Low impact from GloBE tax rules on oil industry

PETALING JAYA: The Global Anti-Base Erosion (GloBE) tax rules that will take effect in Malaysia and Singapore by January next year will likely have a limited impact on oil and gas (O&G) companies in Malaysia, says CGS International (CGSI) Research.

This was based on the research house’s latest study on the impact of GloBE rules, initiated by the Organisation for Economic Cooperation and Development (OECD) with the Group of 20 (G20) countries, which imposed a global minimum tax (GMT) of 15% or more on the profits of multinational enterprises (MNEs).

This is to prevent MNEs from shifting profits to low tax jurisdictions and deprive countries of their rightful tax revenues.

In Malaysia, MNEs that are headquartered here and those that have their fiscal years beginning on or after Jan 1, 2025 will have to account for the GMT.

Therefore, the GMT will apply to the Petroliam Nasional Bhd (PETRONAS) group of companies, which includes key listed subsidiaries such as Petronas Chemicals Group Bhd (PetChem), Petronas Dagangan Bhd and MISC Bhd for the year ending Dec 31, 2025.

The GMT will also apply to Yinson Holdings Bhd for the year ending Jan 31, 2026 as the company’s next financial year begins on Feb 1, 2025 (FY25).

The GloBE rules also apply to the Lotte Chemical Corp group of companies and its Malaysian subsidiary, Lotte Chemical Titan Holding Bhd.

However, the GloBE rules do not apply to Bumi Armada Bhd, Velesto Energy Bhd, Dialog Group Bhd, Hibiscus Petroleum Bhd, Wasco Bhd or Dayang Enterprise Bhd as “these companies do not satisfy either one or both criteria,” the research house noted.

To put things into perspective, CGSI Research said O&G companies such as MISC and Yinson currently enjoy tax exemptions on their shipping and floating production, storage and offloading (FPSO) operations in Malaysia and Singapore.

PetChem, meanwhile, is enjoying just 3% tax on the profits of its Labuan sales entity, which has depressed its effective tax rate (ETR) to below the GMT of 15% for most years.

According to CGSI Research, tax legislation in most national jurisdictions imposes taxes on individual legal entities, and does not permit aggregation across different legal entities.

However, the GloBE rules are unique in the sense that all companies of an MNE that are based in the same jurisdiction are assessed for compliance with the GMT of 15% on an aggregate basis.

“This saves PetChem from any additional taxes when GloBE takes effect in Malaysia from 2025, because PetChem in Malaysia is part of the PETRONAS MNE, which likely already incurs an ETR of above 15% in Malaysia because its exploration and production subsidiary, PETRONAS Carigali, is liable for the petroleum income tax of 38%,” the research house explained.

As MISC is also part of the PETRONAS MNE, CGSI Research noted it is similarly shielded from additional taxes on its Malaysian FPSO business, while its shipping operations are specifically exempted from the GloBE rules.

“However, MISC’s FPSO Mero3 is owned by a Singapore entity and will be subjected to a GMT of 15% in 2025 and beyond; without this, our FY25 earnings per share (EPS) forecast and target price for MISC would have been about 2% higher,” added the research house.

Meanwhile, Yinson may be subjected to a GMT of 15% on its FPSO income booked in Malaysia and Singapore.

“But since Yinson incurs losses on its green technology ventures in both countries, the jurisdictional ETR may be around 15% or higher; this may save Yinson from additional tax exposure come 2025,” CGSI Research said.

“Only the FPSO Abigail-Joseph is exposed to GMT, in our view, but the negative impact may amount to less than 1% against our FY27 core earnings per share forecast.”

On the O&G sector’s overall prospects, CGSI Research noted the sector’s re-rating catalysts include the commissioning of new FPSOs, higher daily charter rates for rigs and service vessels and new tank terminal demand in the midst of high oil prices.