Subtleties of accounting in the activity of maintaining a production sharing agreement

The Law of Ukraine "On Production Sharing Agreements" No. 1039-XIV of September 14, 1999, although it does not directly distinguish the legal status of the "operator" of a production sharing agreement, defines cases when the acquisition of rights and obligations is possible for a separate legal entity in the role of the "operator".

Qualifying features that indicate the time, place, manner of appearance and role of the operator in a production sharing agreement disclosed in the following articles of the Law of Ukraine "On Production Sharing Agreements":

1) the state ensures that investors (including operators of agreements) are provided with approvals, quotas, special permits for the use of subsoil and licenses for the search (exploration) and exploitation of mineral deposits, and acts on the granting of a mining concession (part 3 of Article 4);

2) if there are two or more investors participating in a production sharing agreement, they must appoint one investor from among themselves as the operator of the agreement to represent their interests in relations with the state. For this purpose, investors are required to conclude an operating agreement (paragraph 2 of part 2 of Article 9);

3) the operator of the agreement and/or the representative office of the foreign investor on the territory of Ukraine shall have all the powers established for the investor by the production sharing agreement (paragraph 3 of part 2 of Article 9);

4) a multilateral production-sharing agreement must grant the operator of the agreement the rights to make independent decisions regarding the ongoing ongoing activities necessary to fulfill the tasks (plans, programs, etc.) stipulated in the production-sharing agreement (paragraph 8 of part 2 of Article 9);

5) the Cabinet of Ministers of Ukraine ensures the timely execution of documents in the name of all investors - participants in the production sharing agreement, the operator and/or, based on the application of the investor (operator of the agreement), facilitates the provision of such documents in the name of the relevant contractors, subcontractors and other organizations (paragraph 1 of Article 12);

6) when concluding a production sharing agreement, the costs incurred by investors - participants in the production sharing agreement, including a non-resident investor or his representative office, are subject to compensation with compensatory products, and the operator keeps records of such costs (paragraph 5 of part 5 of Article 19);

7) production sharing agreement may provide for the possibility of the agreement operator selling (realizing) investors' shares in the produced products with the operator's obligation to transfer the cash equivalent of the shares of such products to investors and/or the state (part 3 of article 20);

8) during the implementation of the production sharing agreement, the investor (operator of the agreement) pays taxes and fees (mandatory payments), as well as a single contribution to the mandatory state social insurance of Ukrainian employees and foreigners employed in Ukraine (Part 2 of Article 25);

9) a single contribution to the mandatory state social insurance of Ukrainian employees and foreigners employed in Ukraine is paid by the investor (transaction operator) in the general manner (part 3 of Article 25);

10) the state ensures the timely issuance of work permits, as well as, if necessary, service cards for all foreign workers employed by investors (including the operator of the agreement) under the production sharing agreement (part 2 of Article 35).

Thus, it can be safely assumed that an investor acquires the status of "transaction operator" in the following cases:

- for the investor (by absorbing the status of the investor into the status of the transaction operator, combining the role of the investor and the role of the operator in one legal entity);

- the status of "operator" is acquired after the registration of the investor's representative office on the territory of the state;

- in the event that two investors sign a production sharing agreement, an operator is necessarily determined between them;

- the rights and obligations of the operator and the investor are equal, and therefore the division of legal status is a more conditional category;

- the investor as an operator has full operational authority under the production sharing agreement;

- in cases of obtaining permits, employing employees, accruing tax liabilities and paying fees, the line between investor and operator is blurred;

- the operator is authorized to sell the investor's share in the produced products;

- the accounting of the investor's expenses is kept by the operator;

- communication with the state is the same for the operator and the investor.

However, combining the roles of operator with investors, or investors with operator(s), creates serious legal challenges in practice:

1) is it necessary to amend the production sharing agreement regarding the replacement of the operator if several investors decide to abandon the production sharing agreement?;

2) is it necessary to amend the production sharing agreement in the event of disputes between investors regarding the operating agreement?;

3) is the investor's withdrawal from the agreement accompanied by a change in the operator's "status" or does the investor automatically become a sole operator (investor)?;

4) how to transfer the costs incurred by one investor to one operator if unilateral transactions are not allowed?

The tax status of a production sharing agreement is special in that the accounting for the payment of taxes and fees is carried out through the assigned registration number of the production sharing agreement.

Despite the fact that a production sharing agreement does not create a separate legal entity for the investor (operator), the transfer of costs within one legal entity, which is the operator (investor), is still impossible.

An operator (investor) operating agreement cannot be concluded with a “production sharing agreement”.

The technical advantage of registering tax invoices of one legal entity under a separate tax registration number cannot be a reason for legal schemes for transferring costs in production sharing agreements.