develop the resource in return for a share of the production. The government retains the right to petroleum reserves in the ground but appoints the investor as “contractor” to assist the government in developing the resources. Instead of paying the contractor a fee for this service, while the government bears the risk, cost, and expense, the parties agree that the contractor will meet the exploration and development costs in return for a share of any production that may result. The contractor will have no right to be paid in the event that discovery and development does not occur. In principle, the government retains and disposes of its own share of petroleum extracted, though joint-marketing arrangements may be made with the contractor.
The mechanics of production sharing are in principle quite straightforward. The production-sharing contract (PSC) will usually specify a portion of total production, which can be retained by the contractor to recover costs (“cost oil”). The remaining oil (including any surplus of cost oil over the amount needed for cost recovery) is termed “profit oil” and is divided between the government and the contractor according to some formula set out in the PSC.
Royalties can also be introduced into the production-sharing regime. In some PSCs there is an explicit royalty payment that is paid to the government before the remaining production is split between cost and profit oil. An alternative to a royalty is to have a limit on cost oil (e.g., 60 percent of production), which ensures there is profit oil, as soon as production commences. Where a cap is imposed on the deduction of costs and costs are at this limit, the cap will have a similar economic impact as a royalty, with the government receiving revenue—its share of profit oil—as soon as production commences.
Unrecovered costs in any year are carried forward to subsequent years, but some PSCs allow these costs to be uplifted by an interest factor to compensate for the delay in cost recovery. Interest expense is generally not a recoverable cost. If interest expense is allowed to be recovered, then there should be no uplift for unrecovered costs as this would involve a double counting to the extent unrecovered costs are debt financed.
The split of profit oil is often fixed—60 percent for the government and 40 percent for the investor, for example. It may vary according to the level of production, the price of crude oil, or the internal rate of return earned on the project. Contractors often pay income tax on their share of production. This tax could be paid out of the government’s share, but then the government’s share should be increased, all other things being equal.12 A significant advantage of this approach is that the contractors would have fiscal stability—any future changes in the tax rules would affect only the allocation of the government’s share between tax and nontax oil. The assurance of fiscal stability is an important investment incentive, carrying the cost of reduced flexibility for the government to increase tax on a given project in the future (see Box 6.2 on explicit fiscal stability clauses).
Box 6.2.Fiscal Stability Clauses
Given the nature of investment in oil and gas extraction—long-term, large-scale, and up-front—a particular concern for investors is to guard themselves against unforeseen changes to the financial premises of the project. One safeguard mechanism that is often sought by investors is the inclusion of a fiscal stability clause in the project agreement. While the government may view this as an attractive and, in the short run, inexpensive way of minimizing investor risk, a final stability clause does limit the government’s flexibility to set tax policy, potentially resulting in a revenue loss and increased administrative costs.
Fiscal stability clauses come in different forms. One approach is to “freeze” the tax system at the time of the project agreement. If the tax system is later changed, this will imply a special treatment of a particular taxpayer, adding to the administrative burden, especially if several projects are operating under different tax systems. Another approach is to guarantee the total investor take. If one tax is increased, this will be offset by a reduction in another tax (or in principle by paying a compensatory subsidy), which perhaps better preserves the integrity of the tax system. Still, it may be quite difficult in practice to agree on compensatory measures that can satisfy both government and investor. There are also some stability clauses that are asymmetric: protecting the investor from adverse changes to the fiscal terms but passing on benefits of economy-wide reductions in tax rates.
Fiscal stability clauses are widespread in the oil and gas sector. Of 109 countries surveyed in 1997, a majority (63 percent) provided fiscal stability clauses for all fiscal terms (Baunsgaard, 2001). A small group (14 percent) had partial fiscal stability clauses excluding income tax. Finally, a minority (23 percent) did not provide any fiscal stability clauses in project agreements (at least up until 1997). However, a fiscal stability clause does of course not prevent an investor from seeking to renegotiate fiscal terms in response to policy changes. Kazakhstan provides a recent example of a country that repealed its tax stability clause for contracts signed from 2002 onwards (Page, 2002). Tax conditions set in contracts may now be adjusted in compliance with amendments to tax laws, by the mutual consent of the government and the contractor.
A versatile production-sharing framework can be attractive to both the contractor and the government since it can be adjusted to suit particular project circumstances without changing the overarching fiscal framework. However, it might include design and administrative complexities causing a PSC to be as complex to administer as profit-based taxes. Difficulties relate particularly to the determination of allowable costs. Moreover, it is possible that the ex ante agreement becomes quite inappropriate as the real profitability of a project becomes known.
