U.S. producers would lose their competitive edge with foreign producers on many international energy development projects if the long-standing rules on taxing foreign income are revised, according to a new study commissioned by the American Petroleum Institute (API).
Legislative proposals offered by the Obama administration would significantly alter how foreign tax payments by U.S.-based companies on their foreign income would be treated for U.S. tax purposes -- essentially subjecting them to double taxation on foreign operations, said the study prepared by Scotland-based Wood Mackenzie.
As a result, API said U.S. producers would face potentially lower returns investing in foreign oil and natural gas projects, would bid on fewer projects and would successfully bid less often.
"If U.S.-based companies are forced to withdraw from an oil and natural gas development abroad because a new law instantly turns it uneconomic, that affects jobs at home and it potentially reduces revenues," said Stephen Comstock, API tax policy manager.
The study says the proposed change in tax treatment of foreign revenue for U.S. producers would provide an enormous investment advantage to international competitors operating under the old rules, resulting in net present values of development projects to foreign investors of as much as 110% greater than to U.S. investors.
It concludes the "proposed changes that would apply only to U.S.-based investors are likely to make them less willing to invest in overseas opportunities and may also make it attractive to them to dispose of overseas assets where the value of the asset to a non-U.S. company is significantly greater than that to a U.S.-based investor."
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