The taxes and fees imposed on the production of oil and gas secure an income for the state.
Corporate income tax and hydrocarbon tax are collected by the Danish Ministry of Taxation, Central Customs and Tax Administration, while the collection of royalty, the oil pipeline tariff, the compensatory fee and the profit sharing is administered by the DEA. Moreover, the DEA supervises the metering of the amounts of oil and gas produced on which the assessment of state revenue is based.
Below, an outline is given of the state’s sources of revenue, based on the statutory provisions applicable in 2005. The applicable rules are outlined at the DEA’s website.
Corporate income tax
Corporate income tax is the most important source of revenue related to oil and gas. With effect from 1 January 2007, the corporate income tax rate was lowered from 28 to 25 per cent.
Hydrocarbon tax
This tax was introduced in 1982 with the aim of taxing windfall profits, for example as a result of high oil prices.
Royalty
Older licences include a condition regarding the payment of royalty, which is payable on the basis of the value of hydrocarbons produced, after deducting transportation costs. New licences contain no requirement for the payment of royalty.
Profit sharing
From 1 January 2004 and until 8 July 2012, the Concessionaires and their partners under the Sole Concession are to pay 20 per cent of their profits before tax and net interest expenses.
Oil pipeline tariff
DONG Olierør A/S owns the oil pipeline from the Gorm Field to Fredericia. The users of the oil pipeline pay a fee to DONG Olierør A/S, which includes a profit element of 5 per cent of the value of the crude oil transported. DONG pays 95 per cent of the proceeds from the 5 per cent profit element to the state, termed the oil pipeline tariff.
Compensatory fee
Any parties granted an exemption from the obligation regarding connection to and transportation through the oil pipeline are required to pay the state a fee amounting to 5 per cent of the value of the crude oil and condensate comprised by the exemption.
DONG E&P A/S
DONG E&P A/S is a fully paying participant in the licences granted in the 4th and 5th Licensing Rounds and in the Open Door area, with a 20 per cent share. In some cases, DONG E&P A/S has supplemented this share on commercial terms by purchasing additional licence shares. DONG E&P A/S holds a share in the individual licences on the same terms as the other licensees, and therefore the company pays taxes and fees to the state.
Danish North Sea Fund
In the future, the Danish state, represented by the Danish North Sea Fund, will participate in all new licences with a 20 per cent share.