The Choice Between Tax/Royalty and Production-Sharing Regimes
There is no intrinsic reason to prefer a tax/royalty regime to a PSC regime, since the fiscal terms of a tax/royalty regime can be replicated in a PSC regime, and vice versa (Table 6.1). Each can include fiscal instruments for which the risk/reward trade-off for the government is low, medium, or high. For example, the tax/royalty regime may include an explicit royalty—a low risk/low reward trade-off for the government. The PSC regime may have an explicit royalty, or there may be a limit on cost oil that functions as an implicit royalty. Under both regimes the contractor can be subject to the same income tax as other companies—a medium risk/medium reward trade-off for the government. Finally, to capture a larger share of the resource rents of the most profitable projects, there can be resource rent tax or, under the PSC regime, the split of profit can be made highly progressive and even mimic a resource rent tax—a high risk/high reward trade-off for the government.
for the Government
Arising from Various
|Tax/Royalty Regime||Production-Sharing Regime|
|Low risk /low reward||Royalty||There may be an explicit royalty;|
or there may be a limit on cost
oil that functions as an implicit
|Medium risk/medium reward||Income tax that applies to all companies||Income tax that applies to all|
companies, which may be paid
out of the government’s share of
|High risk/high reward||Resource rent tax||The determination of the|
amount of profit oil can be
highly progressive and mimic a
resource rent tax.
PSCs permit the conditions governing petroleum exploration and development to be consolidated in one document. They may be particularly helpful to newcomers, not familiar with the operating environment, since the necessary provisions (including those relating to fiscal stabilization) can be consolidated in the PSC, thus clarifying the way in which the law will be applied. The PSC is a straightforward way in which contractual assurances, additional to statutory rights, can be offered to investors.
A government may also participate more directly in an oil and gas project by taking equity in the project. State equity can take several forms, including: (i) a full working interest—paid-up equity on commercial terms, which places the government on a par with the private investor; (ii) paid-up equity on concessional terms, where the government acquires its equity share at a below-market price, possibly being able to buy into the project after a commercial discovery has been made; (iii) a carried interest, where the government pays for its equity share out of production proceeds, including an interest charge; (iv) tax swapped for equity, where the government’s equity share is offset against a reduced tax liability; (v) equity in exchange for a noncash contribution, for example by the government providing infrastructure facilities; and (vi) so-called “free” equity, which is a bit misleading since even the noncash provision of equity usually results in some, more or less transparent, offsetting reduction in other taxes.13
State equity participation is mainly motivated by a desire to share in any upside of a project, but can also reflect noneconomic reasons. These can relate to nationalistic sentiment, to facilitate transfer of technology and know-how, or to provide more direct control over project development. But full equity participation can become a costly option when consideration is given to the resulting cash calls.14 There are also possible conflicts of interest arising from the government’s role as regulator overseeing the environmental or social impact of a project, which may differ from its objectives as a shareholder. In many instances, the government may be better off by focusing on taxing and regulating a project rather than being directly involved as an equity participant.15
Cash-rich, resource-rich countries, particularly in the Middle East since the mid-1970s, have tended to assume all the risk of financing their own upstream investments through a national oil company, and, in return, reap all the rewards of a successful exploration and production. In such cases, the involvement of international oil companies is usually limited to the supply of the relevant technology and engineering know-how. In other words, they act as contractors in return for agreed cash payments.16
The imposition of indirect taxes, such as customs duties and VAT, though often ignored in discussions of petroleum taxation, plays an important role in the fiscal regime. In principle, oil and gas projects should be treated similarly to other economic activities when it comes to indirect taxation. In practice, however, the oil and gas sector is often treated differently, either due to its special nature or as a fiscal incentive to attract investors.
If there were no special treatment for import duties, these would be an attractive way for the government to secure an up-front revenue stream. Given the very substantial import needs, particularly during project development, this revenue is typically even more front-loaded than royalty payments. For the same reason, duty exemptions are highly attractive to investors to improve project economics. Duty exemptions can also be sought as a way to minimize dealings with customs officials, where foreign enterprises with substantial import needs can be an easy target for rent-seeking behavior.
It is quite common for specialized equipment for exploration and development to be exempted from import duties. It is advisable to restrict this exemption by requiring that the equipment is reexported after its use. In some countries, all project-related inputs (perhaps restricted to purchases that are not available locally) receive a blanket exemption. Some countries provide guarantees against discriminatory duties being imposed on oil and gas companies, for example by applying a maximum allowable duty. This can result in reverse discrimination whereby duties on imports for petroleum projects are in effect lower than for other importers.
The treatment of the oil and gas sector for VAT purposes is often influenced more by administrative realities than by principles of good tax policy. In a developing country, typically a large share, if not all, of the output from a petroleum project will be exported. Combined with the very large investment needs, this can complicate the treatment for VAT purposes. If exports are zero-rated under a destination-based VAT regime, the taxpayer will likely be in a continuous net refund situation reclaiming VAT paid on investment goods or on inputs. While this, in an economic sense, is the correct treatment of an exporter, it may be difficult to pay refunds in a timely fashion if the administrative capacity is weak. This situation is further exacerbated by the magnitude of the VAT refunds, particularly during periods with large investment requirements.
