Lessons Learnt from Recent Court Decisions on Transfer Pricing Cases

 By Kishenjeet Dhillon

There have been a series of breathtaking developments in the country’s transfer pricing sphere lately. Since the start of the year 2021, the government has made changes to the transfer pricing legislation such as the introduction of the Section 113B (penalty for a failure to furnish transfer pricing documentation on a timely basis) and Section 140A(3A) (surcharge of up to 5% on transfer pricing adjustments). Most recently, the Inland Revenue Board (IRB) has expanded the transfer pricing disclosure section in the income tax return form (i.e., Form C) in requiring companies engaged in controlled transactions to declare their functional profile in the Form C. The slew of new measures significantly tightened the transfer pricing regime within Malaysia. 

Amidst the backdrop of these changes, transfer pricing centric litigation is increasing in number as we march into the 15th anniversary since the introduction of Section 140A in 2009. The frequency of litigation is signaling that transfer pricing disputes are becoming more significant. What can be observed is that a transparency gap exists between the IRB’s expectations, the rules and regulations as they currently stand, and the ongoing practice by tax practitioners as well as taxpayers. It is through the courts’ interpretation of transfer pricing legislation that we develop a more matured transfer pricing regime. Whilst we discuss the legal implications of the recent cases, which have been largely decided in favour of the taxpayers, it is perhaps time to take stock of these latest decisions made by the courts and analyse them through practical lens. 

High Court decisions on Sandakan Edible Oils Sdn Bhd’s case and Procter & Gamble Malaysia Sdn Bhd’s case 

The two most recent cases that have been widely discussed are: 

• • SEO case: Ketua Pengarah Dalam Negeri v Sandakan Edible Oils Sdn Bhd decided at the High Court (unpublished) (or SEO Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2021) MSTC 10-129 ); and 
• • PGM case: Ketua Pengarah Hasil Dalam Negeri v Procter & Gamble (Malaysia) Sdn Bhd (2022) MLJU 743. 

At the Special Commissioners of Income Tax (“SCIT”) level in the SEO case, the SCIT held that the IRB had failed to support its decision to utilize the median point of a benchmarking analysis, done at the request of the IRB, as a basis for adjustment. The taxpayer had proved that the additional assessments imposed by the IRB were exaggerated or wrong, and such a decision was reaffirmed by the High Court on 17 May 2022. 

As for the PGM case, the taxpayer had defended the appeal filed by the IRB at the High Court which reaffirmed the decision made by the SCIT in a previous judgement. It was made clear in the judgement issued that the taxpayer did not attempt to evade or avoid tax, had sought professional advice concerning its transfer pricing policy and tax matters, and that the main issue of contention was a technical disagreement regarding transfer pricing policy. 

The above cases are regarded as being instrumental to the conversation surrounding transfer pricing and contribute significantly to the ongoing development of the transfer pricing regime within the Malaysian context. The two cases had taken place under unique circumstances but share common outcomes which may serve as the foundation for how taxpayers can assess their own levels of transfer pricing compliance. In addition, both the SEO case and PGM case reaffirm long held positions among tax practitioners that are often challenged by the IRB during the transfer pricing audit phase. 

Practical considerations and lessons learnt 

Given the above developments, taxpayers can take note of the following practical considerations and lessons learnt in evaluating their current transfer pricing matters and level of compliance. This will enable taxpayers to build a robust defence against any potential transfer pricing dispute that may take place post-audit. 

