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Petroleum resource rent tax – Starting base market valuation risk factors
This draft information is for use in community consultation on how the ATO may administer the proposed extension to the petroleum resource rent tax.
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The ATO is unable to prescribe methods that taxpayers must use in arriving at a market value or the processes which taxpayers must undertake in appointing or instructing a valuer. However, the ATO can provide guidance as to good practices that taxpayers may choose to put in place. This may involve seeking certainty from the ATO (for example, by way of a ruling) and/or taking steps to reduce the likelihood of an ATO review or adjustment in relation to the market value of a petroleum right asset for starting base purposes.
This early guidance sets out to clarify what the ATO considers to be good practice.
It is the ATO's experience that market valuations can be a matter of dispute in tax administration. The Policy Transition Group (PTG) noted that the valuation of the starting base could have significant bearing on taxpayer liabilities for extended petroleum resource rent tax (extended PRRT) and different valuation methods and assumptions can produce quite different results.
The ATO considers the following factors to be relevant in assessing the level of risk that a particular valuation may be inaccurate:
- the reliability of valuation data
- the appropriateness of the valuation method used
- the relative difficulty of the valuation
- the professionalism and competence of the valuer
- whether an open and transparent process to appoint the valuer was conducted, and
- the transparency of the valuation report.
These factors are consistent with guidelines that are currently issued by various governing bodies. Such guidelines include:
- the Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (the VALMIN Code)
- International Valuation Standards
- Australian Securities and Investments Commission (ASIC) Regulatory Guide RG 111: Content of expert reports and Regulatory Guide 112: Independence of experts
- Australian Professional and Ethical Standard (APES) 225 Valuation Services, and
- Market valuation for tax purposes.
Experts who will be undertaking the technical assessment and valuation will not necessarily be bound to follow such guidelines. However, as the guidelines represent good industry practice, their use is likely to lead in the ATO's view to more accurate market values than if those practices were not used. Where practices followed by the taxpayer differ from those in the above guidelines, an explanation of what those differences are and why they differ will assist the ATO in determining whether the valuation process represents good industry practice.