Interpretative Resolution on Oil and Gas

The Arbitration Commission of the Multilateral Agreement issued General Resolution 17/2025, published in the Official Gazette on September 25, 2025, which determines certain general interpretative criteria concerning the application of the Multilateral Agreement on the Turnover Tax levied on oil and gas extraction activities.

For context, under the general regime of article 2 of the Multilateral Agreement, taxpayers’ gross income is allocated 50% based on the expenses incurred in each provincial jurisdiction and 50% based on the income generated in each of them.

On the other hand, article 13, first paragraph of the Multilateral Agreement establishes a special regime that partially applies in lieu of article 2. This special regime applies to agricultural, forest, and mining products; and/or to raw local produce, processed or semi-processed in the jurisdiction of origin, when dispatched by the producer, without invoice, for sale outside the jurisdiction of production—whether sold in the same condition or after processing—. If these conditions are met, the Multilateral Agreement establishes that these products’ official wholesale or market price will be allocated to the jurisdiction of origin, while the jurisdiction of sale may tax, pursuant to article 2, the difference between the total gross income and said amount.

The interpretative criteria established in General Resolution 17/2025 are:

•    If oil and gas are dispatched by the producer itself from the producing jurisdiction, for sale within or outside of it, and their quality, quantity, and/or price are only determined at the place of delivery, then the transfer of title, risk, or ownership from seller to buyer will take place at that point, and the sale will also be deemed to have occurred then and there.

•    The special regime under article 13, first paragraph of the Multilateral Agreement will apply in when:

o    The oil or gas extraction activity is carried out in one jurisdiction and the products are dispatched—raw, processed. and/or semi-processed—by the producer itself, without prior invoicing or selling, outside that jurisdiction for subsequent sale, either in their same condition or after processing them.

o    The oil or gas extraction activity is conducted in one jurisdiction and the products are dispatched, without being sold, outside that jurisdiction to be industrialized by the same taxpayer that extracted them.

•    The general regime under article 2 of the Multilateral Agreement will apply when:

o    The oil or gas extraction activity is conducted in one jurisdiction, and the taxpayer sells the product to another party before it leaves the production jurisdiction. In such cases, gross income should be allocated to the jurisdiction where the goods are delivered.

o    The taxpayer extracts oil in one jurisdiction, industrializes it in the same jurisdiction, and the resulting products are dispatched without invoicing to another jurisdiction for subsequent sale.
This interpretative resolution consolidates the criteria that the Arbitration Commission has developed over the past 30 years through various decisions, which addressed:

•    Whether article 13, first paragraph of the Multilateral Agreement applies to oil and gas. The Arbitration Commission has held that it does, treating them as mining products.

•    Whether a sale should be deemed to have occurred before the dispatch of oil or gas when the taxpayer receives a purchase offer from the client—a common practice in the industry—but the quantity, price, and/or quality of the product are only determined in the jurisdiction of delivery, with the invoicing of the goods taking place at that time or later, and no transfer of ownership occurring before dispatch. An affirmative answer, argued by certain jurisdictions where hydrocarbons are marketed, leads to apply the general regime under article 2 of the Multilateral Agreement. A negative answer would result in applying the special regime under article 13, first paragraph, which is more favorable to producing jurisdictions. In such cases, the Arbitration Commission has interpreted that no sale has occurred and, therefore, that it is article 13 that applies (instead of article 2).

•    The appropriate treatment when oil and gas are dispatched by the extracting company itself outside the extraction jurisdiction, not for subsequent sale as referred to in article 13, first paragraph of the Multilateral Agreement, but for industrialization by the same company in another jurisdiction.

•    The applicable treatment when extraction occurs in one jurisdiction and oil and gas are dispatched to another jurisdiction after being sold prior to leaving the extraction jurisdiction. In such cases, the Arbitration Commission held that it is article 2 of the Multilateral Agreement that applies, and that gross income must be allocated to the jurisdiction where the goods are delivered.

•    Whether the treatment under article 13, first paragraph of the Multilateral Agreement applies when petroleum-derived products—such as oils and lubricants produced in a jurisdiction using raw materials extracted there—are dispatched without invoicing to another jurisdiction for subsequent sale. In these cases, some producing jurisdictions argued that oils and lubricants contain the extracted petroleum and that, therefore, if dispatched without invoicing to another jurisdiction, article 13, first paragraph should apply, as it applies to unprocessed oil in the same circumstances. The Arbitration Commission interpreted that it is the general regime under article 2 that applies in such cases, since article 13, first paragraph applies to primary products and not to industrial ones.

Notwithstanding certain interpretative doubts arising from the wording of this resolution, it constitutes an essential element that must be analyzed when considering how the Turnover Tax base should be allocated according to the nature and characteristics of each business, transaction, or activity.