Brazil: The State Of Rio De Janeiro Creates Tax Leviable On The Production Of Oil And Gas

The Government of the State of Rio de Janeiro approved the Law no. 7182 of 29/12/2015, published on 30/12/2015, instituting a State Tax on  the Control, Monitoring and Supervision of Activities of Research, Mining, Exploration, and Production of Oil and Gas - TFPG in the State of Rio de Janeiro.

As set forth in article of referred law, the taxable event relative to the tax is the regular exercise of the environmental policy power conferred upon to the National Environmental Institute (INEA) on the activity of research, mining, exploration and production of Oil and Gas, performed in the ambit of the State of Rio de Janeiro. On the other hand, the taxpayer is the legal entity which is, on any account, authorized to conduct the research, mining, exploration and production of oil and gas.

The amount of the fee that will be due on a monthly basis vis à vis the production verified in the respective period will be R$2,71 per oil barrel or by equivalent unit of extracted gas, which shall be paid by the 10th month subsequent to the actual production. Such value will be adjusted on the 1st of January of each year according to the variation of the Fiscal Unit of Reference of the State of Rio de Janeiro (UFIR/RJ), and should it be discontinued, by the adjustment for inflation index adopted for the state tax correction.

Article 6 of the same law sets forth that (i) the taxpayers obliged to pay the TFPG no longer have to pay the Environmental Control and Inspection Tax of the State of Rio de Janeiro TCFARJ, instituted by article 6 of Law 5,438, of April 17 2009; and (ii) the values paid by way of TFPG constitute credit for compensation with the value due to the IBAMA by way of Environmental and Inspection Control Tax- TCFA, arising from Federal Law 6,938 of 1981, up to the limit of 60% (sixty per cent) of the referred federal tax and relative to the same year.

Failure to pay the State Tax on the Control, Monitoring and Inspection of Activities of Research, Mining, Exploration, and Production of Oil and Gas –TFPG, or its underpayment or untimely payment will entail the application of a 20% (twenty per cent) fine calculated on the value of the tax due (without prejudice to the existence of the latter), increased by delinquent interest of 1% (one per cent) per month. Taxpayers must forward information related to the assessment and payment of the TFPG to the State Treasury and to the State Environmental Institute (INEA), in the applicable form, within the term and in conditions to be set forth in a Regulation to be enacted by the Executive Branch.

The referred tax faces strong criticism by the oil companies, which emphasized that, in addition to being questionable from a juridical viewpoint, it may have a devastating effect on investments in the sector, both in future projects and in projects currently underway in the oil industry.

The concept of the referred Law is not new to the industry. In 2012, Rio de Janeiro State Legislature (ALERJ) approved a similar bill, but with a tax rate of 4 UFIR. This bill, however, was vetoed by the Government of the State of Rio de Janeiro.

The Law came into force on the date of its publication, but its effects are subject to a lapse of time of 90 days.

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