The Taxation of Both Sides of Take-or-Pay Contracts

Long-term take-or-pay contracts increasingly provide a valuable mechanism in the development of major oil and gas projects both in Australia and overseas, particularly to producers and their financial backers, but also to buyers, such as public and private utilities, supplying gas or electricity to consumers. For the producers they assist in obtaining the substantial capital investment that is required to get these projects up and running by facilitating the forecasting of cash flows to meet debt servicing and operational costs. For buyers, such contracts provide them with long-term security of product supply. As in most commercial and business activities, it is vitally important that the tax consequences for both stakeholders be clear, certain and comprehensible, and not be left floating in the ether.