High Court upholds Sheshinski Law on oil, gas tax

Petitions against Shesinski Law led by oil and gas exploration firms Isramco and Givot Olam.

By NADAV SHEMER,
August 15, 2012 16:37
2 minute read.
Eytan Sheshinski

Eytan Sheshinski 311. (photo credit: Marc Israel Sellem/The Jerusalem Post)

 
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The High Court of Justice on Wednesday rejected petitions by two oil and gas exploration firms against the so-called Sheshinski Law, upholding the state’s right to increase its share of their revenues.

Isramco, a partner in the Tamar and Shimshon natural-gas licenses, and Givot Olam, owner and operator of the Meged oil-field license, led the petitions, arguing that the law would harm them retroactively. They said they had obtained their property rights and made large investments before the government decided to establish the Sheshinski Committee.

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Judges Miriam Naor, Uzi Vogelman and Zvi Zylbertal wrote in their ruling that as the law does not apply to previous revenue, it cannot be considered retroactive. They said although the petitioners began investing before the new law was passed, tax-rate amendments are “a common legislative scenario.”

“This law does not contradict Israel’s values as a Jewish and democratic state. With regard to property rights, no disproportionate harm has been done,” the judges wrote.

Under the 2011 Oil and Tax Revenues Law, which was based on the Sheshinski Report’s recommendations, the state’s share of net profits from oil and gas production rose from the previous one-third to 52 percent to 62%. The initial levy on the companies will stand at 20% and rise gradually to 50%, depending on the amount of excess profits, while the rate of royalties will remain at 12.5%.

The government did not make an immediate comment following the ruling, but Labor chairwoman Shelly Yachimovich issued a statement welcoming the court’s decision to reject the “baseless” claim about retroactivity.

“The state has a complete right to amend its taxation policy, particularly when [the previous policy] is unreasonable and harms the public,” she said. “These same companies did not complain about retroactivity when their profits doubled as a result of a sharp decrease in the corporate tax.”

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MK Dov Henin (Hadash) said he would propose legislation that raises government royalties from natural resources once the new Knesset session begins. Henin praised the High Court’s decision to reject the petition against Sheshinski’s policies, saying the state has a right to derive funds from money made with natural resources.

“The High Court confirmed all our arguments that there is no retroactivity in raising royalties,” Henin said.

“Now we need to raise the Dead Sea royalties [less than 10%], phosphate [even less] and mineral water [where there are no royalties at all]. At the opening session of the Knesset I will promote comprehensive legislation on the subject.”

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