On September 30, 2013 President Putin signed new Federal Law No. 268-FZ (Amending Law) introducing amendments into Parts I and II of the Tax Code of the Russian Federation, as well as the Law of the Russian Federation “On the Customs Tariff,” No. 5003-I, dated May 21, 1993 (Customs Tariff Law) and Federal Law “On the Continental Shelf of the Russian Federation,” No. 187-FZ, dated November 30, 1995 (the “Continental Shelf Law”). In general, these amendments are believed to facilitate the participation of foreign companies in oil and gas development projects on the Russian continental shelf. Below we discuss the most noteworthy of these amendments.
Amendments to the Tax Code (Articles 1 and 2 of the Amending Law)
Most of the amendments introduced by the Amending Law relate to the Tax Code of the Russian Federation.
Part I of the Tax Code was supplemented with new Article 11.1 which establishes definitions for various terms related to the extraction of hydrocarbons, previously undefined in Russian legislation. In particular, the article sets forth definitions for a deposit of hydrocarbons, a seabed deposit of hydrocarbons, a new seabed deposit of hydrocarbons having date of industrial phase starting on January 1, 2016 or later, and operations related to the extraction of hydrocarbons on the new seabed deposit of hydrocarbons, etc. Interestingly, the above terms are defined in Russian tax legislation, rather than in the Law of the Russian Federation, “On the Subsoil,” No. 2395-1, dated February 21, 1992.
Also, new Chapter 3.2 of the Tax Code regulating the activity of an operator of a new seabed deposit of hydrocarbons, was introduced to Part I of the Tax Code. Such operators carry out activities relating to the extraction of hydrocarbons on a new seabed deposit of hydrocarbons on the basis of a contract concluded with a respective holder of a license to develop a subsoil block. The Amending Law specifically clarifies that a foreign company may also be an operator of a seabed deposit of hydrocarbons.
Amendments to the Tax Code will come into effect on January 1, 2014.
Amendments to the Customs Tariff Law (Article 3 of the Amending Law)
Pursuant to the Amending Law, the following minerals extracted from new seabed deposits of hydrocarbons (date of industrial phase starts on January 1, 2016) shall not be levied with export customs duties: crude oil, natural gas condensate, natural gas, liquefied natural gas, and broad range of light hydrocarbons.
Also, the following minerals extracted from existing (not new) seabed deposits of hydrocarbons shall not be levied with export customs duties: crude oil, natural gas condensate, and liquefied natural gas.
The Amending Law sets five time periods during which the above export customs benefits will operate. The expiration dates range from January 1, 2021 to January 1, 2042, and depend on the location of the respective seabed deposit of hydrocarbons.
Amendments to the Customs Tariff Law come into effect on December 29, 2013 (90 days from the date of official publication).
Amendments to the Continental Shelf Law (Article 4 of the Amending Law)
Certain important amendments were introduced to the Continental Shelf Law.
The Amending Law introduces legal definitions for artificial islands, facilities and fixtures (equipment) located on the continental shelf of the Russian Federation. These definitions include fixed and floating drilling platforms.
It specifies that artificial islands, facilities and fixtures must be constructed in accordance with design documentation specified by Russian subsoil and town-planning legislation (the centerpiece of which is the Town-Planning Code of the Russian Federation). However, no special building permit is required for such construction in the case of a subsoil license, and where design documentation is developed and approved in accordance with such a subsoil license which provides for the construction of artificial islands, facilities and fixtures. Further, if a subsoil license also provides for the performance of drilling works, no special permit is required to perform such works.
In addition, the Amending Law introduces provisions regulating the hiring of a contractor for the construction and/or operation of artificial islands, facilities and fixtures.
Amendments to the Continental Shelf Law came into effect on October 1, 2013 (the date of official publication of the Amending Law).