1. The importance of an appropriate benchmarking analysis 

The first obvious starting point is that of the preparation of an appropriate transfer pricing analysis. The topic of benchmarking analysis and the application of the Transactional Net Margin Method (“TNMM”) is often widely discussed in the tax sphere. However, the SEO and PGM cases bring this issue to the forefront like never before. In both cases, the applicability of the benchmarking analysis performed by the taxpayer was significantly challenged. In the SEO case, the taxpayer and the IRB had agreed on a final set of comparable companies. However, in the PGM case, the IRB disregarded the taxpayer’s analysis entirely despite two levels of benchmarking analyses being presented i.e., one on a regional level and another on a local level. Whilst the benchmarking analyses were challenged by the IRB and rejected, the courts ultimately affirmed the reasonableness of the analysis and sided with the taxpayer. The findings of the High Court noted that the IRB’s own set of comparable companies ought to be rejected as the taxpayer had produced a reliable analysis. The taxpayer had appropriately performed a functional analysis and aligned its selection of comparable companies to that of the taxpayer’s own functional profile. In addition, the taxpayer had prepared a complete transfer pricing documentation with an appropriate methodology for selection – which very much aided the taxpayer in obtaining a favourable outcome. This was in contrast to the IRB’s own lack of analysis – a point highlighted as being fatal and against the IRB’s own transfer pricing guidelines. 

The lessons learned on this point is that, whilst the IRB may challenge the application of the TNMM during an audit, it is vital that taxpayers place an emphasis on the preparation of an appropriate benchmarking analysis that has been performed with a proper basis. An arbitrary selection of comparable companies or a simplistic approach is unlikely to yield a positive outcome in the event of any disputes. In addition, as the benchmarking analysis is often requested during the audit process, as in the SEO case, it is considered good practice for taxpayers to prepare such an analysis. This is especially so if the taxpayer meets the threshold for the preparation of a full transfer pricing documentation under Paragraph 1.3.1. of the Malaysian Transfer Pricing Guidelines or engages in cross-border transactions. The preparation of a benchmarking analysis in this case will act as an additional safeguard to defend the taxpayer’s position in the event of a transfer pricing audit. 

2. Burden of proof is on the taxpayer 

A key outcome of the SEO case is the determination of where the burden of proof lies. The SCIT had cited the case of Macmine Pty Ltd v FCT (1979) 9ATR 38, which noted that “the question in tax appeals is never whether the Commissioner has established, by proof, the particular state of facts upon which he relies in support of his assessment, it is, rather, whether the taxpayer has established the non-existence of the state of facts and, hence, the excessive (sic) of the assessment”. In other words, the burden of proof lies with the taxpayer to show that the facts to support the assessment made, as interpreted by the tax authorities, do not exist. 

To do so effectively, the taxpayer must realise that both quantitative and qualitative information are required to be sufficiently analysed and documented. From a quantitative perspective, the importance of the benchmarking analysis has been highlighted in Item 1 above. Taxpayers also must ensure that evidence such as economic data, transaction data, price movements for commodity-based transactions and financial data are all kept appropriately with respect to related party transactions. This would aid the taxpayer in making the arguments that its transfer prices have been sufficiently analysed and are in line with the arm’s length principle. 

In addition to quantitative data, the taxpayer should place additional attention on qualitative information – which can provide a proper context to the transaction and bring to life the information provided during the audit process. This importance of qualitative information is often overlooked and taxpayers often struggle to maintain such evidence on a year to year basis. 

The PGM case provides a clear illustration of its importance. During the audit proceedings, the taxpayer had sought to address the IRB’s queries regarding its transfer pricing practices by providing multiple sources of information. This included a functional analysis done within the transfer pricing documentation, sample marketing and promotional documentation, as well as explanations via letters to the IRB regarding the related party transaction being scrutinised. Specifically, the High Court noted that the taxpayer had offered “…not only documentary evidence but also elaborate explanation…” on the queries raised by the IRB. Therefore, it can be observed that the information presented by the taxpayer, which were aligned to the transfer pricing documentation and corresponding benchmarking analysis prepared, was a key component for consideration by the High Court in affirming the decision made regarding the PGM case in favour of the taxpayer. 

