House of Commons Amendments

Session 2014 - 15
Internet Publications
Other Bills before Parliament

Consideration of Bill:
410

, continued

Mr Chancellor of the Exchequer

NS1

To move the following Schedule—

“Oil contractors: ring-fence trade etc

CTA 2010

1
CTA 2010 is amended as follows.

2
In section 1 (overview of Act), in subsection (3), after paragraph (a) insert—

“(aa)
oil contractor activities (see Part 8ZA),

(ab)
profits arising from the exploitation of patents etc (see Part

8A),”.

3
In Chapter 4 of Part 8 (oil activities: calculation of profits), after section 285

insert—

“Hire of relevant assets

285A
Restriction on hire etc of relevant assets to be brought into account

(1)
This section applies if—

(a)
oil contractor activities are, or are to be, carried out, and

(b)
a company that carries on a ring fence trade makes, or is to

make, one or more payments under a lease of a relevant asset,

or part of a relevant asset, which is, or is to be, provided,

operated or used in the relevant offshore service in question.

(2)
The total amount that may be brought into account in respect of the

payments for the purposes of calculating the company’s ring fence

profits in an accounting period is limited to the hire cap.

(3)
The “hire cap” is an amount equal to the relevant percentage of TC for

the accounting period, subject to subsection (4).

(4)
If payments in relation to which subsection (2) or section 356N(2)

(restriction on hire for oil contractors under Part 8ZA) applies are also

made, or to be made, by one or more other companies in respect of the

relevant asset or part, the “hire cap” is to be such proportion of the

amount mentioned in subsection (3) as is just and reasonable, having

regard (in particular) to the amounts of the payments made, or to be

made, by each company.

(5)
The “relevant percentage” and TC are to be determined in accordance

with section 356N(5) to (16).

(6)
To the extent that, by virtue of this section, payments within

subsection (1)(b) cannot be brought into account for the purposes of

calculating the company’s ring fence profits in an accounting period,

the payments may be—

(a)
allowed as a deduction from the company’s total profits for

the accounting period, or

(b)
treated as a surrenderable amount of the company for the

accounting period for the purposes of Part 5 (group relief) (see

section 99(7)) as if they were a trading loss,


but this is subject to subsection (7).

Consideration of Bill:
411

, continued

(7)
No deduction may be made by virtue of subsection (6) from total

profits so far as they are ring fence profits or contractor’s ring fence

profits.

(8)
If the company or an associated person enters into arrangements the

main purpose or one of the main purposes of which is to secure that

subsection (2) does not apply in relation to one or more payments to

any extent, that subsection applies in relation to the payments to the

extent that it would not otherwise do so.

(9)
In subsection (8) “arrangements” includes any agreement,

understanding, scheme, transaction or series of transactions (whether

or not legally enforceable).

(10)
In this section—

“associated person” has the meaning given by section 356LB;

“contractor’s ring fence profits” has the meaning given by section

356LD;

“oil contractor activities” and “relevant offshore service” have the

meaning given by section 356L;

“relevant asset” has the meaning given by section 356LA;

“lease” has the meaning given by section 868.”

4
After Part 8 (oil activities) insert—

Oil contractors

Introduction

356K
Overview of Part

(1)
This Part is about the corporation tax treatment of oil contractor

activities.

(2)
Chapter 2 contains basic definitions used in this Part.

(3)
Chapter 3 treats oil contractor activities as a separate trade.

(4)
Chapter 4 makes provision about the calculation of profits from oil

contractor activities.

(5)
For the meaning of oil contractor activities, see section 356L.

Basic definitions

356L
“Oil contractor activities” etc

(1)
The definitions in this section have effect for the purposes of this Part.

(2)
“Oil contractor activities” means activities carried on by a company

(“the contractor”), which are not oil-related activities (within the

meaning of section 274), but are—

Consideration of Bill:
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(a)
exploration or exploitation activities in, or in connection with,

which the contractor provides, operates or uses a relevant

asset (see section 356LA) in a relevant offshore service, or

(b)
otherwise carried on in, or in connection with, the provision

by the contractor of a relevant offshore service.

(3)
The contractor provides a “relevant offshore service” if the contractor

provides, operates or uses a relevant asset in, or in connection with, the

carrying on of exploration or exploitation activities in a relevant

offshore area by the contractor or any other associated person.

(4)
“Exploration or exploitation activities” means activities carried on in

connection with the exploration or exploitation of the seabed and

subsoil and their natural resources.

(5)
“Relevant offshore area” means—

(a)
the territorial sea of the United Kingdom;

(b)
the areas designated by Order in Council under section 1(7) of

the Continental Shelf Act 1964.

