Changes to Taxation for the Russian Oil and Gas Sector

Changes to taxation for the russian oil and gas sector

Amendments that took effect in 2015 were made to tax legislation in the oil industry in November 2014 as part of Federal Law No. 366-FZ dated 24 November 2014. The amendments provide for a sharp increase in the base mineral extraction tax (MET) rate (to 919 RUB per tonne in 2017) and a decrease in export duties on crude oil and light petroleum products. The decrease in oil export duties will result in higher prices on the domestic market for raw oil refining commodities, but the decrease in excise taxes and export duties on petroleum products will compensate for the growth in production costs for the oil refining segment.

Amendments to tax legislation
2014 2015 2016 2017
Base MET rate for oil, RUB/tonne 493 766 857 919
Coefficients used to calculate export duties:
in the oil duty, % 59 42 36 30
in the formula for calculating the duty on petrol, % 90 78 61 30
in the formula for calculating the duty on diesel, % 65 48 40 30
in the formula for calculating the duty on light PP, % 65 48 40 30
in the formula for calculating the duty on oil groups 1–3, % 66 48 40 30
in the formula for calculating the duty on naphtha, % 90 85 71 55
in the formula for calculating the duty on dark PP, % 66 76 82 100
in the formula for calculating the bitumen duty, % 0 76 82 100
in the formula for calculating the duty on coke, % 66 6.5 6.5 6.5
Excise taxes, RUB/t
2014 2015 2016 2017
Low-octane petrol 11,110 7,300 7,530 5,830
EURO 3 high-octane petrol 10,725 7,300 7,530 5,830
EURO 4 high-octane petrol 9,916 7,300 7,530 5,830
EURO 5 high-octane petrol 6,450 5,530 7,530 5,830
Straight-run petrol 11,252 11,300 10,500 9,700
EURO 3 and lower diesel fuel 6,446 3,450 4,150 3,950
EURO 4 diesel fuel 5,427 3,450 4,150 3,950
EURO 5 diesel fuel 4,767 3,450 4,150 3,950

Average rates of taxes and fees in effect during the reporting periods for the taxation of oil and gas companies in russia

2013 2014 Change, %
EXPORT CUSTOMS DUTY
Oil, USD/t 392.20 366.14 –6.6
Light petroleum products, USD/t 258.82 241.63 –6.6
Diesel fuel, USD/t 258.82 237.93 –8.1
Petrol and naphtha, USD/t 352.97 329.48 –6.6
Dark petroleum products, USD/t 258.82 241.63 –6.6
MINERAL EXTRACT TAX
Oil, RUB/t 5,329 5,831 9.4

Export customs duty rates for oil and petroleum products

In accordance with Federal Law No. 239-FZ dated 3 December 2012, the procedure used to set the export customs duty on crude oil and petroleum products was changed starting from 1 April 2013.

Instead of export customs duty rates for oil and petroleum products being set monthly by resolutions of the Russian Government, Resolution No. 276 of the Russian Government dated 29 March 2013 approved the method for calculating export customs duties on crude oil and certain categories of goods produced from oil based on which the Russian Ministry of Economic Development calculates the rates of export customs duties for the subsequent calendar months.

Export customs duty on crude oil

a) In accordance with clause 4 of Article 3.1 of Law of the Russian Federation No. 5003-1 dated 21 May 1993 „On the Customs Tariff” (as amended by Federal Law No. 263-FZ dated 30 September 2013), export customs duty rates on oil should not exceed the amount of the maximum duty rate.

Dependence of the maximum export customs duty rate on Urals oil price quotes
Urals price quotes (P), USD/t Maximum export customs duty rate
≤109.50 0%
109.50 < P ≤ 146.00 35.0% * (P — 109.50)
146.00< P ≤182.50 12.78 + 450% * (P — 146.00)
>182.50 29.20 + 59.0% * (P — 182.50) for 2014 29.20 + 57.0% * (P — 182.50) for 2015 29.20 + 55.0% * (P — 182.50) for 2016

Oil exported to CIS countries that are Customs Union members (Kazakhstan, Republic of Belarus) shall not be subject to the export customs duty for oil.

b) The aforementioned Federal Law No. 239-FZ dated 3 December 2012 legally settled the issue of the Russian Government establishing special formulas used to calculate reduced export customs duty rates on crude oil with special physical and chemical features classified under FEACN codes TS 2709 00 900 1 and 2709 00 900 3 for which the rates are set depending on the average price of Urals oil over the monitoring period in accordance with Resolution No. 276 of the Russian Government dated 29 March 2013 in the following amount.