Faced with this refund problem, many countries provide VAT exemptions for imported capital goods and sometimes imported inputs for oil and gas extraction. This treatment may also be sought for domestic suppliers to projects, though this can be particularly problematic since it opens a loophole for domestic firms to evade VAT. That said, if the capacity is not in place to administer a refund-based system, it may be an unavoidable option to introduce a sector-specific exemption for capital goods, perhaps extended to certain specialized inputs used exclusively for oil and gas extraction. It is desirable that the exemption should not apply to inputs that can be easily used by other sectors in the economy, for this would open another loophole for tax evasion.
The standard international practice is to levy VAT on the destination basis, under which imports are taxed and exports are zero-rated. An exception to this practice was the treatment of trade between the new countries (other than the Baltics) formed after the dissolution of the Soviet Union (hereinafter referred to as the “CIS countries”). In part because the former Soviet Union was viewed as a common economic space, the CIS countries adopted the origin basis for CIS trade, under which goods were taxed in the country in which they were produced. Non-CIS trade was taxed under the destination basis.17 The IMF staff advised the CIS countries to use the destination basis for VAT to avoid production distortions and be consistent with international best practice. The CIS countries have now adopted the destination basis for CIS trade, other than oil and natural gas.18 As Russia is a large net exporter of oil and natural gas, this special rule involves a transfer of tax revenue to Russia, primarily from Ukraine. This revenue loss for Ukraine and other CIS countries might be partly offset by the revenue gain from the preferential excise rate for Russian gas exports to the CIS countries. The current situation may change as the Russian Ministry of Finance is considering proposals to switch to the destination basis—first for oil and later for natural gas.
Most export duties that countries levy are concentrated in a few products. These duties are sometimes justified as a means of taxing away windfall gains, as a substitute for income taxation (on agricultural products), and as a way to improve the terms of trade. Many countries have removed export duties as part of tariff reform programs aimed at establishing outward-oriented trade regimes.
Export duties are generally not levied on oil and gas. However, Russia levies export duties on oil, natural gas, and oil products. The oil tariff is a sliding scale tied to the Ural oil price, and the rate is adjusted every two months. Below US$15 per barrel, there is no export duty. This levy, which has been justified as a revenue measure, primarily burdens producers and distorts the price of exports and domestic oil supplies.
Other Nontax Payments
A number of other nontax instruments are available, though these are often of lesser importance in terms of revenue generation. Many countries require payment of various fees—either fixed or auctioned, such as license, rental, or lease fees. These are commonly paid to the petroleum department and to some extent act as an incentive for the investor to carry out exploration and development work on the granted license area. It is a common requirement for oil and gas projects in many countries to pay signature, discovery, and production bonuses. Bonus payments are attractive to the government because they are received early in the project cycle;19 for the same reason, however, they may discourage marginal investments. Collecting bonus payments requires little administrative effort and is a desirable way to ensure some early revenue from an oil and gas project.
Auctions for exploration or development rights could in theory be a very attractive way of securing the state’s share of economic rent. However, for countries where political risk is perceived to be large, or with a high level of geological uncertainty, investors will be fewer and very risk averse prior to development. The bids received will therefore be lower than the expected net present value of a mineral deposit in a situation of no uncertainty. This could lead to demands to increase the government take if a project turns out to be more profitable than the original bid would reflect. Despite this bias, an auction can be a desirable way to administer the allocation of exploration rights among oil and gas companies, as it is done in some countries, though it would be unrealistic to rely on this instrument as a major revenue source. Empirical evidence on the effectiveness of auctioning exploration or development rights is mixed across countries.20 Although auctions have performed very efficiently in the U.S., they were not as successful in the U.K. due to a much lower number of bidders. In Venezuela, the 1997 bidding round was viewed as successful in raising government revenue, though some industry sources suggest that the winning bids were at a substantial premium.
III. Country Experience
Reflecting the fact that there is not one optimal model for taxing oil and gas projects, countries make use of a broad range of tax and nontax instruments. To illustrate the range of fiscal regimes, Table 6.2 provides an overview of current practice in a large number of developing countries.21 While fiscal regimes for oil and gas exploration are strikingly diverse across countries, some general observations can be inferred.22 The majority of countries in the sample apply royalties in order to secure an up-front revenue stream. Moreover, while almost all countries assess royalties on an ad valorem basis, the actual rates vary from 2 percent to 30 percent; a common range for countries with royalties would be around 5-10 percent.