Hence, taxpayers should ensure that the qualitative aspects of their functions, assets and risks as well as the general conduct of their business with respect to related party transactions are well documented. This may include keeping qualitative information relevant to the company’s transfer pricing practices such as product brochures, marketing information, internal memos, meeting agendas or presentation slides. Whilst this list of information is not exhaustive, it should serve as a starting point for in-house tax teams on the part of the taxpayer to begin collating information relevant to the related party transactions documented in the company’s transfer pricing documentation. Such information may prove to be vital in supporting any arguments made by the taxpayer during a transfer pricing dispute with the IRB as well as in future court proceedings. 

3. The need for robust transfer pricing documentation 

Lastly, both the SEO case and PGM case highlight the great need for the preparation of robust transfer pricing documentation. Since 2021, the preparation of transfer pricing documentation for each year of assessment has become more important as any person who makes a default in furnishing contemporaneous transfer pricing documentation in respect of any year of assessment shall be liable to a fine of not less than RM20,000 and not more than RM100,000 (Section 113B of the Income Tax Act 1967). 

The PGM case adds further weight to the importance of the transfer pricing documentation as the preparation of robust documentation was a key factor in the successful outcome for the taxpayer in the case. In particular, the High Court noted that the taxpayer had performed a proper functional analysis, which had properly discerned the respective functions, assets and risks undertaken. In addition, a detailed search criteria to identify the comparable companies was also documented. Besides, the conduct of the taxpayer’s business was in line with the transfer pricing documentation prepared, indicating that the transfer pricing documentation prepared was aligned to the actual substance of the company’s operations. Crucially, the documentation aligned with the transfer pricing guidelines applicable at the time. 

The High Court in the PGM case affirmed the SCIT’s reliance on the transfer pricing documentation as it was prepared in accordance with the relevant guidelines and should be maintained. Whilst there remains a temptation to consider the preparation of transfer pricing documentation as merely a routine exercise, the PGM case highlights the importance of looking at the preparation of the transfer pricing documentation in greater detail. Taxpayers should ensure that any transfer pricing documentation that is being prepared aligns with the substance of the business and accurately documents the functions, assets and risks of the taxpayer with respect to its related party transactions. In addition, a yearly review would result in the contemporaneous nature of the documentation being maintained and may safeguard the taxpayer’s position in the event of any queries being raised by the tax authorities during a tax audit. 

Read more HERE.

Graffiti, flyers, word of mouth: China’s protesters embrace low-tech organizing to escape surveillance

 

First-time protesters battle a powerful surveillance apparatus to express dissent.

By VIOLA ZHOU and MEAGHAN TOBIN

1 DECEMBER 2022

Little A, a university student in Shanghai, wouldn’t have known about the protest if a friend hadn’t told him to bypass the Great Firewall on Nov 27 to read news outside of China’s censored internet. That’s where he saw that people were planning to protest the country’s strict zero-Covid policy after at least ten people died in a fire in Urumqi, Xinjiang, where some of the toughest lockdown measures were in place. To commemorate those who died, the gathering — one of dozens of protests that erupted in major cities across China in the days that followed — took place on Shanghai’s Urumqi Road.

When Little A left a nearby subway station at 8 p.m., the 22-year-old encountered a crowd already hundreds-strong, along with more than a dozen police vehicles. In addition to calling for an end to the zero-Covid policy, the protesters chanted slogans demanding democracy and rule of law, and sang the socialist anthem “The Internationale.” Little A, who spoke to Rest of World under a pseudonym to discuss his first-ever protest freely, said, “It was something I wouldn’t have imagined before. It was the first time I said ‘No’ while standing with everyone else.” 

The protests that have taken place over the past week constitute the country’s biggest wave of civil disobedience in decades. But organizing in China isn’t as simple as posting an event announcement to an online forum or a rallying cry on social media. Protesters told Rest of World they worry that sharing information online could lead to having their accounts shut down, or even being detained. 