356LA
“Relevant asset”

(1)
In this Part “relevant asset” means an asset within subsection (2) in

respect of which conditions A and B are met.

(2)
An asset is within this subsection if it is a structure that—

(a)
can be moved from place to place (whether or not under its

own power) without major dismantling or modification, and

(b)
can be used to—

(i)
drill for the purposes of searching for, or extracting,

oil, or

(ii)
provide accommodation for individuals who work on

or from another structure used in a relevant offshore

area for, or in connection with, exploration or

exploitation activities (“offshore workers”).

(3)
But an asset is not within subsection (2)(b)(ii) if it is reasonable to

suppose that its use to provide accommodation for offshore workers is

unlikely to be more than incidental to another use, or other uses, to

which the asset is likely to be put.

(4)
In subsection (2)—

“oil” means any substance capable of being won under the authority of a

licence granted under Part 1 of the Petroleum Act 1998 or the

Petroleum (Production) Act (Northern Ireland) 1964;

“structure” includes a ship or other vessel.

(5)
Condition A is that the asset, or any part of the asset, is leased (whether

by the contractor or not) from an associated person other than the

contractor.

(6)
Condition B is that the asset is of the requisite value.

(7)
The asset is of the “requisite value” if its market value is £2,000,000

or more.

(8)
The Treasury may by regulations modify the meaning of “requisite

value”.

Consideration of Bill:
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(9)
Regulations under subsection (8) may—

(a)
amend this section,

(b)
make different provision for different cases or different

purposes, and

(c)
make incidental, consequential, supplementary or transitional

provision or savings.

356LB
“Associated person”

(1)
For the purposes of this Part each of the following is an “associated

person”—

(a)
the contractor,

(b)
any person who is, or has been, connected with the contractor,

(c)
any person who has acted, acts or is to act, together with the

contractor to provide a service, and

(d)
any person who is connected with a person falling within

paragraph (b) or (c).

(2)
A person does not act together with the contractor to provide a service

by reason only of leasing an asset, to any person, which is provided,

operated or used in the service.

356LC
“Lease”

In this Part “lease” has the meaning given by section 868 and “leased”

and “leasing” are to be construed accordingly.

356LD
“Contractor’s ring fence profits”

In this Part the “contractor’s ring fence profits”, in relation to an

accounting period, means the contractor’s income arising from oil

contractor activities for that period.

Deemed separate trade

356M
Oil contractor activities treated as separate trade

If the contractor carries on oil contractor activities as part of a trade,

those activities are treated for the purposes of the charge to corporation

tax on income as a separate trade, distinct from all other activities

carried on by the contractor as part of the trade.

Calculation of profits

Hire of relevant assets

356N
Restriction on hire etc of relevant assets to be brought into account

(1)
This section applies if the contractor makes, or is to make, one or more

payments under a lease of—

(a)
a relevant asset, or

(b)
part of a relevant asset.

Consideration of Bill:
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(2)
The total amount that may be brought into account in respect of the

payments for the purposes of calculating the contractor’s ring fence

profits in an accounting period is limited to the hire cap.

(3)
The “hire cap” is an amount equal to the relevant percentage of TC for

the accounting period, subject to subsection (4).

(4)
If payments in relation to which subsection (2) or section 285A(2)

(restriction on hire for company carrying on a ring fence trade under

Part 8) applies are also made, or to be made, by one or more other

companies in respect of the relevant asset or part, the “hire cap” is to

be such proportion of the amount mentioned in subsection (3) as is just

and reasonable, having regard (in particular) to the amounts of the

payments made, or to be made, by the contractor and each other

company.

(5)
Subject to subsection (7), the “relevant percentage” is—


where—

UROS is the number of days in the accounting period that the relevant

asset is provided, operated or used in a relevant offshore service, and

TU is the number of days in the accounting period that the relevant asset

is provided, operated or used (whether or not in a relevant offshore

service).

(6)
Accordingly, the relevant percentage is zero if the relevant asset is not

provided, operated or used in the accounting period.

(7)
If the accounting period is less than 12 months, the relevant percentage

is to be proportionally reduced.

(8)
TC is—

(9)
Unless subsection (11) applies, OC is the sum of—

(a)
any consideration given for the acquisition of the relevant

asset or part when it was first acquired by an associated

person, and

(b)
any expenses incurred by an associated person in connection

with that acquisition (other than the costs of financing the

acquisition).


This is subject to subsections (12) and (13).

