Comparison of Major International Petroleum Tax Systems
Authors: Mustafaoglu M.M. 
Published: December 2007

Summary
Major international petroleum tax systems and representative country tax regimes from each system are explained and compared with each other in this paper. It is shown that none of the tax systems leaves paper. It is shown that none of the tax systems leaves the operators with the rate of return intended by the host countries under varying operating environments and field sizes.

Introduction
Generally, each petroleum exploration and production decision is influenced greatly by production decision is influenced greatly by economics. Since economics is a function of taxation, understanding of the tax environment in which an exploration or production project will be conducted is important.The content of a taxation system can be divided into two parts:economic content andoperations content.
The economic content contains provisions regarding the factors that have direct provisions regarding the factors that have direct bearing on the project economics, such as the tax and royalty rates, timing of payments to be made to the host-country government, and the methods of calculating these payments. The operations content refers to those provisions of the tax system that regulate the manner in which the petroleum companies conduct exploration and development activities. These stipulations range from representation of host country on the management committee to the procedures for plugging dry holes. procedures for plugging dry holes. The purpose of this paper is to compare various international tax regimes on the basis of their economic content. The comparisons are on the basis of discounted cash flow rate of return (DCFROR) with three field sizes [50, 200, and 600 MMbbl (8 × 106, 30 × 106, and 95 × 106 m3)] in various cost environments. The evaluations are performed using the tax arrangements of a representative country from each tax system.

General Characteristics of Petroleum Tax Systems
The main characteristic of petroleum tax systems is that they are applied in the exploration and exploitation of nonrenewable natural resources found in limited quantities. As such, they address certain basic issues that are explored in the following.

Ownership and Tax Systems
One of the fundamental issues addressed by each tax system is the question of ownership of the petroleum in the ground. Generally speaking, award of hydrocarbon exploration and production permits follows the pattern set by other minerals, which historically were explored for and produced under two ownership concepts: French and Anglo-Saxon.The French concept, which has been practiced since Napoleonic times, treats the ownership of surface and subsurface rights separately. The subsurface mineral are owned by the community and, hence, by its administrative organization - the state which is supposed to use the minerals for the good of the community. This ownership concept maintains that because of the natural origin of minerals, there is no reason why they should benefit a particular individual or group of individuals.In contrast, the Anglo-Saxon tradition allows individuals to own subsurface rights and does not treat all minerals as the wealth of the community.Realizing that minerals must be exploited if they are to have value, the French created the concession system in the 18th century whereby the state gave individuals the rights to explore for and produce minerals. At about the same time, landowners in the U.S. began to lease their mining rights to operators.
JPT
P. 1835