Finance Bill

House of Lords

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 31 — Miscellaneous amendments relating to decommissioning
Part 2 — Receipts arising from decommissioning
395

      (2)
In subsection (1), omit “and sections 105 and 106 below”.
      (3)
In subsection (2), omit “and section 106 (but not section 105) below”.
12
In FA 2008, omit section 105.
13
In Part 2 of ITTOIA 2005, Chapter 16A is amended as follows.
14    (1)
Section 225N is amended as follows.
5
      (2)
Omit subsection (5).
      (3)
In subsection (6), in the definition of “abandonment guarantee”—
(a)
for “section 105 of FA 1991” substitute “section 3 of OTA 1975”, and
(b)
for “that Act” substitute “FA 1991”.
      (4)
The heading of that section becomes “Expenditure on abandonment
10
guarantees”.
15
Omit sections 225P and 225Q.
16
In section 225R (introduction to sections 225S and 225T)—
(a)
in subsection (1), for “Sections 225S and 225T apply” substitute
“Section 225S applies”;
15
(b)
the heading of section 225R becomes “Introduction to section 225S”.
17
In Part 8 of CTA 2010, Chapter 4 is amended as follows.
18    (1)
Section 292 is amended as follows.
      (2)
Omit subsection (5).
      (3)
In subsection (6), in the definition of “abandonment guarantee”—
20
(a)
for “section 105 of FA 1991” substitute “section 3 of OTA 1975”, and
(b)
for “that Act” substitute “FA 1991”.
      (4)
The heading of that section becomes “Expenditure on abandonment
guarantees”.
19
Omit sections 294 and 295.
25
20
In section 296 (introduction to sections 297 and 298)—
(a)
in subsection (1), for “Sections 297 and 298 apply” substitute “Section
297 applies”;
(b)
the heading of section 296 becomes “Introduction to section 297”.
Part 2
30
Receipts arising from decommissioning
Calculation of profits chargeable to corporation tax and supplementary charge
21
In Chapter 4 of Part 8 of CTA 2010 (oil activities: calculation of profits), after

Finance Bill
Schedule 31 — Miscellaneous amendments relating to decommissioning
Part 2 — Receipts arising from decommissioning
396

section 298 insert—
“Receipts arising from decommissioning
298A
Receipts arising from decommissioning
(1)
This section applies if—
(a)
a company that is or has been carrying on a ring fence trade
5
(“the defaulter”) has defaulted on a liability under—
(i)
a relevant agreement, or
(ii)
an abandonment programme,

to make a payment towards decommissioning expenditure,
(b)
another company that is or has been carrying on a ring fence
10
trade (“the contributing company”) pays an amount (“the
relevant contribution”) in or towards meeting the whole or
part of the default, and
(c)
the amount of the relevant contribution is less than the sum
of the amounts within subsection (2).
15
(2)
The amounts within this subsection are—
(a)
any payments made (directly or indirectly) to the
contributing company by the guarantor under an
abandonment guarantee as a result of the defaulter
defaulting on the liability,
20
(b)
any reimbursement payments, and
(c)
any relief from tax which the contributing company obtains
in respect of the relevant contribution.
(3)
The difference between—
(a)
the sum of the amounts within subsection (2), and
25
(b)
the relevant contribution,

(“the relevant difference”) is to be treated as a receipt (in the nature
of income) of the contributing company’s ring fence trade for the
relevant accounting period (see subsection (4)).
(4)
“The relevant accounting period” means the accounting period that
30
includes the day on which the Secretary of State certifies that the
relevant abandonment programme has been satisfactorily completed
(“the certification date”).