Instead, they’re increasingly turning to workarounds — many completely offline — in order to spread the word: from holding blank pieces of paper in public to scrawling graffiti in bathroom stalls on university campuses. And with older people less likely to use digital tools like VPNs, some protestors say they have simply resorted to spreading their message through word of mouth. 

The current wave of dissent started gaining momentum in October, when a lone person on a highway bridge in Beijing hung banners calling for an end to the coronavirus restrictions and for President Xi Jinping to step down. The protestor’s acts emboldened a small group of young Chinese to disseminate his message by writing his slogans on public bathroom walls, among the only public places unlikely to be under surveillance. Protestors also pinned leaflets on campus bulletin boards, and shared images of the protest between Apple devices through AirDrop. 

After the Urumqi fire, protesters emerged in multiple cities, alerting each other to gather with a combination of coded WeChat messages, VPNs, and some guesswork. On Sunday evening in Shanghai, Little A only realized he was joining a protest when he found himself in the crowd facing the police. “It was so unexpected,” he said. “Before the night, I had never thought I would dare chant these slogans and disobey the police.” 

Read more here.

Employment Act to apply to all employees from 1 January 2023, some sections subject to increased salary threshold of RM4,000/month

 [Note: When this article was first published on 16 August 2022, the amendments to the Employment Act were scheduled to come into force on 1 September 2022. In late August 2022, the government announced that the implementation date would be deferred to 1 January 2023. This article has been edited to reflect the new implementation date, with any new text in red.]

When the Employment (Amendment) Act 2022 (“the Amendment Act”) was gazetted earlier this year, there was much confusion regarding what the scope of the Employment Act (“EA”) would be once the Amendment Act came into force. This confusion was fuelled by the government not amending the First Schedule at the same time the Amendment Act was passed, and also repeatedly stating that the EA’s scope would be expanded so that all employees regardless of salary would be entitled to the EA benefits and protections, with many industry experts sharing the view that such a blanket expansion would be impractical for many reasons.

With the gazetting of the Employment (Amendment of First Schedule) Order 2022 (“First Schedule Amendment Order”) on 15 August 2022, there finally is clarity on the scope of the EA from 1 September 2022 1 January 2023.

EA salary threshold increased from RM2,000 to RM4,000

Prior to the new amendments, the vast majority of the EA only applied to employees earning up to RM2,000/month, or to specified groups of employees irrespective of wages (e.g. those engaged in or supervising manual labour, and several other groups). The existing EA set out specific provisions to enable non-EA employees to also be included in the sections of the EA regarding maternity protection (Part IX) and sexual harassment (Part XVA).

Following the First Schedule Amendment Order which will come into force on 1 September 2022 1 January 2023, the way the EA scope is defined has been reversed. While it previously only applied to employees earning up to RM2,000/month with some specific sections applying to all employees, it will now apply to all employees irrespective of wages, with some specific sections not applying to employees earning more than RM4,000/month. Here are the details:

1. The EA will now apply to “any person who has entered into a contract of service”.
2. However, the sections of the EA in relation to overtime payments and termination benefits will not apply to employees whose wages exceed RM4,000/month (the full list of excluded EA provisions is listed below).
3. The list of EA provisions which do not apply to domestic employees (previously known as domestic servants) has also been expanded.

This is the full list of EA provisions which will not apply to employees earning more than RM4,000/month:

• Subsection 60(3): Overtime for work on rest days.
• Subsection 60A(3): Overtime for work outside of normal working hours.
• Subsection 60C(2A): Shift work allowance.
• Subsection 60D(3): Overtime and allowance for work on public holidays.
• Subsection 60D(4): Overtime for work on holidays on half working days.
• Subsection 60J: Termination, lay-off, and retirement benefits.

What employers need to do

All employers will need to review their existing employment contracts and policies to ensure that they comply with the EA. It should be noted that Section 7 of the EA states that any terms or conditions which are less favourable to an employee than those provided under the EA will be void and of no effect. This includes contracts which were entered into before 1 September 2022 1 January 2023.

