New tax stability rules for Peruvian oil contracts

The Peruvian government has changed the rules on tax rate stability in petroleum and mining contracts signed since Sept. 7, including those that were already in process with government entities. The companies named in these contracts are liable to taxes created later. Companies with contracts signed before that date are not liable for any changes in tax legislation.


LIMA�The Peruvian government has changed the rules on tax rate stability in petroleum and mining contracts signed since Sept. 7, including those that were already in process with government entities. The companies named in these contracts are liable to taxes created later. Companies with contracts signed before that date are not liable for any changes in tax legislation.

The government has, however, retained tax stability for investors signing new contracts with the state for the exploration and exploitation of natural gas, subject to approval by executive decree.

The exception is basically aimed at boosting the Camisea natural gas project, stalled since February for the lack of bidders for the transport and distribution of natural gas and liquids from the fields, located 500 km east of Lima to the southern coast. The Peruvian government has finally set the tender date for that contract for Oct. 20 (OGJ Online, Sept. 18, 2000).

New petroleum contracts can only obtain stability for taxes in force on signing the contract but are liable for future taxes under the following framework:

� Income tax will be stabilized in accordance with the rules in force on signing the contract plus 2 percentage points. Current income tax for companies is 30%.

� Stability of the general sales tax, selective consumption tax, municipal tax, and any other tax on consumption when these are transferred to other entities.

� Stability includes special regimes for the reimbursement of tax, temporary admission, and the regime applicable to exports.

� In the case of exonerations, incentives, and other tax benefits and regimes, the stability is subject to the period and terms established by law in effect at the time of signing the contract.

In order to apply for the above benefits, companies must commit to invest a minimum $10 million through the national financial system either in capital or in risk investments through third parties in the hydrocarbons or mining sector. Other industry sectors must guarantee a minimum of $5 million.

Judicial stability is only applicable to companies that sign the contracts. In cases of reorganization, including mergers as of Sept. 7, the contract will lose effect.

The new rules were published in El Peruano, the official gazette, on September 6.

Industry sources said that neither the US company Occidental Petroleum Corp., which is negotiating an exploration and production contract for two blocks in the Ucayali basin, or Perez Companc, which is negotiating a technical exploration assessment near Colombia�s Putumayo region, intend to pull back.

Meantime, the congressional petroleum commission was to begin debating a new law to promote oil exploration Sept. 12.

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