1 Oct 2012

Global oil giants 'underpaying' tax to East Timor

9:00 pm on 1 October 2012

Potentially billions of dollars of tax is allegedly being withheld from the government of East Timor by some of the world's richest oil and gas companies operating in the Timor Sea.

The ABC television current-affairs programme Four Corners says the amount owing could be as much as $3.5 billion, once interest and penalties are added to the unpaid taxes.

A forensic audit of tax payments over the past 18 months has found what the government claims are multiple underpayments of tax by the resource companies, including the US oil giant ConocoPhillips.

Only in 2010 did East Timor get the right to have the financial records of the oil and gas companies operating in the Timor Sea held in Dili.

It was a year later that a specialised tax task force was put together in the finance ministry to begin forensic auditing investigations. It then began uncovering just how much money the nation is potentially owed.

Of the dozens of cases of underpayment so far discovered, 28 have been settled for a total of $450 million. But several demands for payment have been appealed by the companies involved.

Washington lawyer hired

Finance minister Emilia Pires has hired lawyer Pierre Prosper, from the Washington DC law firm Arent Fox, as an adviser. In cases now before the Dili District Court, he has submitted that companies have "improperly deducted costs" from taxes due to the government.

"Around the world multinational companies always fight for their interests and they fight tooth and nail, it's their job, they have shareholders," Mr Prosper says.

"There was no enforcement because there wasn't capacity, so it was up to the companies to do the job of following the letter of the law.

"What we are saying is that we noticed some deficiencies and...the government has begun to push back, enforce and regulate."