Nowhere is the complexity of energy sector accounting and tax practice more clearly illustrated than in Europe's North Sea. Now, with new renewable energy sources and practices coming on stream in the region – and multiple new players entering the fray – the need for specialist accounting and tax expertise to keep on the right side of complex legislation and structures is growing.
Accounting and tax practice in the North Sea energy environment has always been rather complex, thanks to its multi-jurisdictional mix of offshore and onshore rules and regulations. With investment in this market at a record high – especially in ocean wind energy and carbon capture – the complexity of doing business here will only increase.
The oil & gas industry here has long attracted players from all over the world, forming a heady mix of operator-partner joint ventures, global supply chains, and multilateral licensing agreements – all covered by intersecting webs of local, national and international rules and regulations. In addition, this unique set of accounting and tax requirements is constantly changing to reflect new trends in policy, industrial practice, and reporting needs.
New players entering the North Sea energy market – whether in the traditional oil & gas sector, or in newer 'green energy' fields – need to ensure they have specialist accounting and tax expertise on hand to navigate these often-tricky waters successfully.
Challenges for operating in a complex environment
Here are the top six challenges every company needs to consider as they set up and operate in this complex and fast-changing energy environment:
- Legislation – tax laws and regulations covering the energy industry are constantly changing, and can be difficult to navigate. A recent example is the special tax treatment – introduced by Norway, the UK and other jurisdictions – of investments in start-up energy projects made during the Covid-19 pandemic. Accounting and tax teams need to keep fully up to date on the latest developments and ensure that their business is compliant with, and taking full advantage of, relevant legislation.
- Tax liability – the energy industry tax environment is highly complex, but there are several opportunities to optimise tax liability with the right expertise. For example, Norway applies two rates of corporate income tax (CIT) to energy companies operating in the North Sea: an ordinary rate of 22% on all income, and an additional special rate of 56% on income derived from offshore oil & gas production. The CIT payable can be optimised by ensuring income is allocated correctly (between the partners in a joint venture, for example).
- Specialist knowledge – the kind of specialist accounting and tax knowledge and experience required to handle the unique challenges and opportunities facing energy companies are hard to come by. Hiring an in-house team with the required breadth and depth of expertise is impractical and cost-prohibitive for the majority of companies.
- Accuracy – accurate financial reporting is an absolute must, as investors and stakeholders demand transparency and accountability. Companies of all sizes must also ensure that financial statements and other required reporting are fully compliant with regulatory standards. For example, energy companies operating in Norwegian waters must comply with the OECD's Standard Audit File for Tax (SAF-T) reporting standard.
- Strategic planning – the energy sector is highly competitive, and businesses must have a strategic plan in place to succeed. A specialist will provide backup for businesses to develop and execute a strategic plan that maximises growth and profitability.
- Time constraints – managing accounting and tax services in this complex environment is especially time-consuming. Many companies operating in this field have found that outsourcing these tasks not only saves time, but it also enables them to focus on more business-critical aspects of their operations.
For companies looking to enter the North Sea energy market – or other offshore energy environments – working with a specialist accounting and tax service provider can provide significant benefits. By leveraging specialist sector experience and expertise, businesses can optimise their tax liability, ensure compliance with regulations, and maximise growth and profitability.
One of the key benefits to energy companies of working with a specialist outsourced provider is flexibility. Energy companies are able to scale these external accounting and tax resources – across multiple competencies – up and down to meet their needs. Most companies would struggle to hire and employ people with the range of skills and competencies required to ensure compliance with the energy sector's complex accounting and tax rules successfully.
Thanks to sector-specific knowledge and experience built up over many years, outsourced providers can often offer best-practice solutions to energy industry players, including robust procedures for all accounting processes, checklists, closing plans, and roles & responsibility listings. These often include standard frameworks to ensure control of accounts, quality and consistency (authorised accountants) and compliance with global, national and local regulations. Such providers can also offer specialist services in areas such as sustainability reporting and special reporting requirements (including SAF-T).
How can TMF Group help?
TMF Group has built up quality-assured accounting and tax services within the energy market, especially in the oil & gas sector, where we have long-established knowledge and expertise. We already work with a number of clients with joint venture equity in licences in the Norwegian Continental Shelf (NCS), for example.
In addition, TMF Group offers project and partner audit, HR and payroll, and Global Entity Management (GEM) services to energy companies, and has well-established expertise relevant to the wind energy and carbon capture industries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
