Abstract:

The tax regime applicable to oil and gas activities in Romania has recently been the subject of reforms, the aim of which was to improve efficiency while maintaining the competitiveness and liberalization of natural gas prices.

Although these reforms have had a positive impact on state revenues, overall the annual tax regime fails to achieve the government’s fiscal neutrality and efficiency objectives. In particular, low sensitivity to changes in economic variables is considered to have contributed to the low level of investment in the oil and gas industry, including investment aimed at supporting the final production of crude oil and gas. The government is examining options to modernize the taxation of upstream and downstream activities in the oil and gas sector, including by aligning the tax burden more closely with the risk profile and profitability of these activities. In order to support the Romanian authorities in their efforts to improve tax policy in the oil and gas sector, this analysis presents approaches of various countries regarding the application of the separation principle to the benefits associated with the activity in this industry. The paper begins with a presentation of the tax administration aspects associated with the use of “fiscal separation”, and then examines the application of the separation principle to taxation in the broader context of fiscal and non-fiscal instruments commonly used in the oil sector.