This is subject to subsections (5) and (6).
(5)
If the contributing company has ceased to carry on the ring fence
35
trade before the certification date, “the relevant accounting period”
is the last accounting period of the trade.
(6)
If the contributing company has ceased to be within the charge to
corporation tax in respect of the ring fence trade before the
certification date, “the relevant accounting period” is the accounting
40
period during or at the end of which the contributing company
ceased to be within the charge to corporation tax in respect of the
trade.
(7)
The relevant difference is to be determined—
(a)
in a case where subsection (5) or (6) applies, at the end of the
45
calendar year in which the certification date falls, and

Finance Bill
Schedule 31 — Miscellaneous amendments relating to decommissioning
Part 2 — Receipts arising from decommissioning
397

(b)
in any other case, at the end of the relevant accounting
period.
(8)
In a case where subsection (5) or (6) applies, any corporation tax
chargeable for the relevant accounting period by virtue of this
section is due and payable as if it were corporation tax for an
5
accounting period beginning with the certification date.
(9)
Any additional assessment to corporation tax required in order to
take account of a receipt arising under this section may be made at
any time not later than 4 years after the end of the calendar year in
which the certification date falls.
10
(10)
In this section—
“abandonment programme” means an abandonment
programme approved under Part 4 of the Petroleum Act 1998
(including such a programme as revised),
“decommissioning expenditure” has the meaning given by
15
section 330C,
“reimbursement payment” means any payment made to the
contributing company by the defaulter in reimbursing the
contributing company in respect of, or otherwise making
good to the contributing company, the whole or any part of
20
the relevant contribution,
“the relevant abandonment programme” means the
abandonment programme in respect of which the
decommissioning expenditure mentioned in subsection
(1)(a) was incurred, and
25
“relevant agreement” has the meaning given by section
104(5)(a) of FA 1991.”
Calculation of profits chargeable to income tax
22
In Chapter 16A of Part 2 of ITTOIA 2005 (trading income: oil activities), after
section 225U insert—
30
“Receipts arising from decommissioning
225V
Receipts arising from decommissioning
(1)
This section applies if—
(a)
a person that is or has been carrying on a ring fence trade
(“the defaulter”) has defaulted on a liability under—
35
(i)
a relevant agreement, or
(ii)
an abandonment programme,

to make a payment towards decommissioning expenditure,
(b)
another person that is or has been carrying on a ring fence
trade (“the contributing person”) pays an amount (“the
40
relevant contribution”) in or towards meeting the whole or
part of the default, and
(c)
the amount of the relevant contribution is less than the sum
of the amounts within subsection (2).
(2)
The amounts within this subsection are—
45

Finance Bill
Schedule 31 — Miscellaneous amendments relating to decommissioning
Part 2 — Receipts arising from decommissioning
398

(a)
any payments made (directly or indirectly) to the
contributing person by the guarantor under an abandonment
guarantee as a result of the defaulter defaulting on the
liability,
(b)
any reimbursement payments, and
5
(c)
any relief from tax which the contributing person obtains in
respect of the relevant contribution.
(3)
The difference between—
(a)
the sum of the amounts within subsection (2), and
(b)
the relevant contribution,
10

(“the relevant difference”) is to be treated as a receipt (in the nature
of income) of the contributing person’s ring fence trade for the
relevant tax year (see subsection (4)).
(4)
“The relevant tax year” means the tax year that includes the day on
which the Secretary of State certifies that the relevant abandonment
15
programme has been satisfactorily completed (“the certification
date”).

This is subject to subsection (5).
(5)
If the contributing person’s ring fence trade is permanently
discontinued before the certification date, “the relevant tax year” is
20
the last tax year in which that trade is carried on.
(6)
The relevant difference is to be determined—
(a)
in a case where subsection (5) applies, at the end of the tax
year in which the certification date falls, and
(b)
in any other case, at the end of the relevant tax year.
25
(7)
In a case where subsection (5) applies, any income tax chargeable for
the relevant tax year by virtue of this section is due and payable for
the tax year in which the certification date falls.
(8)
Any additional assessment to income tax required in order to take
account of a receipt arising under this section may be made at any
30
time not later than 4 years after the end of the tax year in which the
certification date falls.
(9)
In this section—
“abandonment programme” means an abandonment
programme approved under Part 4 of the Petroleum Act 1998
35
(including such a programme as revised),
“decommissioning expenditure” has the meaning given by
section 330C of CTA 2010,
“reimbursement payment” means any payment made to the
contributing person by the defaulter in reimbursing the
40
contributing person in respect of, or otherwise making good
to the contributing person, the whole or any part of the
relevant contribution,
“the relevant abandonment programme” means the
abandonment programme in respect of which the
45
decommissioning expenditure mentioned in subsection
(1)(a) was incurred, and