|Country||Royalties||Sharing1/||Tax Rate||Rent Tax||Tax2/||Incentives3/||Equity4/|
|Angola||…||15-80% (P)||50%||None||…||Yes (E)||25%|
|Gabon||10-20%||65-85% (V)||Gov. share||None||…||Yes (E)||15%(C)|
|Asia and Pacific|
|Bangladesh||None||65-80% (V)||None||None||…||Yes (I)||None|
|Cambodia||12.5%||40-65% (V)||20%||None||None||Yes (E)||None|
|Indonesia||…||75-90% (V)||30%||None||15%||Yes (I,A,Cr)||10%|
|Papua New Guinea||2%||None||45%||20-25%||None||Yes (I,Cr)||22.5%(C)|
|Vietnam||6-25%||65-80% (V)||Gov. share||Formula||15%||Yes (H)||15%|
|Algeria||10-20%||60-88% (P)||Gov. share||None||20%||None||30%(C)|
|Egypt||10%||70-87% (V)||Gov. share||None||None||Yes (I)||None|
|Belize||7.5%||5-15% (V)||25%||None||15%||Yes (U)||5%|
|Guatemala||5-20%||30-70% (V)||30%||None||None||Yes (E,U,I)||None|
|Guyana||None||12.5-55% (V)||35%||None||10%||Yes (E)||None|
|Trinidad & Tobago||12.5%||Variable||50%||0-36%||…||Yes (A,H,I)||None|
|Azerbaijan||None||50-90% (P)||32%||None||15%||Yes (E,0,U)||7.5-20%|
|Kazakhstan||Up to 20%||Negotiable||30%||0-30%||15%||…||50%|
|Kyrgyz Republic||None||60-80% (V)||Gov. share||None||15%||Yes (H)||None|
Production sharing linked to physical volume of production (V), or realized profitability (P).
Investment incentives: tax holiday (H), accelerated depreciation (A), tax credit (Cr), current expensing of exploration and/or development cost (E), exemption of imports of equipment and capital goods (I), unlimited loss carry-forward (U), and other (O).
The maximum equity share that the state can select to take, often on a carried basis (C).
Production sharing linked to physical volume of production (V), or realized profitability (P).
Investment incentives: tax holiday (H), accelerated depreciation (A), tax credit (Cr), current expensing of exploration and/or development cost (E), exemption of imports of equipment and capital goods (I), unlimited loss carry-forward (U), and other (O).
The maximum equity share that the state can select to take, often on a carried basis (C).
The choice of tax rate reflects the typically higher economic rent in the petroleum sector. Countries without production-sharing arrangements or a resource rent tax typically apply a higher income tax rate to the oil and gas sector than to other economic activities. Some countries have combined a corporate income tax with a resource rent tax, often rate-of-return based, whereas a few countries apply a higher income tax rate when oil prices exceed a certain trigger level. Some countries have provided for more lenient taxation of natural gas projects, partly reflecting lower resource rents, the typically higher investment requirement, and at times larger risk involved than under an oil project. Key issues in gas development are the identification of a market for the gas and the determination of the most economic means of transporting gas to the market.
As in many other economic sectors, investment incentives are widely available. The most common are full current expensing of exploration and/or development costs, accelerated depreciation allowances, and investment tax credits. Tax holidays or reduced tax rates are less common, but some countries do offer them, particularly for smaller projects or to encourage investments in less explored regions. Many countries provide exemptions from customs duties and VAT on imports, at times only for specialized equipment to be reexported after use. Another common incentive is flexible loss carry-forward provisions, in many countries for an unlimited period of time.
Production-sharing arrangements are widespread in the petroleum sector, where about two-thirds of the countries surveyed have this as the main core of their fiscal regime. Quite common is a formula-based system with the share of profit oil linked to the volume of production. It is typical to have at least 50-60 percent of profit oil going to the state, but in some countries a higher share applies. Countries also differ regarding limits for allowable costs the operator can recover as cost oil. In some countries, even if income taxes are nominally due, these are paid out of the state’s share of production.
The extent to which countries participate directly in projects as equity holders differs. Countries typically retain the right to take equity in a project. Often this is done on a carried interest basis, whereby the cost of the equity is paid back to the company out of production proceeds. However, many countries do not actually exercise their right to equity participation or at least not fully, in part due to the costly financial obligations that can arise from project participation, particularly when the equity interest requires the country to meet cash calls and to make other cash payments.
Some regional patterns are also apparent. In Africa, about one-half of the surveyed countries rely on production sharing. Of the other half with a tax/royalty regime, some apply a resource rent tax in addition to the corporate income tax. In Asia, production-sharing arrangements are widespread. Only a few countries in the Pacific use resource rent taxes. In the Western Hemisphere, production sharing is quite rare outside of the Caribbean, and very few countries apply resource rent taxes. There are also several Latin American countries that have reduced tax rates noticeably over the last couple of years—particularly Argentina, Chile, and Peru—to attract investment. In the Middle East, the majority of countries rely on some form of production sharing, which is also common among the surveyed transition countries.
Evolution of Selected Fiscal Regimes
The evolution of fiscal regimes for upstream oil and gas activities in four diverse countries (Norway, Indonesia, Kazakhstan, and Angola), summarized in the Appendix, provide some insights into how oil and gas taxation varies over time and across countries.
