Finance (No. 3) Bill (HL Bill 304)

Section 36

SCHEDULE 14 Oil activities: transferable tax history

Part 1 Election to transfer tax history

5Entitlement to make a TTH election

1 This Schedule applies if, on or after 1 November 2018, the OGA gives
consent for a company (the “seller”) to sell an interest in a UK oil licence to
another company (the “purchaser”).

2 (1) On or after the licence transfer date, the seller and purchaser may jointly
10make a TTH election in respect of an interest (“the TTH asset”) in a
transferred oil field (the “TTH oil field”).

(2) A “TTH election” is an election for—

(a) an amount of the seller’s ring fence profits (the “total TTH amount”)
to be treated, in accordance with the provisions of this Schedule, as
15if it were an amount of the purchaser’s profits (instead of the seller’s
profits), and

(b) a corresponding amount of the seller’s adjusted ring fence profits to
be so treated for the purpose of Chapter 6 of Part 8 of CTA 2010
(supplementary charge).

20Part 2 The total TTH amount

The total TTH amount

3 (1) The total TTH amount may comprise—

(a) an amount representing the seller’s eligible ring fence profits for the
25reference accounting period, and

(b) amounts representing the seller’s eligible ring fence profits for so
many of the preceding accounting periods ending on or after 17
April 2002 as the seller and purchaser may determine.

(2) Sub-paragraph (1) is subject to—

(a) 30paragraph 4 (limits on total TTH amount),

(b) paragraph 11 (consecutive accounting periods), and

(c) paragraph 12 (the transferred profits amount for an accounting
period).

(3) See—

(a) 35paragraph 13 for the meaning of “eligible ring fence profits”, and

(b) paragraph 102 for the meaning of “reference accounting period” in
relation to the seller.

Limits on total TTH amount

4 The total TTH amount must not exceed the lower of—

(a) the uplifted decommissioning costs estimate in relation to the TTH
asset, and

(b) the total amount of the seller’s eligible ring fence profits for the
period—

(i) 5beginning with 17 April 2002, and

(ii) ending at the end of the reference accounting period.

The “uplifted decommissioning costs estimate”

5 To determine the “uplifted decommissioning costs estimate” in relation to
the TTH asset—

(a) 10determine the transferred proportion of the net cost amount (see
paragraphs 6 and 7),

(b) allocate the relevant proportion of the amount determined under
paragraph (a) to the TTH asset (see paragraph 8),

(c) adjust the allocated amount in accordance with paragraph 9, and

(d) 15double the adjusted amount.

6 (1) The “net cost amount” is the appropriate DSA estimate of the
decommissioning costs for the TTH oil field.

(2) A “DSA estimate” is an estimate approved for the purposes of a qualifying
decommissioning security agreement.

(3) 20If there is only one qualifying decommissioning security agreement relating
to the TTH oil field, the “appropriate DSA estimate” is the most recent DSA
estimate approved for the purposes of that agreement within the relevant
period.

(4) If there is more than one qualifying decommissioning security agreement
25relating to the TTH oil field, the “appropriate DSA estimate” is the lowest of
the DSA estimates approved for the purposes of any of those agreements
within the relevant period.

(5) For the purposes of sub-paragraphs (3) and (4), the “relevant period” is the
period of 12 months ending with—

(a) 30the date on which the TTH election is made, or

(b) in a case where the hive down condition (see paragraph 56(5)) is met,
the date on which the seller and the purchaser cease to be associated
with one another.

7 The “transferred proportion” of the net cost amount is the proportion of the
35decommissioning costs for the TTH oil field that, under the qualifying
decommissioning security agreement for the purposes of which the
appropriate DSA estimate is approved, is allocated to—

(a) the seller, in the case of an agreement entered into before the sale of
the interest in the UK oil licence concerned, or

(b) 40the purchaser, in the case of an agreement entered into on or after
that date.

8 In paragraph 5(b), the “relevant proportion” means—

(a) the proportion that the interest in the TTH oil field which is the TTH
asset bears to—

(i) 45the seller’s other interests in the TTH oil field, if paragraph
7(a) applies, or

(ii) the purchaser’s other interests in the TTH oil field, if
paragraph 7(b) applies, or

(b) if the proportion cannot reasonably be determined in accordance
with paragraph (a), such other proportion determined on a just and
5reasonable basis.

