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U.S. oil and gas company Exxon Mobil has notified the Russian Energy Ministry that it has filed a lawsuit at the Stockholm arbitration court requiring a change in the interpretation of the Sakhalin-1 project Production-Sharing Agreement (PSA) paragraph regarding taxation, Russian publication Vedomosti has reported, with reference to the Russian Energy Minister Alexander Novak.
Exxon Mobil believes its subsidiary overpaid approximately $500 million in profit taxes on its Sakhalin-1 oil and gas project in Russia.
As a compromise, Exxon Mobil offers to reimburse half of the overpaid amount, and subsequently calculate tax at a rate of 20%, instead of the current 35%. Russia is preparing its propositions and expects to reach an out-of-court settlement of the issue, Russian sources told the publication.
At the time of the PSA signing in the mid-1990s profit tax of 35% was imposed in Russia. Russia reduced the profit tax in 2009 to 20%, but Exxon Mobil continued to pay at the earlier level of 35%, although it applies to the Finance Ministry with a request to lower the rate. According to the newspaper, Russia believes that PSA terms are not subject to changes within its period of validity.
Two weeks ago Exxon Mobil CEO Rex Tillerson arrived in Moscow for talks on the issue. As media reported, Russian officials listened to Exxon Mobil’s arguments, but failed to come to an agreement. The issue will be further discussed by the Russian government.
Exxon Mobil is the Sakhalin-1 project’s operator, 30% belongs to Japan’s Sodeco, while Rosneft and the Indian company ONGC each own a 20% stake.
In 2014, Sakhalin-1 project generated RUB 19.7 billion in revenues for the regional budget, and RUB 11.6 billion for federal coffers.