Time of calculation of income taxes for consortia in production sharing agreements

Investors in production sharing agreements are income tax payers, both as legal entities and, at the same time, as operators who allocate part of the costs to a joint account.

During the period of work on the site and until the moment of distribution of the extracted hydrocarbon raw materials from it, tax accounting inspectors require investors to submit a declaration with income tax calculations, as during the performance of geological exploration work, operators of production sharing agreements participate in economic transactions.

Such business transactions are the basis for calculating income tax.

Investors are outraged by such demands from tax inspectors, because operators of production sharing agreements only record minerals on their balance sheets and document them in primary accounting registers after distributing shares of raw materials.

During the processing of mineral raw materials, the distributed hydrocarbon particles are separated.

Similar disputes involving investors and tax inspectors regarding the timing of profit accrual in production sharing agreements sometimes lead to litigation.

In this context, it is worth emphasizing that the legal nature of the dispute does not arise at all.

The Delhi High Court also agrees with this opinion in the case of Geo Enpro Petroleum Ltd v. Dy. Commissioner of Income Tax dated May 4, 2009, stating that the calculation of profit is done: "since the commercial production commenced for the purposes of fixing the initial assessment".