Promotional regime for hydrocarbon exploration and exploitation

On November 1, 2006 Law No 26,154 was published in the Official Gazette, which law sets forth promotional regimes for the exploration and exploitation of hydrocarbons. These regimes are applicable both on the continental platform and within the territory of the provinces – including their territorial sea – adjoining such regimes.

There are two regimes:

(i)            a general regime, applicable to the new exploration permits awarded in respect of the marine areas granted to ENARSA[1] and those over which no rights have been granted under Law No 17,319 and

(ii)           an exceptional regime for the permits and concessions granted under Law No 17,319.

Under the general regime, benefits are granted for terms ranging from 15 to 10 years, whereas the terms for access to the promotional regime range from 3 to 5 years as from publication of the Law, in both cases depending on the location of the area.

The exceptional regime, on the other hand, is available to the holders of concessions granted under Law No 17,319 who must submit a proposal to subdivide the area covered by the concession. The area resulting from the subdivision will be a new permit that will be awarded by means of a bid, with the current concessionaire being granted a first refusal right to equal the best bid.

Under this exceptional regime, benefits are granted for terms of 12 or 10 years, whereas the terms for access to it are 2 and 4 years after publication of the Law, in both cases depending on the location of the area.

Under both regimes, association with ENARSA is a precondition for access to the respective benefits, unless it expressly waives such condition, which situation is only expressly contemplated in the case of the general regime.

The promotional benefits of a taxation nature common to both regimes are as follows:

(i)    Value Added Tax: Early reimbursement of the tax for investments and expenses made in the exploration stage and for investments in the exploitation stage. This benefit may also be enjoyed by Uniones Transitorias de Empresas (joint ventures) and any other individual or collective entity subject to this tax.

(ii)   Income Tax: Capitalizable expenses and the investments made in the exploration stage, as well as the investments made in the exploitation stage may be subject to accelerated amortization, in three annual equal and consecutive installments, as from the year in which they are made and to the extent they are capitalizable or the investments are authorized.

(iii)   Imports: Payment of import duties and any other duty, special tax, related assessment or statistics duty is exempted, excluding the service tax, in respect of the introduction of capital assets necessary for the activities promoted or parts or elements of such assets, which are not manufactured in the country. They shall be determined by the enforcement authority. Restrictions have been established for the later disposal of these assets.

Under the general regime only, the assets belonging to the holders of exploration permits and exploitation concessions granted under this Law which are used for the activities promoted are excluded from the taxable base of the Minimum Presumed Income Tax. This is applicable as from the adjudication date and for three years after the granting of the exploitation concession derived from the exploration permits of such areas.

There is a fiscal allotment for these benefits, which will be fixed on an annual basis, with the projects already enjoying the benefits derived from the promotional regime in force in the territory of the Province of Tierra del Fuego, Antártida e Islas del Atlántico Sur (Law No 19,640) being excluded from the provisions of this Law.

Apart from the tax benefits, the promotional regime set forth by Law No 26,154 contemplates the following benefits:

(i)    Extension of concessions: In the case of the exceptional regime, the Law provides for the granting of the 10-year extension for concessions contemplated in Law No 17,319 in respect of the new areas resulting from the subdivision.

(ii)   Access to adjacent areas: Under both regimes, access to adjacent areas is authorized by means of the granting of a new exploration permit to the holders of the permits awarded under this regime, provided evidence of geological continuation is provided and existing rights are not adversely affected.

Benefits shall cease upon expiration of the terms of the permits and concessions, in the event of default under the investment plan committed to, or in the case of the expiration events set forth in Section 80 of Law No 17,319.