(For a more comprehensive look at the changes under the Amendment Act, read my earlier article: “Malaysia Employment Act amendments: 7 key changes for employers to note”)

Read more at: https://themalaysianlawyer.com/

Getting to Know the Russian Battalion Tactical Group

 Lester W Grau and Charles K Bartles

14 April 2022

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  Much has been written on Russia’s battalion tactical groups in recent weeks. It is thus of value to revisit their origins and capabilities, and the roles they were set up to play.

 

Introduction

Success in modern conventional warfare is determined by a combination of effort, environment and – to an extent – luck. However, the most important determinants of victory are the actions of combined arms units. Only these units, in cooperation with other branches of arms and other military services, can perform the full spectrum of defensive and offensive tasks. The execution of these tasks depends upon the enemy’s composition, position and probable course of action; the position and condition of one’s own subordinate, attached and supporting units; the conditions of the area on which the assigned tasks will occur; and weather. Traditionally, Russia’s lowest echelons capable of performing combined arms tasks were the regiment or brigade, but experimentation in the 1980s led to a semi-permanent combined arms formation at the battalion level, the Battalion Tactical Group (BTG).

Russia’s 2022 invasion of Ukraine has made the term ‘Battalion Tactical Group’ commonplace beyond the expert community, from the mass media to YouTube and a plethora of blog sites. Though understanding of the invasion is still in its infancy, this article intends to shed some light on what a BTG is, and how it is used in a Russian military context.

At the time of writing, details are still sketchy, but based upon media reports and a few captured Russian maps, it appears that Russia has conducted a partial mobilisation, deploying only partial divisions/regiments, brigades, and independent BTGs. Larger formations have apparently deployed only with their BTGs, leaving their other manoeuvre battalions in garrisons. Although the Russians appear to be having difficulties, this structural change was likely envisioned from the beginning of the operation, as the scale of the conflict is unsuitable for the sole use of independent BTGs. The BTG was ideal for earlier fighting in support of separatist ethnic Russian elements in Donetsk and Luhansk; however, large-scale combat requires large-scale combined arms operations and battalions fighting as part of larger entities.

The brigade/regiment may now be the primary unit of manoeuvre, but some independent BTGs likely remain in play. They are either being spun off a parent regiment/brigade for a particular mission (such as forward detachments, advance guards, raiding detachments, flank guards, or urban assault detachments) or may be entirely independent. It is likely that some BTGs will be subordinated to regiments/brigades that they are not otherwise affiliated with, and possibly to different branches, including the naval infantry and airborne troops (VDV), if expedient.

History of the Battalion Tactical Group

The BTG is not a new feature in Russian military thought. The Russian Civil War (1917–1923) included raiding groups, forward detachments, rear guards, advance guards and other mobile battalions comprised of horse cavalry, machinegun detachments mounted on horse-drawn carts, horse-drawn artillery, and occasional tanks or armoured cars. Their focus was on speed, manoeuvre, the ability to mass fires and forces, and the interaction of these forces to achieve a combined combat power greater than the component parts. During the Second World War, the Soviets fought primarily with separate infantry, armour and artillery units that occasionally fought as combined arms units, but usually integrated shortly before the battle. Artillery and artillerymen were always present in infantry battalions in the form of mortars, direct-fire cannon and antitank rifles.

During the Cold War, the Soviets realised that combined arms units were more effective than integrating branch units just before the fight. There were problems integrating them in garrison and training. Branch units occupied their own barracks. Tanks, personnel carriers and artillery required different maintenance parts and services. Branch weapons qualification required different ranges and facilities. Branch proficiency was necessary before putting different branch soldiers together in exercises or combat. So the Soviet Army trained for branch skills, but when it went on field exercises, it fought combined. The results were not always inspiring. Commanders struggled to integrate their branch forces with those of other branches – though units that trained together on a sustained basis performed better.

