Avner Oil - Annual Report 2011 - Delek Energy Systems

AVNER OIL EXPLORATION (LIMITED PARTNERSHIP)NOTES TO THE FINANCIAL STATEMENTSNote 14 – Taxation:A. Tax on Oil Profits, 5771-2011:During January 2011, the Government of Israel approved the recommendations of the Sheshinski Committee, whichwas mandated to consider Israeli fiscal policy on oil and gas resources. Further to its recommendations, on March 30,2011, the Knesset passed the Tax on Oil Profits, 5771-2011 ("Law"). This Law was officially published in theGovernment of Israel's Reshumot on April 10, 2011.Adoption of the recommendations and the Law will cause a change in the taxation principles vis à vis income of thepartnership, including, inter alia, imposing a levy on oil and gas profits according to a formula provided by the Law andcancellation of the depletion deduction (see paragraph 8). The Law includes transitional provisions vis à vis extractionventures or similar, relevant for extraction up to 2014.The main recommendations of the Law are as follows:1. The rate of royalties payable to the State will remain unchanged;2. Canceling the depletion deduction;3. Levy On Oil And Gas Profits:The levy will be calculated using the R-factor, based on the ratio between net total project revenue, and totalinvestments, as defined by the Law. A minimum levy of 20% will be collected from when the R-factor will be 1.5 andas the ratio increases, the levy will increase, on a progressive basis, up to a maximum of 50%, up to a ratio of 2.3. Inaddition, said levy will be reduced from 2016 by 0.64 of the difference between "companies tax" on the basis of Article126 of the Income Tax Ordinance vis à vis each tax year, and a tax rate of 18%.In addition, additional provisions were provided regarding the levy, inter alia - the levy will be recognized as anexpense for calculating taxable income; the levy calculation base will not include export installations; the levy will becalculated and will be imposed separately vis à vis each reservoir (ring fencing); vis à vis the payment by the oil right'sholder which is calculated as a percentage of extracted oil – the recipient of the payment will be required to pay the levyup to the payment that he received. Said amount will be deducted from the levy owed by the oil right's holder.4. Accelerated depreciation of 10% on investments will be allowed, with the option of choosing to claim depreciationup to the amount of taxable income in any one year.5. Taxation of an oil partnership - the Law provided provisions regarding the manner of calculating and reporting thepartners' profits from partnerships involved in oil explorations, including the manner of calculation and payment of taxon said profits6. Transitional provisions were also provided, as follows:A. In respect of an oil venture, whose commercial extraction began before the effective date – the Law's provisionswill be subject to the following amendments:1. If the venture is subject to a levy in the tax year that the Law came into effect, the levy in said tax year, will beone half of the levy that would have been imposed on oil profits if not for provisions of this clause, and not morethan 10%;2. If, in the tax year when the Law came into effect, the levy factor increased by more than 1.5, provisions forcalculating the levy factor for each tax year afterwards were provided.3. The levy on the venture's oil profits, in each tax year from 2012 to 2015, will be equal to one half of the levy thatwould have been imposed on oil profits as stated, if not for provisions of this clause.B. A venture, whose commercial extraction began with the determining date and up to January 1, 2014, will besubject, inter alia, to the following provisions:1. The minimum levy factor will be 2 instead of 1.5, while the maximum factor will be 2.8 instead of 2.3;2. Depreciation on any property purchased during 2011-2013 will be 15% instead of 10%.-11-