Legal and Contractual Status of Income Taxation in Upstream Contracts of Oil and Gas Industry with Emphasis on Iranian Petroleum Projects

Fiscal regime of upstream oil and gas contracts is a crucial instrument that impacts sharing of revenue generated from petroleum project between host governments and oil company contractors. This regime consists of a variety of fiscal instruments and mechanisms, some of which have a legal and some others a contractual basis.  The most important legal instrument is project income taxation that is primarily derived from applicable host government laws.  This importance depends largely on the contract model and its structure.  Our findings indicate that income taxation has a less important role in revenue sharing in service contracts in comparison to the production sharing or concession agreements. Furthermore, income taxation in Iranian service contracts which have been concluded after the Islamic revolution of Iran, has a less important position compared to upstream oil and gas service contracts elsewhere. This is due to the need to maintain transparency and flexibility of the fiscal regime of Iran’s oil and gas projects.