Tax Accounting Principles, etc

(1) In the event that a Contractor at any time comprises more than one corporation, individual or entity, in the form of a partnership, joint venture, unincorporated association or other combination of entities or individuals, Tax shall in all cases be calculated and assessed on the basis of the Chargeable Income of each corporation, individual, partner, joint venturer, associate or other entity comprising the Contractor. (2) Commencing with the Basis Year in which Initial Commercial Production first occurs, any allowable deductions for Tax purposes with respect to Petroleum Operations Expenditures, the Royalty and the Government’s share of Crude Oil production which remain unrecovered in any Calendar Year from Gross Revenues shall be treated as an operating loss and may be carried forward as an allowable deduction to subsequent Basis Years until fully recovered from Gross Revenues. In the event that an operating loss remains unrecovered upon the termination of this Agreement, such loss may be carried over and deducted from other revenues of the Contractor from Petroleum Operations in Belize. (3) All Books, accounts and records shall be prepared on an accrual basis. Revenues shall be attributable to the accounting period in which they are earned, and costs and expenses to the accounting period in which they are incurred, without the need to distinguish whether cash is received or disbursed in connection with a particular transaction. Cost and expenses shall be deemed to have been incurred, in the case of physical items, in the accounting period when title thereto passes, and in the case of services, in the accounting period when such services are performed. (4) Except as may be otherwise agreed in writing between the Government and the Contractor, all transactions giving rise to revenues, costs or expenses, shall for tax purposes be deemed 74 to have been conducted at arm’s length or on such a basis as will assure that all such revenues, costs or expenses will not be higher or lower, as the case may be, than would result from a transaction conducted at arm’s length on a competitive basis with third parties. Schedule VI. (5) For each Basis Year, commencing with the Basis Year in which Initial Commercial Production first occurs, Petroleum Operations Expenditures which shall be deductible for the purpose of the calculation of Tax Payable shall consist of the sum of– (a) The current Basis Year’s operating expenditures incurred, including the current Basis Year’s allowable deductions for depreciation of capital expenditures determined in accordance with paragraph 2 of Schedule VI; and (b) An amount with respect to any operating loss from prior Basis Years, determined in accordance with sub-section (2) of this section.