There are four main features of the dynamic evolution of these fiscal regimes. First, the fiscal terms appear to have been influenced by oil prices, becoming more generous in periods of price decline and vice versa. As declining world oil prices lead to expectations of lower profitability and reduced investment activities, there is some evidence that host country governments have responded to this by offering more attractive fiscal conditions. Whether this observation is generalized to most oil- and gas-producing countries in periods of sustained petroleum price changes remains to be confirmed. If so, it would imply that conservative oil and gas revenue projections should reflect an assumption of relaxed fiscal terms along with projected persistently lower oil and gas prices. Second, fiscal terms have been influenced by tax policies set in the home countries of international petroleum companies. For example, Indonesia modified the terms of its production-sharing contracts in 1978 in response to the U.S. Internal Revenue Service (IRS) that disallowed a tax credit for “income taxes paid” by the Indonesian government on behalf of American companies, and Norway raised the Special Tax rate and restricted capital depreciation provisions in 1979, following the introduction of the U.S. windfall profits tax. Third, bonuses have become streamlined and less important over time as a method of petroleum revenue collection. Fourth, the case studies suggest that as the petroleum fiscal system matures, the revenue regime becomes more progressive. For example, in 1972, Norway moved from a single-rate royalty regime to a multiple-rate one based on the scale of production. In 1995, Kazakhstan introduced the excess profits tax with a range of rates corresponding to different rates of return brackets. In 1988, Indonesia adopted a progressive production-sharing scheme, where the production split between the contractor and the government depended on the nature of the field and on production volumes. In Angola, the 1988 model production-sharing contract provided five different share parameters between the government and the contractor, based on different rate of return brackets.
An important explanation of the wide difference in fiscal patterns observed across countries lies in their difference in bargaining power when negotiating fiscal terms with international oil and gas companies. In turn, a country’s bargaining power is derived from its particular circumstances. The strictest fiscal regimes tend to be in countries that offer very attractive geological prospects, combined with political and macroeconomic stability (Indonesia is a good example of such a country until recently). While it can be argued that all countries embody some degree of most forms of risk, from political to commercial, certain risks tend to influence the bargaining position, and hence the fiscal terms, more so in some countries than in others.
In Norway, an important risk issue concerns the competitiveness of its oil and gas in highly contested markets. Although characterized by a stable political regime and reasonably strong geological prospects, Norway must compete with several other North Sea producers (the U.K., The Netherlands, and Denmark) to attract international companies’ investments in North Sea exploration and production activities. The main market for North Sea oil and gas is Western Europe, a fairly saturated and competitive market. This market-based risk has likely influenced Norway to further focus on its lenient ring-fencing, interest deductibility, and depreciation rules. These provisions are believed to have undermined the effectiveness of the Special Tax, which underscores the importance of combining a tax on excess rents with strict ring-fencing and thin capitalization rules.
Kazakhstan is an investment location characterized by significant resource commercialization risks. Kazakhstan’s landlocked geography makes it dependent on either Russian-owned pipelines or its ability to secure investment for, and build, alternative routes (across other jurisdictions) in order to ship its oil and gas to international markets. Transportation fees to the pipeline companies dissipate some of its petroleum sector rents across jurisdictions, leaving fewer rents to be collected by the Kazakh government. Until recently, this weakened the government’s bargaining position and led to more relaxed fiscal terms over time, such as streamlined bonuses and the deductibility of bonuses and royalties from the income tax and the excess profits tax. However, this situation changed dramatically following the opening of the private Caspian Pipeline Consortium (CPC) pipeline in late 2001. Faced with a new competitive situation, the Russian pipeline monopoly offered better terms and greater access to Kazakh exporters. Hence, opening of the CPC pipeline has attracted developers by cutting export costs by more than half. In this environment, the Kazakh authorities—who repealed the fiscal stability clause for new contracts in 2002—have been pressing for revisions to long-established contracts (e.g., the Tengiz field) to capture some of the higher earnings. This intensified fiscal pressure might have backfired somewhat since Chevron (the operator of the Tengiz field) recently announced a suspension of the next phase of its field development, involving some US$3 billion in investment, which would have almost doubled production.
Finally, Angola—a country with strong geological prospects (Barrows, 1989)—is an investment location characterized by relatively high-perceived political risks. The fiscal regime concluded between investors and the Angolan government is specific to each production sharing contract, which includes a tax stability clause. Other terms of the contracts have become more discretionary over time—for instance, model production-sharing contracts used to specify a maximum cost recovery share, an uplift factor, and a depreciation rate for development expenditures. These provisions became determined on a contract-by-contract basis in 1997. Furthermore, the list of expenditures admissible (at the government’s discretion) under cost recovery has been expanded.
A broad range of fiscal instruments is available to policymakers to design a fiscal regime for the oil sector that will attract investment as well as secure a reasonable share of economic rent for the government. Some may favor greater reliance on production-based levies to ensure a steady stream of revenue for the government. Others would put greater emphasis on profit-based levies to minimize distortions. Most countries have both profit-based and production-based levies. Fiscal terms accepted by a country reflect the negotiating strength and experience of the country, geological prospects, and the track record of previous projects. During negotiations, potential fiscal revenue may be lowered to compensate for particularly high costs of extracting oil, reflected in market, commercial, or political risk premiums.
