In brief
Legislative amendments have been passed in Queensland recently to strengthen the State Government's ability to administer its resource royalty regime. Partner Ben Zillmann and Lawyer Giselle Kilvert consider the changes and what they mean for resource companies and, importantly, their executives.
Background
On 12 June 2014, the Mineral Resources Act 1989 (Qld) (the MRA) and the Petroleum & Gas (Production & Safety) Act 2014 (Qld) (the PGPSA) were amended to improve royalty administration and debt collection, and strengthen compliance with the royalty regime in Queensland.
The amendments, which are modelled on the enforcement provisions of the Taxation Administration Act 1989 (Qld), create a more uniform royalty regime across Queensland's primary resource Acts. However, the amendments impose greater obligations on companies to keep and provide records of their royalty assessments, and strengthen the Minister's powers to impose penalties for non-compliance with the royalty regime. Of particular note, the amendments expand the vicarious liability of company executives for offences by corporate entities, and introduce significant new penalties for understated royalties.
Summary of amendments
According to the explanatory notes for the Revenue Legislation Amendment Act 2014 (the Act), which effects the changes, the Act purports to:
- establish a clear and consistent assessment and reassessment framework for determining royalty liability;
- provide for the imposition of a penalty as an alternative to prosecution where royalty liability is understated, subject to remission;
- impose record keeping obligations to ensure information is kept for an appropriate time for determining an entity's royalty liability;
- provide comprehensive information access and investigation powers to 'royalty investigators';
- provide for consistent refund arrangements, allowing refunds of overpaid royalty to be credited against current or future royalty liabilities;
- allow the date for lodging petroleum royalty returns to be brought forward for the protection of the public revenue and for the due date that would ordinarily apply on an assessment notice to be brought forward in certain cases;
- enable petroleum producers to make an election to change the basis on which their annual returns are lodged from a calendar year to a financial year, and vice versa;
- allow for the garnisheeing of amounts owed by a third party to a person to satisfy a royalty debt that person has to the State and, subject to particular safeguards, place administrators of royalty payers' property in the same position as the royalty payer with respect to their royalty liability; and
- support the use of approved information systems for royalty administration.
With the exception of the provisions dealing with record keeping obligations (which commenced on 12 June 2014), the amendments to the MRA and the PGPSA will commence on 1 July 2014.
The most relevant changes are considered further below.
Assessments and reassessments
The MRA and the PGPSA will be amended to create a consistent regime, which allows for the assessment and reassessment of royalty liabilities. There is no such concept in the existing PGPSA.
Under the new regime, an assessment of a person's royalty liability must be made on lodgement of a royalty return, including if the liability is nil, and may also be made at any time in the absence of a return if the Minister is satisfied that there is a royalty liability and no return has been lodged (referred to as a 'default assessment').
Where a royalty-related amount has been incorrectly assessed, the Minister may reassess the royalty. Reassessments to increase a royalty liability may be made at any time, although reassessments to decrease a royalty liability must be made within five years from the original assessment (subject to limited exceptions). New provisions specify how assessments and reassessments may be made.
Where an entity realises that an earlier assessment understates its royalty liability, it is required to notify the Minister, in which case the Minister may determine the correct royalty liability.
Penalty for understated royalty
The Act introduces a new administrative penalty to the MRA and PGPSA, which will now be imposed whenever:
- a default assessment is made;
- a reassessment is made of a default assessment; or
- a reassessment increases the royalty previously assessed for a period.
This penalty is significant, levied at a rate of 75 per cent of the royalty liability under the default assessment or reassessment, subject to a discretion to fully or partially remit it. The penalty will apply in addition to the imposition of default interest on the underpaid royalty amount. The Minister also has a discretion to increase the penalty by up to 20 per cent where the entity liable has hindered or prevented the Minister from becoming aware of the nature and extent of the entity's royalty liability.
As the penalty is an alternative to prosecution, the penalty must be remitted or reinstated if prosecution action is commenced or withdrawn. In other instances, administrative guidelines to govern remission of the royalty penalty are yet to be developed, although the Act's explanatory memorandum indicates the guidelines will allow decision-makers to have proper regard to the reasons for the understatement and the liable entity's culpability. The only recourse against a decision not to remit a penalty is judicial review.
The royalty penalty may be imposed for any reassessment increasing royalty liability made on or after 1 July 2014, irrespective of whether the original assessment was made before or after 1 July 2014. Similarly, the royalty penalty amount may be levied on a default assessment made on or after 1 July in relation to royalty payable for an earlier return period. However, to ensure all royalty payers have the ability to avoid a penalty, the transitional provisions provide for a penalty amnesty, under which the penalty will not be payable if, within six months of the commencement of the new provisions, a person makes a voluntary disclosure to the Minister of the amount of the royalty that was understated for a previous period.
Investigation and access to information
The current royalty investigation and access provisions in the MRA and PGPSA are repealed by the Act and new provisions are introduced. The new provisions grant 'royalty investigators' extensive powers to:
- require the provision of information or documents to the Minister or a royalty investigator;
- require a person to attend before the Minister or a royalty investigator to provide information, orally or in writing, or to produce documents without any entitlement to refuse on the grounds that it may be incriminating (although any information so obtained cannot be used in criminal proceedings except where the falsity or misleading nature of the information is relevant);
- enter places without a warrant, including any place where an enterprise is being conducted or the place is otherwise open for entry;
- exercise various powers, having entered a place; and
- seize or retain documents or other things, including product samples for testing purposes.
The only right of review in respect of administrative decisions made under the new provisions arise from the Judicial Review Act 1991 (Qld). No additional review rights are introduced.
Record keeping obligations
The Act introduces record keeping obligations to the PGPSA and amends the respective provisions of the MRA for consistency. Generally, all royalty payers are now required to keep records for five years (although existing mineral royalty records must continue to be kept for seven years).
Records must be kept in a way that they are able to be readily produced to the Minister, and in a form of a document written in English with information about monetary amounts expressed in Australian currency.
Royalty offence
Offence provisions will apply where:
- a person fails to comply with a royalty information or lodgement requirement;
- a person wilfully destroys any relevant records;
- a person provides false or misleading documents or information; or
- a person fails to comply with a requirement of the Minister or an investigator.
These offences will be 'type 1' executive liability offences, meaning that an executive officer of a corporation may also be held liable for a corporate fault.
Generally, a corporation's executive officers are only taken to have committed an offence if the corporation committed the offence and an executive officer did not take all reasonable steps to ensure the corporation did not engage in conduct constituting the offence.
In addition, a new provision makes it an offence for any person, without reasonable excuse, to obstruct the Minister or a royalty investigator exercising a power under any of the royalty provisions.
Implications for resource companies
Resource companies should review all their policies and procedures for calculating royalties and keeping records relevant to their calculation in the lead-up to 1 July 2014. Company executives, in particular, should consider their personal responsibilities to ensure all reasonable steps are taken to ensure compliance with their royalty obligations.
Where a company suspects that a past royalty has been understated, they should conduct an assessment and consider disclosing the understatement in the amnesty period, in order to avoid hefty penalties under the new regime.