Timor Sea hides fight for taxes and royalties  

The ABC has a report on the long running dispute over oil and gas revenue between East Timor and oil companies operating from Australia - Timor Sea hides fight for taxes and royalties.

LEIGH SALES, PRESENTER: Australians have long had an emotional attachment to East Timor. The images of violence when the Timorese forged their independence from Indonesia more than a decade ago are hard to forget.

Now East Timor has a new battle on its hands. It's fighting some of the world's biggest oil and gas companies for back taxes that could run into the billions.

In the lead-up to the country's general election this weekend, Stephen Long prepared this report.

STEPHEN LONG, REPORTER: It waged a long struggle for independence and won. Now the little country to our north has a new fight on its hands.

ALFREDO PIRES, EAST TIMOR SECRETARY OF STATE OF NATURAL RESOURCES: It is a David and Goliath fight.

STEPHEN LONG: A battle between big oil and a poor, fledgling nation.

ALFREDO PIRES: The importance of the petroleum revenue in general is vital for Timor-Leste.

STEPHEN LONG: A decade after independence, the country is still struggling to lift its people out of poverty.

The Timor Sea holds a bounty of oil and gas and that's a blessing and a curse for Timor-Leste. Its generated $10 billion dollars in royalties and taxes, invested in a sovereign wealth fund.

PIERRE-RICHARD PROSPER, LEGAL ADVISOR: It is the monies that will help stabilise the country. It is the monies that will help educate the people, feed people, give health care to those that are in need.

STEPHEN LONG: But its fragile economy is almost completely dependent on that petroleum revenue. 90 per cent of its taxes come from a handful of foreign resources companies. For years they got away without paying all that was due. Authorities in Timor-Leste didn't even audit them, taking the corporate giants at their word. But that changed about 18 months ago with audits going back as far as 2005.

PIERRE-RICHARD PROSPER: And as part of that auditing process they are discovering that there are areas where there were some discrepancies and they're beginning to look at that more closely. And as they already discovered that the tax officials from Timor are raising those issues with the various corporations, operators and are beginning to say, "We believe that there are taxes due. Please pay them. If you have an objection, please state why."

STEPHEN LONG: Millions of dollars in back taxes have already been paid after 28 adverse assessments. But that may be just a drop in the ocean.