Provisions Relaxed for the Reimbursement of PPN and PPnBM for Upstream Oil-and-Gas Business Activities

The Ministry of Finance (“Ministry”) has finally issued Regulation No. 158/PMK.02/2016 (“Regulation 158/2016”), which amends Ministry Regulation No. 218/PMK.02/2014 (“Regulation 218/2014”) on Procedures for the Reimbursement of Value-Added Tax or Value-Added Tax and Luxury-Goods Sales Tax for Taxable Goods and/or Services to Upstream Oil-and-Gas Contractors.Regulation 158/2016 aims to determine the procedure for calculating any reimbursement of value-added tax (pajak pertambahan nilai– “PPN”) or PPN and luxury-goods sales tax (pajak pertambahan nilai dan pajak penjualan atas barang mewah– “PPnBM”) paid by upstream oil-and-gas contractors (“Contractors”). For this purpose, Regulation 158/2016 redefines the “State’s shares”, as stated in any cooperation or production sharing contract (PSC) held between the State and Contractors, as well as allow for any PPN and PPnBM which relate to Liquefied Natural Gas (LNG) refineries to be reimbursed. [1] State’s ShareContractors who explore and exploit upstream oil and gas in certain areas across Indonesia are entitled to seek reimbursements for any PPN or PPN and PPnBM which has been paid on taxable goods and/or services. This facility can be obtained after the Contractors have first deposited the “state’s share”, as stated in the relevant cooperation contract or PSC. [2] Under the Amendment, this state’s share now comprises of two main elements, specifically: 1) First Tranche Petroleum (“FTP”), which refers to any total production of raw oil and/or gas per year (excluding any deductions made owing to any operational-cost repayments and production management/own use); and 2) Split Equity (“Equity”), which refers to the total production of oil and/or gas – (FTP + repayment of operational costs). [3] The amount of FTP and Equity which has been deposited by a Company as the state’s share will be the maximum threshold for the reimbursement of PPn or PPN and PPnBM. [4] In cases where a given cooperation contract/PSC does not state FTP as one of the elements of the state’s share for reimbursement, then the maximum threshold for the reimbursement will amount to the total amount of Equity. [5] Previously, Regulation 218/2014 did not incorporate FTP and Equity as part of the state’s share.Liquefied Natural GasRegulation 158/2016 now allows Contractors to be reimbursed for any payments of PPN or of PPN and PPnBM which relate to the operational costs of Liquefied Natural Gas (LNG) refineries. This facility, however, can only be obtained by Contractors if it is expressly stated in a cooperation contract or PSC. [6] Prior to the issuance of Regulation 158/2016, no such PPN or PPN and PPnBM payments were reimbursable, and neither were the following: [7]