The Government has announced new licensing terms that will increase the tax paid to 40% on revenues from Ireland's most profitable offshore oil and gas fields.
Under a regime introduced in 1992, oil and gas companies pay 25% corporate tax and can write off their exploration costs.
The new licensing terms introduce a profit resource rent tax to operate on a graded basis of profitability, which will result in the most profitable fields paying an extra 15% tax to the State on top of the current 25%.
The additional 15% tax will be paid on fields where the profit ratio - which is the rate of profits less 25% tax divided by the capital investment - exceeds 4.5.
An additional 10% tax will be charged on top of the current 25% when the profit ratio is between 3 and 4.5.
An extra 5% tax will be levied when the profit ratio is between 1.5 and 3, and the tax payable will stay at 25% when the profit ratio is less than 1.5
The old practice had been criticised by opposition parties and others, particularly following the Corrib gas find and the sharp increase in energy prices.
A recent report by economic consultants Indecon recommended that the Government increase its tax take.
Announcing the new terms Minister for Communications, Energy & Natural Resources, Eamon Ryan said today : 'The basis for this decision was to ensure a greater return to the State from our own natural resources, while maintaining the incentive for companies to explore off our shores. I believe these changes achieve this balance'.
Minister Ryan added that he is optimistic greater exploration investment will take place under the new terms.
The hike was agreed at last Monday's cabinet meeting. The increase is retrospective - but will date back only to January 1 this year.
Minister Eamon Ryan also announced today that he would be launching a new licensing round for oil and gas exploration in the 'Porcupine Basin' in the early autumn. Details will be published in the EU Official Journal in September.
The Minister also said changes will be made to the non-fiscal licensing terms as well, such as reducing the length of certain licences, requiring licensees to surrender acreage earlier, and increasing fees in line with inflation.
The Irish Offshore Operators' Association said the changes to the licensing regime are complex and will require careful and detailed analysis by our member companies, and until this takes place, further comment would not be appropriate.