There is clearly not one optimal fiscal regime suitable for all petroleum projects in all countries. Countries differ, most importantly in regard to exploration, development, and production costs; the size and quality of petroleum deposits; and investor perception of commercial and political risk. Likewise, projects may differ sufficiently that some flexibility is necessary in deriving an appropriate fiscal regime. At times, this could justify a case-by-case approach to project negotiations, though it is desirable that the chosen fiscal framework be sufficiently flexible to respond to unforeseen developments so as to minimize the need for ad hoc changes. These factors will influence the size of the government’s revenue take: a country with large proven reserves and low exploration and development costs will be able to negotiate a higher revenue share than a country that has a short, and perhaps somewhat uneven, track record, particularly if there is uncertainty regarding the size, quality, and extraction costs of its petroleum reserves.
Despite these qualifications, it is possible to outline some desirable features to target when designing a fiscal regime for the petroleum sector. Ideally, this should combine some up-front revenue with sufficient progressivity to provide the government with an adequate share of economic rent under variable conditions of profitability. This result can be achieved through a tax-based system combining a corporate income tax with a rate of return-based resource rent tax (or a progressive income tax), and a royalty at a modest level to secure some up-front revenue. However, it could also be achieved by a production-sharing arrangement with a moderately progressive government take linked to product prices or project rate of return. The latter, however, may be more difficult to negotiate for countries with few successfully developed projects. Under those circumstances, a resource rent-based tax system could prove more flexible while requiring less information ex ante about potential project profitability. Still, the capacity of a particular country to competently administer a complex taxation-based system must be taken into account when designing the fiscal regime. Attempts should be made to keep the administrative burden as low as possible, while maintaining sufficient safeguards to counter tax avoidance, particularly the risk from transfer pricing.
The case studies in this paper provide useful insights into the dynamics of fiscal terms. First, there is some evidence that these react endogenously to world petroleum prices, at least to sustained medium-term changes. Second, fiscal terms set by host countries are influenced by tax policies in the home countries of oil and gas companies. Third, there may be some tendency for revenue collection schemes to become more progressive as a country’s petroleum fiscal system matures.
The government’s share of economic rent can become excessively low as countries compete to attract investment for oil and gas extraction, particularly if the fiscal regime is used to try to compensate for an otherwise unattractive investment environment or high political, market, or commercial risk. Though the pressure to provide generous fiscal terms to attract investment can be almost irresistible, the overall investment climate is a more important determinant for attracting investment than tax factors.23 Moreover, there must be a lower bound for the government share from oil and gas extraction below which it would be better for the country to postpone a project rather than forgo a reasonable share of the economic rent.
From the perspective of the multinational oil companies, the primary concern is how attractive the oil and gas prospects are, how the fiscal terms affect their risk, what the expected reward is if petroleum is found, and how these factors—for any particular regime—compare to investment opportunities elsewhere.
Ultimately, there is a market test for each country’s fiscal regime—can the country attract investment in its oil and gas sector? If not, the fiscal regime may be inappropriate for the country, given its exploration, development, and production costs; the size and quality of petroleum deposits; and investor’s perception of commercial and political risk.
|Royalties/Cost Oil Limit|
|Norway||Royalties changed from 10 percent to a range of 8 to 16 percent (1972).|
Lifted for new fields (1987).
Royalty will be phased out so that no royalty will be paid after 2005.
|Indonesia||Cost recovery limited to 40 percent of annual production (1960-1975).|
Abolished after 1973 (oil price crisis of 1973 and U.S. Internal Revenue Service disallowing tax credits for Indonesian corporate taxes paid by Pertamina (the state company)).
Cost recovery feature based on a double-declining balance depreciation method. Period extended from 7 to 14 years (1976).
Royalty in kind, First Tranche Petroleum, a 20 percent portion of oil and gas production to be split (before any deduction of cost recovery) between Pertamina and the contractor. Split ratios vary with the volume of production (1988).
|Kazakhstan||Fixed royalty (increase in increments of US$10 million over three years starting from US$20 million and remaining at US$40 million the fourth year) and, after four years, 18 percent royalty (25 percent if the nominal return exceeds 17 percent) (1991).|
Contracts negotiated include royalty up to 20 percent (1995). Profit-sharing contracts introduced in 1997. Cost recovery parameter is negotiable.
|Angola||Cost recovery determined on a contractual basis, but limited to a maximum of 50 percent per year of annual production (1988-1997).|
Maximum unspecified after 1997.
|Norway||Corporate income tax reduced from 50.8 percent to 28 percent (1992).|
Special Tax of 25 percent on full income net of corporate income tax of 50.8 percent (1974-1975, following quadrupling of oil and gas prices), raised to 35 percent (1979-1980, following sharp increases in oil and gas prices and introduction of U.S. windfall profits tax), reduced to 30 percent (1987, following drop in oil and gas prices), raised to 50 percent (1992).
|Indonesia||Production net of cost split 65/35 in favor of the government (1960-1975).|
Proportion increases from 65 percent past a base level (1972). Minimum government share increases to 85 percent. Introduction of a tax on foreign companies (1974-1975).