Dependence of the reduced export customs duty rate on the average price of Urals oil
Urals price quotes (P), USD/t Export customs duty rate
≤365 0
>365 45.0% * (P — 365)

Resolution No. 846 of the Russian Government dated 26 September 2013 approved the procedure for preparing proposals on the use of the special formulas for calculating export customs duty rates for crude oil and monitoring of the validity of their application, including with respect to new projects located on the territory of the Republic of Sakha (Yakutia), the Irkutsk Region, the Krasnoyarsk Territory, areas located north of 65 degrees of the Yamalo-Nenets Autonomous District and on Russia’s continental shelf.

With Decree No. 868 dated 3 December 2013, the Russian Ministry of Energy approved the application form and guidelines for analysing the validity of the use of the special formulas for calculating export duty rates for crude oil.

Export customs duty for petroleum products

In accordance with Article 3.1 of the Law of the Russian Federation „On the Customs Tariff”, the export customs duty rate for certain categories of goods produced from oil shall be set by the Government. Petroleum products exported to CIS countries that are members of the Customs Union (Kazakhstan, Republic of Belarus) shall not be subject to the export customs duty.

Starting from 1 January 2011, export customs duties for petroleum products exported to Kyrgyzstan shall also be abolished. Starting from 13 November 2013, supplies of petroleum products to Tajikistan were exempted from export customs duties within indicative balances.

According to Resolution No. 1155 of the Russian Government dated 27 December 2010, export customs duties for petroleum products shall be calculated using the following formula starting from 1 February 2011:

Rcod = К * Rco,

where Rco is the export customs duty rate on crude oil, and C is the estimated coefficient with respect to the category of petroleum products.

In effect from October 2011 in accordance with Resolution No. 1155 of the Russian Government dated 27 December 2010.Coefficients used to calculate export customs duty rates for petroleum products
from 1 October 2011 to 31 December 2014
Light and middle distillates 0,66
Fuel oil 0,66
Petrol 0,90

Resolution No. 276 of the Russian Government dated 29 March 2013 established a procedure for determining export customs duty rates on petroleum products that is similar to the one previously specified in Resolution No. 1155 of the Russian Government dated 27 December 2010.

In accordance with Resolution No. 2 of the Russian Government dated 3 January 2014, an estimated coefficient © has been established for diesel fuel in the amount of 0.65 for 2014, 0.63 for 2015 and 0.61 for 2016.

Excise tax for petroleum products

Producers of petroleum products are recognised as taxpayers that pay excise taxes for petroleum products on the territory of the Russian Federation. In addition, the tax is paid by legal entities when importing excisable goods to the territory of Russia.

In accordance with Article 193 of the Tax Code of the Russian FederationExcise tax rates for petroleum products, RUB/t
2013 (01/01 — 30/06) 2013 (01/07 — 31/12) 2014
PETROL
Below Class 3 10,100 10,100 11,110
Class 3 9,750 9,750 10,725
Class 4 8,560 8,960 9,916
Class 5 5,143 5,750 6,450
Straight-run 10,229 10,229 11,252
DIESEL FUEL
Below Class 3 5,860 5,860 6,446
Class 3 5,860 5,860 6,446
Class 4 4,934 5,100 5,427
Class 5 4,334 4,500 4,767
Heating oil 5,860 6,446
Motor oils 7,509 7,509 8,260

Mineral extraction tax (met)

Starting from 1 January 2014, the MET rate for oil ® shall be calculated using the following formula:

R = 493 * Cp * Cd * Cr * Ce * Cdp, where:

Cp is the coefficient that describes the dynamics of global oil prices and is determined using the following formula:

Cp = (P — 15) * R / 261, where P is the average monthly price of Urals on the Rotterdam and Mediterranean exchanges (USD/barrel) and R is the average monthly RUB exchange rate vs. the USD.