Over time, divisions and regiments became fairly proficient in combined arms combat, but the nature of the battlefield was changing. Modern weapons forced units to spread out in order to survive. The future battlefield would be fragmented, with gaps between units, open flanks and combat not only at the front line, but also throughout the battlespace. The concept of the front line itself was being challenged. It thus became obvious that the battalion was a prime component of future war and battalions had to fight combined to win. The problem was how to combine branches into battalions and fight effectively. What was the optimum mix of tanks, mounted infantry, artillery, engineers, air defence and other branches? How could they be trained simultaneously and effectively in branch and combined arms skills?

Throughout the Cold War, the Soviets tried different combinations of forces in an effort to create an optimum Combined Arms Battalion, or Battalion Tactical Group in the Russian parlance. It had to be lethal, yet not too large, capable of acting independently for a period of days, and able to fight combined effectively. From the 1960s to the end of the 1980s, the Soviet Motorised Rifle Battalion and Tank Battalion went through several Table of Organisation and Equipment (TO&E) changes to try to improve their combined arms lethality. During the same period, they conducted hundreds of exercises using different mixes of tanks, motorised rifle, air defence, engineers and combat support forces, looking for the optimum solution. Clearly, the Soviets were trying to determine the optimum TO&E structure, training and employment of BTGs.

After the collapse of the USSR, the impetus to develop the BTG was strengthened by Russia’s experience during the Chechen campaigns and related counterterrorism activities. During this period, the 58th Combined Arms Army manoeuvre regiments formed BTGs based on motorised rifle battalions that were reinforced with tanks; artillery; air defence; reconnaissance; engineering; chemical, biological, radiological and nuclear defence; communications; maintenance; and logistics units. These BTGs were 100% equipped and manned, with mostly contract personnel, and were on a six-month readiness cycle until their personnel were rotated out. Many characteristics of today’s BTG can be directly traced to this time.

Battalion Tactical Groups in Today’s Russia

Today, the BTG is a semi-permanent task force found in the manoeuvre (motorised rifle and tank) regiments and brigades of the Russian Ground Forces, Naval Infantry and VDV. BTGs are task-organised motorised rifle or tank battalion-plus-sized combat entities that can perform semi-independent combined arms combat missions. They are capable of conducting deep raids, envelopments and flanking manoeuvres. In the Russian system, the lowest echelon of combined arms command has traditionally been the manoeuvre regiment or brigade. Thus, the Russians do not use terms like ‘Regimental Tactical Group’ when referring to their manoeuvre formations, as these formations are inherently combined arms in nature. The term ‘Battalion Tactical Group’ is a special delineation of function which notes that this formation is combined arms in nature.

By current Russian General Staff directive, each regiment and brigade is supposed to have two designated BTGs. But units in the Southern Military District reportedly have three BTGs per regiment/brigade. In terms of composition, a BTG consists of a motorised rifle battalion or tank battalion with varying combat support attachments. These attachments can vary, as they depend upon the equipment organic to the battalion and the tasks it is likely to be assigned. The most common BTG variant is based on a motorised rifle battalion with an attached tank company, self-propelled howitzer battalion, air defence platoon, engineer squad, and logistic support.

Figure 1: Example of a Battalion Tactical Group (circa 2014–2015)

 

Read more here.

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The Nord Stream pipeline leaks are a disaster — the oil and gas industry has a much bigger mess

 

In this Handout Photo provided by Swedish Coast Guard, the release of gas emanating from a leak on the Nord Stream 2 gas pipeline in the Baltic Sea on September 28th, 2022, in At Sea.

 Photo by Swedish Coast Guard via Getty Images

By JUSTINE CALMA / @justcalma

Oct 1, 2022, 2:04 AM GMT+8|

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The amount of methane that routinely leaks from oil and gas infrastructure dwarfs the Nord Stream pipelines’ huge mess

This week, the world watched what’s likely to be the fossil fuel industry’s single largest methane release ever. An astonishing amount of methane is floating up from the now-notorious Nord Stream 1 and 2 pipelines and rising above the surface of the Baltic Sea. It’s a pollution nightmare. It also pales in comparison to the vast amount of methane that oil and gas operations constantly release.