Post-tax split of 85/15 in favor of Pertamina is decomposed as follows: contractor’s pretax profit share of 34 percent is subject to 45 percent corporate income tax. Also a 20 percent tax on interest, dividends, and royalties after deducting the corporate tax (1978).
|Kazakhstan||Maximum corporate income tax of 30 percent (1991).|
|Angola||Determined on a contractual basis. Equal to 50 percent of the contractor’s share in profit oil, reduced by an amount equivalent in volume to the price cap excess fee valued at the market price.|
|Norway||Special tax relief provisions in the offshore industry abolished (1972).|
10 percent depreciation allowance for 15 years on capital (1974-1975). Lower rate and fewer number of years (1979-1980). No longer available (1987).
5 percent depreciation allowance over 6 years allowed as additional depreciation (uplift) under the Special Tax (1992).
Deductibility of financial costs (applied to oil companies, not to individual prospects) limited to 80 percent of external financing. Deficits incurred after January 1, 2002 can be carried forward increased by interest.
|Indonesia||Carry forward of unrecovered costs allowed, but no uplift factor. Interest payment on debt not included in recoverable operating costs (1960-1975).|
Interest treated as recoverable costs subject to the following limitations: financing must be with nonaffiliates, loans should be obtained at rates not exceeding prevailing commercial rates, financing plans and amounts must be included in each year’s budget of operating costs for the prior approval of Pertamina (1976).
Introduction of investment incentives (1974-1975).
Investment credit of 20 percent of production subject to a guarantee to the government of a 49 percent share of gross revenue over the life of the field (1977).
Investment credit decreases to 17 percent subject to a guarantee to the government of a 25 percent share of gross revenue over the life of the field (1984).
|Kazakhstan||Royalties and signature bonus become deductible from the income tax (1997).|
|Angola||Uplift factor of 1.4 for development expenditures, with subsequent linear depreciation of 20 percent (1988).|
Linear depreciation parameter for development expenditures increased to 25 percent for offshore agreements (1991).
Uplift and depreciation parameters no longer specified after 1997.
Exploration expenditure recoverable from unused balance of cost recovery crude oil from each development area after recovery of development and production expenditures. Each year, exploration expenditures are recoverable first from any cost recovery crude oil balance having the most recent date of commercial discovery and then any balance of total exploration expenditure not already recovered is recoverable in sequence from development areas with the next most recent dates of commercial discovery.
5-year loss carryover for development expenditures, after which the contractor’s share of crude oil is increased to allow for cost recovery. Indefinite carry forward with no change in cost recovery parameter for other types of expenditure.
Between 1991 and 1997, list of admissible expenditures under cost recovery widens to: technical, health, safety, and environmental audits items (provided by affiliates of the operator or of SONANGOL), and communications studies.
Range of items falling under costs recoverable only with prior approval of SONANGOL has increased.
|Norway||50 percent of losses from other activities in Norway deductible from offshore income. No other ring-fencing provision (1974-1975).|
|Kazakhstan||Introduced in 1995.|
|Angola||For development expenditures.|
|Resources Rent Tax/Profit Oil|
|Kazakhstan||Excess profits tax, which starts with a 20 percent internal rate of return and comprises up to 4 rates applicable to thresholds stipulated in individual contracts (1995).|
Deductibility of royalties and the signature bonus (1997).
|Angola||Development area profit oil is shared between SONANGOL (state company) and the contractor according to the after-tax nominal rate of return achieved in the preceding quarter. The model PSA agreement has five different rates of return (unspecified) brackets with different share parameters.|
|Other Nontax Payments|
|Indonesia||Bonus payments vary considerably between individual PSCs. Not included in the operating costs, which are recoverable from production, but can be charged against tax liabilities once profitable operations commence (1960-1975).|
Signature bonus ranges from US$1 million and US$5 million. There may be 2 to 5 production bonuses triggered by the volume of production. Total bonus commitments range from US$15 million to US$50 million.
Requirements for bonus payments decline sharply over the years. Total bonus payments reported in the 46 PSCs concluded in 1979-1982, US$306 million, are much higher than the total of US$60 million from the 45 PSCs concluded in 1987-1990.
|Kazakhstan||Signing, commercial discovery, and mining bonuses (1992).|
Signature bonus becomes deductible from the income tax and the excess profits tax. Other bonuses are repealed (1995).
Signature bonus repealed in 1997.
|Angola||Signature bonus, to be determined on a contractual basis.|
|Norway||35 percent on a carried interest basis on all new licenses (1969).|
The State Direct Financial Interest (SDFI) was established in 1985. Until recently the SDFI has taken a share in all licenses. The policy has now changed and the SDFI only takes a share in prospects with a large expected net present value.
|Indonesia||10 percent is usual under a First Tranche Petroleum (FTP) contract.|
|Kazakhstan||State companies participate up to 50 percent as full working partners—usually carried through exploration.|
|Angola||SONANGOL must take a minimum of 51 percent of all contracts unless in water depths greater than 150 meters, where this share is reduced.|
|Kazakhstan||Introduced in 1996, but repealed in 2002 for all new contracts.|
|Angola||Government is open to revisions subject to the fact that it does not impact negatively on either party’s economic benefit. SONANGOL reimburses the contractor for increases in clearance, stamp duty, and/or the statistical levy applicable to imports.|
|Government-Set Price for Cost Recovery and/or Tax Calculations|
|Norway||Price of the same type of crude over a given period determined by independent traders on a free market (1974-1975).|
Norm prices used for calculating income for tax purposes are set by an independent Norm Price Board.
|Indonesia||Set according to an OPEC-type guide price (1972).|
Set on the basis of monthly average spot prices for a basket of five internationally traded crude oils (1988).