9 (1) To adjust the allocated amount for the purposes of paragraph 5(c)—

(a) disregard the adjustments listed in sub-paragraph (2) made, for the
purposes of calculating the net cost amount, in accordance with the
terms of the decommissioning security agreement, and

(b) 10if, in making that calculation in accordance with those terms, the
relevant proportion of the estimate of the decommissioning costs is
increased by an amount to take account of inflation, disregard the
amount (if any) by which the increase exceeds the standard inflation
adjustment amount.

(2) 15The adjustments to be disregarded are—

(a) any discount applied by reference to the period of time expected to
elapse before the decommissioning costs are payable in relation to
the TTH oil field, and

(b) any adjustment made for the purposes of taking account of the risk
20that the decommissioning costs for the TTH oil field will exceed the
estimate of those costs.

(3) The “standard inflation adjustment amount” means the amount (if any) by
which the relevant proportion of the estimate of the decommissioning costs
for the TTH oil field would be increased if an adjustment for the purposes of
25taking account of inflation were made on the basis specified by Her
Majesty’s Revenue and Customs for the purposes of this paragraph.

10 (1) A “decommissioning security agreement” is an agreement entered into for
the purpose of—

(a) determining the costs of decommissioning an oil field, and

(b) 30providing security for—

(i) the performance of obligations under an abandonment
programme for the purposes of section 38A of the Petroleum
Act 1998 (whether or not such a programme has been
approved at the time the agreement is entered into), or

(ii) 35the costs of decommissioning plant or machinery which is, or
forms part of, a relevant onshore installation.

(2) A decommissioning security agreement is “qualifying” for the purposes of
this Schedule if—

(a) the seller is a party to the agreement,

(b) 40at least one of the parties is not associated with the seller, and

(c) the estimate approved for the purposes of the agreement is a
reasonable estimate of the decommissioning costs for the oil field.

(3) In a case where the corporate restructuring condition (see paragraph 56(2))
is met, sub-paragraph (2)(a) has effect as if the reference to the seller were a
45reference to a party to the third party election (as defined in that paragraph).

(4) In sub-paragraph (1)—

• “abandonment programme” has the meaning given by section 29 of the
  Petroleum Act 1998, and

Finance (No. 3) BillPage 263

• “relevant onshore installation” has the same meaning as in section 163
  of CAA 2001 (see subsection (3C) of that section).

(5) See paragraph 98 of this Schedule and section 271 of CTA 2010 for further
provision about the meaning of “associated companies”.

5Consecutive accounting periods

11 (1) The total TTH amount may not include an amount representing the eligible
ring fence profits for a particular accounting period (other than the reference
accounting period) unless it also includes an amount representing the
eligible ring fence profits for the next following qualifying accounting
10period.

(2) An accounting period is “qualifying” for the purposes of this Schedule if the
seller has eligible ring fence profits for that period.

The transferred profits amount

12 (1) The transferred profits amount for an accounting period, other than the
15earliest period, must be an amount equal to the amount of the seller’s
eligible ring fence profits for the period.

(2) The transferred profits amount for the earliest period must be an amount
equal to the amount of the seller’s eligible ring fence profits for that period,
so far as that amount does not exceed the TTH balance for the earliest period.

(3) 20The “TTH balance” for the earliest period is an amount equal to—

(a) the total TTH amount, less

(b) the transferred profits amounts for each later accounting period.

(4) In this paragraph, “earliest period” means the earliest accounting period for
which there is a transferred profits amount.

25“Eligible ring fence profits”

13 Ring fence profits of an accounting period are “eligible” for the purposes of
a TTH election if, as at the date the TTH election is made—

(a) corporation tax is charged on the profits of that period at the main
ring fence profits rate,

(b) 30neither section 279B nor section 279C of CTA 2010 (marginal relief)
applies in relation to the seller in that period,

(c) the seller’s liability to corporation tax in respect of the profits has
been discharged in full, and

(d) the total TTH amount for any other TTH election made by the seller
35(whether made with the purchaser or with another person) does not
include an amount representing those profits.

14 In determining, for the purposes of this Schedule, the amount of the seller’s
eligible ring fence profits for an accounting period that falls partly before 17
April 2002, the amount of the seller’s eligible ring fence profits for that
40period is to be reduced by the proportion which the part of the accounting
period falling before that date bears to the whole of the accounting period.

Part 3 Effect of a TTH election on the seller

Application of this Part

15 This Part applies if—

(a) 5the seller and the purchaser have jointly made a TTH election in
respect of the TTH asset, and

(b) the TTH election has been approved by an officer of Revenue and
Customs (see paragraphs 61 and 62).