Cd — is the coefficient that describes the degree of depletion of a particular subsoil site. This coefficient envisages a reduction in the MET rate on oil for fields with a high degree of depletion. The degree of depletion of reserves is determined as N/V, where N is the amount of cumulative oil production at a particular subsoil site and V is the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular subsoil site as of 1 January 2006. If the degree of depletion of the reserves of a particular subsoil site is greater than or equal to 0.8 and less than or equal to 1, Cd shall be calculated using the formula: Cd = 3.8 — 3.5 * N/V. If the degree of depletion of the reserves of a particular subsoil site is greater than 1, Cd shall be assumed as equal to 0.3. In other cases, Cd shall be assumed as equal to 1.

Cr is the coefficient that describes the size of the reserves of a particular subsoil site. This coefficient envisages a reduction in the MET rate for small fields. If the initial recoverable oil reserves (Vr — the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular subsoil site as of 1 January of the year preceding the year of the tax period) are less than 5 mn tonnes and the degree of depletion of its reserves is determined to be less than or equal to 0.05 in accordance with the provisions of clause 5 of Article 342 of the Tax Code of the Russian Federation, Cr shall be calculated using the formula: ­ Cr = 0.125 х Vr + 0.375.

Ce is the coefficient that describes the degree of difficulty of extracting oil. Its value varies from 0 to 1 depending on the difficulty of extracting oil from a particular deposit:

  • 0 — when extracting oil from a particular deposit of raw hydrocarbons falling under the Bazhenov, Abalak, Khadum or Domanik productive deposits in accordance with the data of the State Register of Mineral Reserves;
  • 0.2 — when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more than 2 * 10-3 µm2 and formation net pay of no more than 10 m for the particular deposit;
  • 0.4 — when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more than 2 * 10-3 µm2 and formation net pay of more than 10 m for the particular deposit;
  • 0.8 — when extracting oil from a particular deposit of raw hydrocarbons falling under the Tyumen Formation productive deposits in accordance with the data of the State Register of Mineral Reserves;
  • 1 — when extracting oil from other raw hydrocarbon deposits.

Cdp Cdp is the coefficient that describes the degree of depletion of a particular raw hydrocarbon deposit. This coefficient envisages a reduction in the MET rate on oil for deposits with a high degree of depletion. The degree of depletion of reserves is determined as Ndp/Vdp, where Ndp is the amount of cumulative oil production at a particular deposit and Vdp is the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular deposit as of 1 January of the year preceding the year of the tax period. If the degree of depletion of the reserves of the deposit is greater than or equal to 0.8 and less than or equal to 1, Cdp shall be calculated using the formula: Cdp = 3.8 — 3.5 * Ndp/Vdp. If the degree of depletion of the reserves of a particular deposit is greater than 1, Cdp shall be assumed as equal to 0.3. In other cases, Cdp shall be assumed as equal to 1. For deposits containing difficult to recover oil reserves, Cdp shall be assumed as equal to 1.

Established in accordance with Article 342 of the Tax Code of the Russian FederationBase MET rates for oil, RUB/t
2013 2014
MET for oil 470 493

In addition, tax legislation establishes several „tax holidays” for the MET under which oil extracted in a number of Russian regions is subject to a zero tax rate provided compliance with the requirements established by the relevant provisions of the Tax Code of the Russian Federation.

Effective MET rate on oil for the Company
2013 2014 Change, %
Standard MET rate for oil 5,329 5,831 9.4
Effective MET rate for oil (taking into account Cd, Cr and Ce) 5,154 5,588 8.4
Deviation of the effective MET rate for oil from the standard rate, RUB/t 175 243
Deviation of the effective MET rate for oil from the standard rate, % 3.3 4.2

At the end of 2014, the effective MET rate for oil was 5,588 RUB/tonne, which is 243 RUB/tonne below the standard rate in accordance with Russian legislation. This deviation is due to the influence of the reduction coefficients on the MET rate for oil — Cd, Cr and Ce.

