The purpose of this section, and its accompanying Schedule, is to charge to tax—
(a) profits arising from exploration or exploitation activities carried on in this country's area of the Continental Shelf and profits arising from dealing in rights arising from such activities; and
(b) certain emoluments of employees working on the shelf.
Paragraph (a) defines "exploration or exploitation activities" as activities carried on in connection with the exploration or exploitation of the seabed and its subsoil together with their natural resources, whether situated in the State, that is within its territorial waters, or in a "designated area", which is defined in paragraph (c), that is, the area of the Continental Shelf over which the State has rights.
Under existing law the profits from such activities carried on by a person or company non-resident in this country would be chargeable to tax only if the activities were carried on through a branch or agency.
It will be observed that the definition includes a reference to natural resources generally, a term which covers not only petroleum deposits but gas and all other resources as well.
Paragraph (b) defines "exploration or exploitation rights" as rights to assets generated as a result of exploration or exploitation activities as defined or rights to an interest in such assets or rights to the benefit of such assets. This definition is intended to relate, for example, to the case of an exploration concern which carries out prospecting surveys and searches in the State's Continental Shelf area and which then sells the information, which it has gathered, to another concern for development.
If the sale is made under a contract executed outside the State, by, for example, a foreign prospecting company to a foreign development or mining company, the profits on the sale would not be chargeable to tax under existing law. The section, however, will bring such profits into charge.
Paragraph (c) defines "designated area", a term which is used in the Continental Shelf Act, 1968, under which the Government have power to make orders to designate areas outside territorial waters in which the State has exploration or exploitation rights. Under the International Convention on the Continental Shelf concluded at Geneva in April, 1958, the areas of the Continental Shelf to be allotted to each country were agreed. It is understood that two such areas have been designated.
Paragraph (d) which defines "tax" and "for tax purposes" is, I think, self-explanatory.
Subsection (2) provides that any profits or gains from exploration or exploitation activities carried on in a designated area of the Continental Shelf, or from exploration or exploitation rights, are to be treated as profits from activities in the State; in other words, an activity such as mining oil on the Irish Continental Shelf will, for the first time, be treated in the same way as if it were carried on in the State, so that, in effect, the State's jurisdiction for tax purposes is extended to include the Shelf areas.
It will be observed that profits from exploration or exploitation rights are not qualified as regards the place where the underlying transactions take place. It is intended that dealings in such assets created as a result of activities connected with resources in the Irish Shelf area will be chargeable to tax, regardless of the locus of the contracts.
Subsection (3) provides that profits or gains arising to any person not resident in the State from exploration or exploitation activities carried on in the State — that is, in Irish territorial seas—or in a designated area of the Continental Shelf, as well as profits derived from exploration or exploitation rights, without qualification as to place, are to be treated as profits of a trade carried on in the State through a branch or agency.
This procures that the profits of non-residents in relation to the activities and dealings mentioned will automatically be chargeable within this country.
Subsection (4) is intended to provide the assessment machinery for the purposes of the tax charge. Section 200 of the Income Tax Act, 1967, provides that a non-resident may be charged in the name of any agent, in like manner as the non-resident himself would be charged if he were resident. Under the present subsection (3) the profits or gains of a non-resident from activities on the Continental Shelf are chargeable as if they arise from a trade carried on through a branch or agency here. In the case of a holder of a licence issued under the Petroleum and Other Minerals Development Act, 1960, it may be taken that there will be an agent or some authorised person in whose name an assessment may be made. Where, however, the licence-holder employs another non-resident company to do the actual exploration work, the latter might have no ties whatever with this country and there might be no agent in whose name an assessment might be made. In these cases, the subsection deems the licence-holder to be the agent for purposes of assessment.
I mentioned this extensively because it is a very unique and, I believe, effective way of capturing, for the benefit of Ireland, profits which can be made from marine exploration within Ireland's territorial waters and the Continental Shelf.