Finance Bill
Schedule 32 — Restrictions on allowances for certain oil-related expenditure
Part 1 — Decommissioning expenditure
399

“relevant agreement” has the meaning given by section
104(5)(a) of FA 1991.”
Part 3
Commencement
23
The amendments made by this Schedule have effect in relation to
5
expenditure incurred on or after the day on which this Act is passed.
Schedule 32
Section 93

Restrictions on allowances for certain oil-related expenditure
Part 1
Decommissioning expenditure
10
1
CAA 2001 is amended as follows.
2
After section 165 insert—
“Restrictions on allowances: anti-avoidance
165A
Decommissioning services supplied by connected person
(1)
Allowances under this Part are restricted under section 165B(1) if—
15
(a)
a person (“R”) who is carrying on, or has ceased to carry on,
a ring fence trade enters into an arrangement,
(b)
under the arrangement, a person (“S”) who is connected with
R provides a service to R, and
(c)
all or part of the consideration for the service is
20
decommissioning expenditure.
(2)
Subsection (1)(b) may be satisfied whether the service is provided to
R directly or indirectly; and in particular it does not matter—
(a)
whether R and S are parties to the same contract, or
(b)
whether payments are made by R directly to S.
25
(3)
Subsections (4) to (9) apply for the purposes of this section and
sections 165B to 165E.
(4)
References to providing a service include—
(a)
letting a ship on charter or any other asset on hire, and
(b)
providing goods which are to be used up in the course of
30
providing a service.
(5)
“Decommissioning expenditure” means expenditure in connection
with decommissioning.
(6)
“Decommissioning” means—
(a)
demolishing plant or machinery,
35
(b)
preserving plant or machinery pending its reuse or
demolition,

Finance Bill
Schedule 32 — Restrictions on allowances for certain oil-related expenditure
Part 1 — Decommissioning expenditure
400

(c)
preparing plant or machinery for reuse, or
(d)
arranging for the reuse of plant or machinery.
(7)
It is immaterial for the purposes of subsection (6)(b) whether the
plant or machinery is reused, is demolished or is partly reused and
partly demolished.
5
(8)
It is immaterial for the purposes of subsection (6)(c) and (d) whether
the plant or machinery is in fact reused.
(9)
References to R’s expenditure under the arrangement are to so much
of the consideration for the service as is decommissioning
expenditure incurred by R.
10
165B
Restriction on allowance available
(1)
The amount, if any, by which R’s expenditure under the
arrangement exceeds D is to be left out of account in determining R’s
available qualifying expenditure.
(2)
D is the cost to S of providing the service or, if R’s expenditure under
15
the arrangement relates to only part of the service, that part.
(3)
Subsection (2) is subject to sections 165C and 165D, which provide
for D to be calculated differently in certain circumstances.
(4)
But if, under any arrangement, a particular service or part of a
service is provided by more than one person who is connected with
20
R (so that without this subsection there would be more than one
amount for D in relation to that service or part), D is the lowest of
those amounts.
165C
Allowance in respect of certain services related to decommissioning
(1)
This section applies to so much of R’s expenditure under the
25
arrangement as relates to the supply by S of a service if—
(a)
the service is a planning or project management service, and
(b)
the cost plus method is an appropriate method of applying
the arm’s length principle to the provision of it.
(2)
D is the sum of—
30
(a)
the cost to S of providing the service or, if R’s expenditure
under the arrangement relates to only part of the service, that
part, and
(b)
the appropriate percentage of that amount.
(3)
The appropriate percentage is the smaller of—
35
(a)
the appropriate mark up determined in accordance with the
cost plus method, and
(b)
10%.
(4)
Any expression which is used in this section and in the transfer
pricing guidelines has the meaning given in those guidelines.
40

“The transfer pricing guidelines” has the meaning given by section
164(4) of TIOPA 2010.