Effect of a TTH election: corporation tax

16 (1) 10Sub-paragraphs (2) and (3) apply if the seller makes a loss in a trade in an
accounting period.

(2) For the purposes of section 37(3)(b) of CTA 2010 (including for the purposes
of that provision as it has effect under the other trade loss relief provisions),
the seller’s total profits of a pre-transfer accounting period are treated as
15being—

(a) the seller’s total profits for that period, less

(b) the transferred profits amount for that period.

(3) For the purposes of section 42 of CTA 2010, the seller’s profits of a ring fence
trade of a pre-transfer accounting period are treated as being—

(a) 20the seller’s ring fence profits for that period, less

(b) the transferred profits amount for that period.

17 The transferred profits amount for an accounting period is to be disregarded
for the purposes of the application of any provision of the Corporation Tax
Acts by reference to which the seller would (apart from this paragraph) be
25entitled to relief from, or a repayment of, corporation tax.

18 (1) Paragraphs 16 and 17 are subject to this paragraph.

(2) If, on or after the licence transfer date, the seller’s eligible ring fence profits
for a pre-transfer accounting period are reduced to an amount which is
lower than the transferred profits amount for that period—

(a) 30the seller is treated as incurring a loss in a ring fence trade, of an
amount equal to the difference, for the accounting period, and

(b) paragraph 17 does not apply to the difference.

Effect of a TTH election: supplementary charge

19 Paragraphs 20 and 21 apply in relation to an accounting period for which
35there is a transferred profits amount.

20 (1) The transferred adjusted ring fence profits amount for the accounting period
is to be disregarded for the purposes of any provision of the Corporation Tax
Acts by reference to which the seller would (apart from this paragraph) be
entitled to a repayment of supplementary charge.

(2) 40The “transferred adjusted ring fence profits amount” is—

(a) in the case of an accounting period other than the earliest period, the
amount of the seller’s eligible adjusted ring fence profits for the
period;

(b) in the case of the earliest period, an amount equal to the transferred
5proportion of the seller’s eligible adjusted ring fence profits for the
period.

21 (1) For the purposes of the application of any provision of Part 4 or Part 8 of
CTA 2010 in relation to the seller—

(a) the amount of each ARFP component, or (in the case of the earliest
10period) an amount equal to the transferred proportion of each ARFP
component, for the accounting period is to be disregarded, and

(b) in the case of the earliest period, references in those provisions to an
ARFP component for the accounting period are to be treated as
references to the retained proportion of that ARFP component for the
15period.

(2) “ARFP component”, in relation to an accounting period, means—

(a) the financing costs for the period that are left out of account for the
purposes of the assumption mentioned in section 330(3) of CTA 2010,
and

(b) 20the amount of any reduction of the seller’s adjusted ring fence profits
by reference to the cumulative total amount of activated allowance
for the period under any of the following provisions of CTA 2010—

(i) section 332E (investment allowance),

(ii) section 356D (onshore allowance), and

(iii) 25section 356JG (cluster area allowance).

(3) See paragraph 17 for provision about disregarding the transferred profits
amount for an accounting period.

(4) Sub-paragraph (1) does not apply in relation to the application of any
provision for the purposes of determining the seller’s eligible adjusted ring
30fence profits for an accounting period for the purposes of this Schedule.

22 (1) For the purposes of paragraphs 20(2) and 21(1)—

(a) “earliest period” has the meaning given by paragraph 12(4),

(b) the “transferred proportion” is the same as the proportion that the
transferred profits amount for the accounting period bears to the
35seller’s ring fence profits amount for the period, and

(c) the “retained proportion” is the same as the proportion that the
retained profits amount for the accounting period bears to the
seller’s ring fence profits amount for the period.

(2) In sub-paragraph (1)(c), “retained profits amount” means the amount of the
40difference between the amount of the seller’s ring fence profits for the
earliest period and the transferred profits amount for that period.

(3) For the purposes of this Schedule, adjusted ring fence profits of an
accounting period are “eligible” if—

(a) an amount is charged on the profits under section 330(1) of CTA 2010
45(supplementary charge in respect of ring fence trades), and

(b) as at the TTH election is made, the seller’s liability to tax under that
section in respect of the adjusted ring fence profits has been
discharged in full.

