Danish petroleum tax
Old system
Applies for license awarded before 1 January 2004
- The income statement of an oil company with a Danish production license may consist of three different income statements:
- Non hydrocarbon (chapter 1) income statement subject to 25% corporation tax including:
- Income not originating from production of hydro carbon
- Hydrocarbon income (chapter 2) subject to corporation tax of 25% including:
- Income/expenses from the sale of hydrocarbons
- Ring fence on an industry basis (i.e can’t deduct onshore activity)
- Declining balance depreciation of 23% in 2009 and reduced over time to 15% in 2018
- Hydrocarbon income (chapter 3) subject to hydrocarbon tax of 70% (old licenses) including :
- income/expenses from the sale of hydrocarbons based on chapter 2 with some differences
- separate income statement for each field (field ring fence)
- A special hydrocarbon allowance of 25% of invested capital each year in 10 year period is granted
- All fields with positive hydrocarbon income are added together. From this amount any tax loss carry forward (chapter 3), exploration cost and corporation tax are deducted to find the tax base (Noreco carries huge carry forward losses)
- The effective taxation of hydrocarbon income related to old licenses is in principle 77.5% (25%+(100%-25%)*70%).
- Due to the hydro carbon allowance the 70% tax is only payable in rare cases
New system
Applies for licenses awarded after 1 January 2004
- It is only Chapter 3 income that is taxed differently:
- 52% hydrocarbon tax
- Hydrocarbon allowances for new licenses is reduced to 6% for 5 years
- No ring fence between fields
- The effective tax rate of hydrocarbon income related to new licenses is in principle 64% (25% + (100%-25%)*52%)
SPECIAL NOTE ON FINANCING COST & OTHER GOVERNMENT TAKE:
- Thin capitalization: Deductibility for interest over DKK 10 mill is limited by rules for thin capitalisation. Maximum 6.5% of asset base and 80% of EBIT.
- Companies also pay a pipe line duty (5% of revenues - transportation cost)
Tax balances and losses carry-forward
- Hydrocarbon (chapter 3) losses carry-forward: Altinex Oil Denmark and Altinex Petroleum Denmark have large losses carry-forward related to old licenses. The losses are of such magnitude that it is unlikely that the existing producing fields in Denmark will pay hydrocarbon tax, unless the oil prices shifts to substantially higher level than the current forward curve.
Last updated 26. April 2012