Met for natural gas and gas condensate

In accordance with Article 342 of the Tax Code of the Russian Federation.MET rates for flammable natural gas and gas condensate
2013 (01/01 — 30/06) 2013 (01/07 — 31/12) 2014 (01/01 — 30/06)
Natural gas, RUB/1,000 m3 The reduced MET rate for gas is set for taxpayers that are not owners of facilities of the Unified Gas Supply System and are not organisations in which the owners of facilities of the Unified Gas Supply System are not directly and/or indirectly involved and the share of such involvement exceeds 50%.265 In accordance with Article 342 of the Tax Code of the Russian Federation.402 In accordance with Article 342 of the Tax Code of the Russian Federation.471
582 622 700
Gas condensate, RUB/t 590 590 647

In accordance with the amendments made by Federal Law No. 263-FZ dated 30 September 2013, the formulaic procedure used to determine the MET for natural gas and gas condensate was established as of 1 July 2014.

The estimated MET rate for natural gas and gas condensate is determined as the product of the standard MET rate (35 RUB per 1,000 m3 for natural gas and 42 RUB/tonne for gas condensate) and two variables: the base value of the fuel equivalent unit (FEU) and the coefficient that describes the difficulty of extracting minerals from raw hydrocarbon deposits (Cd).

Starting from 2015, calculations of the MET for natural gas will also include an indicator that describes expenses on the transportation of natural gas (Tg).

Tax incentives

Current legislation on taxes and fees envisages various tax incentives utilised by the Company’s subsidiaries (including reduced tax rates and reduction coefficients on the MET rate for oil and natural gas).

Applicability of tax incentives for the Gazprom Neft Group in 2014
Tax Comments
MET FOR OIL
Cr reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vorgenskoye, East Vyngayakhinskoye, North Karamovskoye, Valyntoyskoye) LLC Zhivoy Istok (Baleykinskoye)
Cd reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Pogranichnoye, Kholmogorskoye, Chatylkinskoye, Muravlenkovskoye, Sugmutskoye) LLC Gazpromneft-Vostok (West Lugineysky section)
Ce reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vyngayakhinskoye) LLC Gazpromneft-Khantos (Krasnoleninskoye) LLC Archinskoye (Urmanskoye, Archinskoye)
Rate of 0 RUB for subsoil sites located fully or partially within the territory of the Nenets Autonomous District or Yamal Peninsula in the Yamalo-Nenets Autonomous District LLC Gazpromneft Novy Port (Novoportovskoye)
Rate of 0 RUB for subsoil sites located fully or partially within the territory of the Republic of Sakha (Yakutia), Irkutsk Region or Krasnoyarsk Territory LLC Gazpromneft-Angara (Tympuchikanskoye, Ignyalinskoye)
MET FOR GAS
Cs reduction coefficient on MET rate LLC Gazpromneft Novy Port (Novoportovskoye) CJSC Gazprom Neft Orenburg (Eastern section of Orenburg Oil and Gas Condensate Field)
PROFIT TAX OF ORGANISATIONS
Use of a reduced rate of 16% (4% benefit in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra) LLC Gazpromneft-Khantos OJSC Gazpromneft-Noyabrskneftegaz
Use of a reduced rate of 17% (3% benefit in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra) LLC Magma OC (prior to reorganization in the form of a merger with LLC Gazpromneft-Khantos)
Use of a reduced rate of 15.5% (4.5% benefit in accordance with regional legislation of Yamalo-Nenets Autonomous District) OJSC Gazpromneft-Noyabrskneftegaz
PROPERTY TAX
Exemption from property tax for investment projects in Khanty-Mansi Autonomous District-Yugra announced before 1 January 2011 (in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra) LLC Gazpromneft-Khantos
Exemption from property tax for fields under development after 1 January 2011 (in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra) LLC Gazpromneft-Khantos
Use of a reduced rate of 1.1% for property created/acquired when implementing investment projects in the Yamalo-Nenets Autonomous District (in accordance with regional legislation of Yamalo-Nenets Autonomous District) OJSC Gazpromneft-Noyabrskneftegaz LLC Zapolyarneft
Exemption from property tax for property created/acquired when implementing investment projects in the Orenburg Region (in accordance with regional legislation of the Orenburg Region) CJSC Gazprom Neft Orenburg