Part 4 Effect of a TTH election on the purchaser

Application of this Part

23 This Part applies if—

(a) 5the seller and the purchaser have jointly made a TTH election in
respect of the TTH asset,

(b) the TTH election has been approved by an officer of Revenue and
Customs (see paragraphs 61 and 62),

(c) the winning of oil from the TTH oil field has permanently ceased,
10and

(d) in a post-acquisition accounting period (the “loss period”)—

(i) the purchaser makes a loss in a ring fence trade,

(ii) the loss is a decommissioning loss, and

(iii) the purchaser holds, for the loss period, an activated TTH
15amount (see Parts 5 and 6).

24 In paragraph 23(d)(ii), “decommissioning loss” means a loss in respect of
which—

(a) a claim for relief under section 37 of CTA 2010 is made by the
purchaser by virtue of section 39 or 40 of that Act (relief for trade
20losses: terminal losses and ring fence trades), or

(b) relief is given under section 42 of CTA 2010 (ring fence trades: further
extension of period for relief).

Effect of trade loss relief provisions

25 (1) The total activated TTH amount held by the purchaser for the loss period is
25to be applied in accordance with sub-paragraph (2)(b) or (3)(b).

(2) The purchaser’s total profits of a pre-acquisition accounting period are to be
treated, for the purposes of section 37(3)(b) of CTA 2010 (including for the
purposes of that provision as it has effect under the other trade loss relief
provisions) as being the total of—

(a) 30the amount of the purchaser’s total profits for that period, and

(b) if and so far as the loss in respect of which relief is claimed exceeds
the amount mentioned in paragraph (a), the activated transferred
profits amount for that period.

(3) The purchaser’s profits of a ring fence trade of a pre-acquisition accounting
35period are to be treated for the purposes of section 42 of CTA 2010, as being
the total of—

(a) the purchaser’s profits of a ring fence trade for that period, and

(b) if and so far as the loss in respect of which relief is claimed exceeds
the amount mentioned in paragraph (a), the activated transferred
40profits amount for that period.

(4) The “activated transferred profits amount” for a pre-acquisition accounting
period means the amount allocated to the period under paragraph 44 for the
purposes of the application of this paragraph in relation to the loss period.

(5) See paragraphs 38 to 42 for provision about the “total activated TTH
45amount”.

Repayment of supplementary charge

26 (1) This paragraph applies where, in respect of a loss period, an activated
transferred profits amount for a pre-acquisition accounting period is to be
applied in accordance with paragraph 25(2)(b) or (3)(b).

(2) 5A repayment of tax to be determined as if—

(a) an amount had been charged under section 330(1) of CTA 2010 in
respect of the activated ARFP amount for the pre-acquisition
accounting period,

(b) that amount had been charged on, and paid by, the purchaser
10(instead of the seller), and

(c) the transferred adjusted ring fence profits amount for the pre-
acquisition accounting period were recalculated in accordance with
paragraph 50.

(3) See paragraph 53 for provision about the “activated ARFP amount”.

27 (1) 15In this Schedule, references to the transferred adjusted ring fence profits
amount for a pre-acquisition accounting period of the purchaser are
references to—

(a) the transferred adjusted ring fence profits amount (see paragraph
20(2)) for the accounting period of the seller which coincides with the
20pre-acquisition accounting period of the purchaser, or

(b) if there is no coinciding accounting period of the seller, the
overlapping proportion of the transferred adjusted ring fence profits
amount for each accounting period of the seller that overlaps with
the pre-acquisition accounting period of the purchaser.

(2) 25The overlapping proportion, in relation to an accounting period of the seller,
is the same as the proportion that the part of the seller’s accounting period
that overlaps with the pre-acquisition accounting period of the purchaser
bears to the whole of the seller’s accounting period.

Supplementary provision: repayment and enquiries

28 30For the purposes of section 59D(2) of TMA 1970 (repayment of excess
corporation tax), the following amounts paid by the seller are treated as
having been paid by the purchaser—

(a) the amount of corporation tax in respect of an activated transferred
profits amount, for a pre-acquisition accounting period, that is
35applied in accordance with 25(2)(b) or (3)(b), and

(b) the amount of supplementary charge in respect of the transferred
adjusted ring fence profits amount for that accounting period.

29 (1) An enquiry under Part 4 of Schedule 18 to FA 1998 into a tax return for the
accounting period in which the claim under section 37 of CTA 2010 in
40respect of a decommissioning loss in a loss period is made (see paragraphs
23 and 24), or an enquiry into the claim under Schedule 1A to TMA 1970,
extends to—

(a) the decommissioning expenditure amount attributable to the TTH
oil field for any accounting period,

(b) 45the tracked profit or loss amount attributable to the TTH asset for any
accounting period, and

(c) whether a TTH activation event has occurred in relation to the TTH
asset.