(10)
Subsection (11) applies if the relevant asset or part—

(a)
is leased by an associated person from a person who is not an

associated person, and

(b)
has never been owned by an associated person.

(11)
OC is the sum of—

(a)
the consideration that it is reasonable to suppose would have

been given for the acquisition of the relevant asset or part, if it

had been acquired by an associated person by way of a bargain

at arm’s length at the time it was first leased as mentioned in

subsection (10)(a), and

Consideration of Bill:
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(b)
the expenses (other than the costs of financing the acquisition)

that it is reasonable to suppose would have been incurred by

an associated person in connection with such an acquisition.


This is subject to subsections (12) and (13).

(12)
If the relevant asset or part was first acquired by an associated person,

or (as the case may be) first leased as mentioned in subsection (10)(a),

before the beginning of the accounting period, OC does not include

any part of the consideration mentioned in subsection (9)(a) or (as the

case may be) (11)(a) that it is reasonable to attribute to anything that

no longer forms part of the relevant asset or part at the beginning of

the accounting period.

(13)
If the relevant asset or part was first acquired by an associated person,

or (as the case may be) first leased as mentioned in subsection (10)(a),

in the accounting period, OC for the accounting period is—


where—

D is the total number of days in the accounting period,

DBA is the number of days in the accounting period before the day on

which the relevant asset or part was first acquired or first leased, and

OC is the amount given by subsection (9) or (as the case may be) (11).

(14)
CE is capital expenditure on the relevant asset or part (other than

capital expenditure in respect of its acquisition or the acquisition of a

lease of it) incurred by an associated person—

(a)
after it was first acquired by an associated person or (as the

case may be) was first leased as mentioned in subsection

(10)(a), and

(b)
before the end of the accounting period.


This is subject to subsections (15) and (16).

(15)
CE does not include any capital expenditure mentioned in subsection

(14) that is—

(a)
incurred before the beginning of the accounting period, and

(b)
not reflected in the state or nature of the relevant asset or part

at the beginning of the accounting period.

(16)
If any capital expenditure mentioned in subsection (14) is incurred on

a day in the accounting period, the amount of CE for the accounting

period in respect of that capital expenditure is—


where—

D is the total number of days in the accounting period,

DBI is the number of days in the accounting period before the day on

which that capital expenditure is incurred, and

CEA is the amount of that capital expenditure.

356NA
Restriction on hire: further provision

(1)
The Treasury may by regulations modify the “relevant percentage” for

the purposes of section 356N or 285A.

Consideration of Bill:
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(2)
Regulations under subsection (1) may—

(a)
amend section 356N or section 285A,

(b)
make different provision for different cases or different

purposes, and

(c)
make incidental, consequential, supplementary or transitional

provision or savings.

(3)
To the extent that, by virtue of section 356N, payments within

subsection (1) of that section cannot be brought into account for the

purposes of calculating the contractor’s ring fence profits in an

accounting period, the payments may be—

(a)
allowed as a deduction from the contractor’s total profits for

the accounting period, or

(b)
treated as a surrenderable amount of the contractor for the

accounting period for the purposes of Part 5 (group relief) (see

section 99(7)) as if they were a trading loss,


subject to subsection (4).

(4)
No deduction may be made by virtue of subsection (3) from total

profits so far as they are contractor’s ring fence profits or ring fence

profits for the purposes of Part 8.

(5)
If an associated person enters into arrangements the main purpose or

one of the main purposes of which is to secure that section 356N(2)

does not apply in relation to one or more payments to any extent, that

provision applies in relation to the payments to the extent it would not

otherwise do so.

(6)
In subsection (5) “arrangements” includes any agreement,

understanding, scheme, transaction or series of transactions (whether

or not legally enforceable).

Loan relationships

356NB
Restriction on debits to be brought into account

(1)
Debits may not be brought into account for the purposes of Part 5 of

CTA 2009 (loan relationships) in respect of the contractor’s loan

relationships in any way that results in a reduction of what would

otherwise be the contractor’s ring fence profits, but this is subject to

subsections (2) to (4).

(2)
Subsection (1) does not apply so far as a loan relationship is in respect

of money borrowed by the contractor which has been—

(a)
used to meet expenditure incurred by the contractor in

carrying on oil contractor activities, or

(b)
appropriated to meeting expenditure to be so incurred by the

contractor.

(3)
Subsection (1) does not apply, in the case of debits falling to be

brought into account as a result of section 329 of CTA 2009 (pre-loan

relationship and abortive expenses) in respect of a loan relationship

that has not been entered into, so far as the relationship would have

been one entered into for the purpose of borrowing money to be used

or appropriated as mentioned in subsection (2).



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