BaerKatherineVictoria P.Summers and Emil M.Sunley1996“A Destination VAT for CIS Trade,”Moct-Most Vol. 6 No. 3 pp. 87–106. Also, IMF Working Paper 96/35 (Washington: International Monetary Fund).
BarrowsGordon1988“A Survey of Incentives in Recent Petroleum Contracts” in Petroleum Investment Policies in Developing Countriesed. byN.Beredjick and T.Walde (London: Graham & Trotman).
BarrowsGordon1997World Fiscal Systems for Oil (Calgary: The Barrows Company Inc.).
BarrowsGordon2000aAngola: 1988 Model Production Sharing Agreement Between SONANGOL and International Companies; 1991 Model Production Sharing Agreement for Deep Water Blocks Between SONANGOL and International Companies; 1992 Model Production Contract; 1997 Model Production Sharing Agreement Between Sociedade Nacionale de Combustiveis de Angola—Unidade Economica Estatal (Sonangol UUE) and Contractor (Calgary: The Barrows Company Inc.).
BarrowsGordon2000bKazakhstan: Tax Decree of the President of Kazakhstan dated 25 April 1995 as amended on 28 February 1997 (Calgary: The Barrows Company Inc.).
BaunsgaardThomas2001“A Primer on Mineral Taxation,”IMF Working Paper 01/139 (Washington: International Monetary Fund).
Coopers & Lybrand1998International Tax Summaries (New York: John Wiley & Sons Inc.).
DanielPhilip1995“Evaluating State Participation in Mineral Projects: Equity Infrastructure and Taxation” in Taxation of Mineral Enterprisesed. byJ.Otto (London: Graham & Trotman).
FrewerGeoff2000“Auctions vs. Discretion in the Licensing of Oil and Gas Acreage” in The International Experience: Markets Regulations and the Environmented. byG.MacKerron and P.Pearson (London: Imperial College Press).
GaoZhiguo1994“International Petroleum Contracts: Current Trends and New Directions” International Energy and Resources Law and Policy Series (London: Graham & Trotman).
International Bureau of Fiscal DocumentationAfrican Tax Systems (Amsterdamvarious editions).
GaoZhiguoTaxation and Investment in Asia and the Pacific (Amsterdamvarious editions).
GaoZhiguoTaxation and Investment in Central and East European Countries (Amsterdamvarious editions).
GaoZhiguoTaxation and Investment in the Caribbean (Amsterdamvarious editions).
GaoZhiguoTaxation and Investment in the Middle East (Amsterdamvarious editions).
GaoZhiguoTaxation in Latin America (Amsterdamvarious editions).
KempA.G.1987Petroleum Rent Collection Around the World (Halifax: The Institute for Research on Public Policy).
MachmudT.N.2000The Indonesian Production Sharing Contract (The Hague: Kluwer Law International).
NellorDavid C.L. and EmilM. Sunley1994“Fiscal Regimes for Natural Resource Producing Developing Countries”IMF Paper on Policy Analysis and Assessment 94/24 (Washington: International Monetary Fund).
NorengØystein2002“The Concept of Economic Resource Rent and Its Application in U.K. and Norwegian Petroleum Taxation”expert testimony for the Centre for Energy StudiesBI Norwegian School of ManagementSandvika, Norway.
PageBill2002“Kazakhstan’s New Tax Code”Tax Notes InternationalJanuary 21.
PalmerKeith F.1980“Mineral Taxation Policies in Developing Countries: An Application of Resource Rent Tax,”Staff PapersInternational Monetary Fund Vol. 27 No. 3 pp. 517–42.
PricewaterhouseCoopers1999Corporate Taxes 1999-2000 (New York: John Wiley and Sons).
SunleyEmil M. and Thomas Baunsgaard2001The Tax Treatment of the Mining Sector: An IMF Perspectivepresentation at the World Bank and International Finance Corporation Workshop on Sustainability and the Governance of Mining Revenue SharingWashingtonApril.
Van MeursPedro1988“Financial and Fiscal Arrangements for Petroleum Development—An Economic Analysis”in Petroleum Investment Policies in Developing Countriesed. byN.Beredjick and T.Walde (London: Graham & Trotman).
WunderHaroldene2001“The Effect of International Tax Policy on Business Location Decisions,”Tax Notes International Vol. 24 (December 24) pp. 1331–55.