Moçambique – Regime Específico de Tributação Para As Operações Petrolíferas

The study noted the effect of other taxes, such as the surface tax and labor taxes, but did not calculate their effects due to the tight schedule. It also observed that a sophisticated conclusion, particularly regarding cumulative maximum taxes, would require sophisticated computer simulations. The study revealed the need to correct many weaknesses in the drafting, particularly regarding definitions, some of which were inconsistent or appeared as uppercase terms in the body of the law without being defined. These defects are easy to eliminate, as are many of the inevitable ambiguities. The consultant recommends issuing extensive interpretative regulations shortly after promulgation to ensure transparency. The tax legislation was considered too complex and in need of simplification. The major weakness is that high production costs could result in tax rates exceeding 100% of revenues; this must be corrected, otherwise producers will only opt for cheap projects and will be induced to abandon them too early. The legislation was also considered difficult to administer, mainly due to the need for difficult production assessments, instead of using real sales prices. The study made several recommendations, including converting the IPP into a pure royalty that considers the government as the owner of that share of production represented by the percentage of royalties and bases the royalty on real sales instead of imaginary sales. This will keep royalties out of the producer's income, simplifying and making the income tax and production sharing tax calculation more just. The royalty rate was considered to be within international standards and was noted as a good feature to ensure revenue, even when the producer loses money with production. The income tax was generally accepted, and the rate was approved as being within international standards. The part of the tax related to production sharing was generally approved, but with many observations, especially a general recommendation that the mechanism triggering production sharing be more in line with how businesses generate cash flow analyses to make business decisions, including specifically considering all costs, including those incurred directly before commercial production and payment of taxes. Subcapitalization, which results in the refusal of deductions for interest expenses, should be based on the asset value, not the accounting value. This process will align the subcapitalization rules with their objective, i.e., not allowing deductions for interest expenses related to debt that the market cannot provide. The rules for fixing prices between companies should be clarified regarding government authority. Under the current law, tax authorities can make any adjustments they want, which can lead to arbitrary results. It is recommended that, in the case of a dispute regarding a government adjustment, the adjustment should be maintained if it is not arbitrary and capricious. The payment of bonuses was generally approved, subject to the comment that the government should consider the risk of not attracting more innovative smaller producers. The revenues should enter a formal government fund and be established and regulated in accordance with the Extractive Industries Transparency Initiative. The information related to financial flows to and from the fund should be easily accessible to the public and the press. With the aim of facilitating the sharing of information with other governments and facilitating the treatment of price-fixing issues between companies in a multilateral manner, the government should seriously consider celebrating additional bilateral tax agreements. It was also suggested that the government consider the possibility of celebrating an existing fiscal multilateral treaty (The Convention on Mutual Administrative Assistance in Tax Matters). The consultant considered a total maximum fiscal revenue of around 80%, realized through the production sharing formula, to be within standards, and recommended that, if the rate is exceeded, the fiscal revenue should be reduced to the maximum rate by reducing the production sharing quota for the year. The consultant recommends the approval of a tax on profits of branches to make the withholding tax system symmetrical between subsidiaries of foreign companies and branches of foreign companies operating in Mozambique.