(2) See Part 5 for provision about “the decommissioning expenditure amount”
and a TTH activation event, and paragraphs 64 and 65 for provision about
5the “tracked profit and loss amount”.

Part 5 TTH activation

TTH activation event

30 (1) A TTH activation event occurs in relation to the TTH asset if—

(a) 10the winning of oil from the TTH oil field has permanently ceased,
and

(b) at the end of a post-acquisition accounting period of the purchaser,
the total decommissioning expenditure amount exceeds the total net
profits amount.

(2) 15The “total decommissioning expenditure amount” is the relevant proportion
of the total of the decommissioning expenditure amounts (see paragraph 31)
attributable to the TTH oil field, in respect of which an allowance or
allocation is made to the purchaser, for—

(a) the period mentioned in sub-paragraph (1)(b), and

(b) 20each preceding accounting period which is a post-acquisition
accounting period.

(3) The “total net profits amount” is the aggregate of the tracked profit or loss
amounts (see paragraphs 64 and 65) attributable to the TTH asset for—

(a) the period mentioned in sub-paragraph (1)(b), and

(b) 25each preceding accounting period which is a post-acquisition
accounting period.

(4) But if the aggregate of the tracked profit or loss amounts attributable to the
TTH asset for the periods mentioned in sub-paragraph (3)(a) and (b) is a
negative amount, the total net profits amount is nil.

(5) 30In this paragraph, “the relevant proportion” means the proportion that the
interest in the TTH oil field which is the TTH asset bears to the purchaser’s
other interests in the TTH oil field or, if the proportion cannot reasonably be
determined on that basis, such other proportion determined on a just and
reasonable basis.

35Decommissioning expenditure amount

31 The “decommissioning expenditure amount” attributable to the TTH oil
field for an accounting period, is the total of each of the following amounts
attributable to the field for the post-acquisition accounting period—

(a) the special allowance amount,

(b) 40the post-cessation expenditure amount, and

(c) the restoration expenditure amount.

32 (1) The “special allowance amount” for an accounting period is the amount of a
special allowance made under section 164 of CAA 2001 (general

decommissioning expenditure incurred before cessation of ring fence trade)
for that period.

(2) A special allowance amount is attributable to the TTH oil field so far as the
expenditure in respect of which the allowance is made is expenditure
5incurred on decommissioning plant or machinery brought into use for the
purposes of oil-related activities carried on wholly or partly in direct
connection with the field.

33 (1) The “post-cessation expenditure amount” for an accounting period is the
amount that, under section 165(3)(a) of CAA 2001 (general decommissioning
10expenditure after ceasing ring fence trade), is allocated to the appropriate
pool for that period.

(2) A post-cessation expenditure amount is attributable to the TTH oil field so
far as the general decommissioning expenditure in respect of which the
amount is allocated is expenditure incurred on decommissioning plant or
15machinery brought into use for the purposes of oil-related activities carried
on wholly or partly in direct connection with the field.

34 (1) The “restoration expenditure amount” for an accounting period is the
amount that is treated as qualifying expenditure under section 416ZA of
CAA 2001 (ring fence trades: expenditure on site restoration) for that period.

(2) 20A restoration expenditure amount is attributable to the TTH oil field if the
qualifying expenditure is incurred in relation to the field.

35 For the purposes of paragraphs 32(2), 33(2) and 34(2), expenditure for an
accounting period is to be apportioned between the TTH oil field and other
oil fields (or parts of oil fields) on a just and reasonable basis.

25Part 6 Allocation of activated TTH amount

Application of this Part

36 This Part of this Schedule applies if a TTH activation event occurs in relation
to the TTH asset.

37 30In this Schedule—

(a) “first activation period” means the first post-acquisition accounting
period of the purchaser in which a TTH activation event occurs, and

(b) “post-activation period” means a subsequent accounting period of
the purchaser.

35“Total activated TTH amount”

38 The “total activated TTH amount” held by the purchaser for a loss period
which is the first activation period is the lower of—

(a) the amount by which, at the end of that period, the total
decommissioning expenditure amount exceeds the total net profits
40amount (see paragraph 30), and

(b) the total TTH amount.

39 The “total activated TTH amount” held by the purchaser for a loss period
which is a post-activation period is the lower of—