Up to 778 million standard cubic meters of methane gas could spew from the Nord Stream 1 and 2 pipelines in a worst-case scenario, according to the Danish Energy Agency. That’s equivalent to nearly a third of Denmark’s greenhouse gas emissions for the entire year of 2020.

The Nord Stream disaster “is an extraordinarily huge one-time event,” says Andrew Baxter, a chemical engineer turned director of energy transition at the Environmental Defense Fund. “But it’s sort of emblematic of other massive emissions from the oil and gas industry of methane into the atmosphere.”

The Nord Stream disaster “is an extraordinarily huge one-time event”

As big as this event is, runaway gas from the Nord Stream pipelines amounts to a fraction of the methane that routinely escapes from oil and gas fields, pipelines, and other infrastructure. Faulty equipment can leak for weeks. Companies also “vent” gas — releasing it into the air — for well or pipeline maintenance or to keep pressure from building up to dangerous levels in their equipment. The oil and gas industry releases 82.5 million tons of methane emissions a year, by the International Energy Agency’s measure. That’s equivalent to the worst-case scenario for the Nord Stream disaster taking place every two days, Baxter tells The Verge. The US oil and gas industry alone releases methane at the rate of a Nord Stream disaster about every two and a half weeks, climate writer and analyst Ketan Joshi calculated.

To be perfectly clear, what’s happening with the Nord Stream 1 and 2 Gas Pipelines is far from ordinary. “All currently available information indicates that this is the result of deliberate, reckless, and irresponsible acts of sabotage,” NATO said in a press release yesterday. Vladimir Putin has also accused Western governments of sabotaging the pipelines. The pipelines, which run from Russia to Germany, are a physical embodiment of Western Europe’s reliance on gas, much of it coming from Russia. So before fears of sabotage, these pipelines were already a flashpoint for efforts to transition the European Union to clean energy.

Nor is it normal to see nearly half a mile of the surface of the sea roiling with methane. The Danish Armed Forces released mesmerizing video and images of the bubbling disaster in the Baltic this week. And while seawater can typically absorb most of methane from smaller underwater leaks, preventing it from floating up to the air, this isn’t the case with the Nord Stream disaster because of how enormous the leaks are.

“The sea cannot take in that volume,” says Mahmoud Khalifeh, an associate professor at the University of Stavanger who has researched gas leaks from offshore wells. Khalifeh expects more than 90 percent of the gas that escapes from the pipelines to make its way into the atmosphere.

He also points out that, unlike spilled oil that collects in the water, there’s not much that can typically be done to clean up leaking gas. It simply dissipates into the water and air. It’s also dangerous for authorities to send in personnel to deal with the mess. The air quality is too horrendous, and sending in vehicles to clean things up could spark a massive blaze. In Nord Stream’s case, however, Mahmoud thinks fire could mitigate some of the risks. Setting the methane ablaze would convert the plume to carbon dioxide, which can be 80 times less potent than methane as a greenhouse gas. It might also stop the methane from drifting ashore and polluting communities there. Lighting up excess gas, called flaring, is also a strategy oil and gas companies use to minimize methane emissions.

The UN Environment Programme released satellite images yesterday of the methane plume above the Nord Stream leaks. There are growing efforts to document methane leaks from space as an increasing body of research shows that many countries are likely undercounting how much methane is leaking from oil and gas operations.

“This is a special one-off event that’s got everyone’s attention. But the oil and gas industry emits millions of tons of methane every year, and that’s supercharging near-term [global] warming,” Baxter says. “I hope that this brings that into focus for more people, we need to be able to regulate [emissions from these] companies and take this extremely seriously.”

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