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7.15 pm
Mr. Clifton-Brown: I have listened carefully to the Financial Secretary's remarks. She pointed out that the state aid rules are extremely complicated. Indeed, the European Court does not operate on the basis of precedent like our own courts; it can overrule its previous decisions. It seems, therefore, that DANI will have an impossible job in trying to judge, at the margins, whether those decisions come under the state aid rules. It will surely always have to rule against the decisions coming under those provisions. Will the hon. Lady explain how DANI will be able to make decisions?
Mrs. Roche: When one is dealing with matters that are the subject of debate within the EU, such as agriculture, of course one needs tight rules. However, I am sure that the hon. Gentleman will agree that the Department is expert in such matters. When the rules are applicable, we want businesses to take advantage of them.
The road haulage sector was mentioned. There will be limited impact on hauliers, because most road haulage in Northern Ireland is cross-border or international, and hence would not have met the condition in the provisional measure that assets must be used primarily in Northern Ireland. The new clause excludes only vehicles and containers from the scope of first-year allowances; the road haulage sector will still be able to claim 100 per cent. first-year allowances on other assets. I know that that will be of interest to the industry.
Under the treaty of Rome, there are strict rules on state aids for agriculture; that is why the provisions relating to DANI are included. However, there will be a right to go before the Commissioners.
The new clause is extremely sensible; we have tried to achieve the best possible deal for businesses in Northern Ireland. I commend it to the House.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Brought up, and read the First time.
Mrs. Roche:
I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Mr. Michael Lord):
With this, it will be convenient to discuss the following: Government new clause 16--Petroleum revenue tax: instalments.
Government new clause 17--Business assets: roll-over relief.
New clause 19--Offshore oil and gas: roll-over relief--
Government amendment No. 35.
Mrs. Roche:
The new clauses and the amendment relate to the taxation of North sea oil and gas activities. New clause 15 prevents the avoidance of petroleum revenue tax--PRT--that could occur if tariff income, which was attributable to a PRT-paying field, were shifted to a non-PRT-paying field.
New clause 16 will maintain the monthly flow of PRT receipts from companies which, mainly as a result of new clause 15, will be participators in a PRT-paying field, although they will have no interest in the oil and gas produced by that field.
New clause 17 and the related amendment No. 35 extend capital gains roll-over to UK oil licences. That change will make it easier for the oil industry to rationalise its holdings of North sea oil licences. This will allow more scope for cost cutting and more aggressive development of new prospects.
There is evidence that some oil companies are considering restructuring their interests in North sea oil and gas fields. Due to the existing rules for charging PRT on tariffs received for the use of pipelines and other North sea oil assets, a restructuring of assets can lead to tariffs being shifted, for PRT purposes, from the current chargeable field to a different field.
Where the tariffs are currently attributable to a field that pays PRT, there will be an effective PRT charge on the tariffs. That PRT would be lost if the tariffs were shifted to a field that did not pay PRT. There is no justification for that loss of PRT, particularly as it would create a mismatch between the effective PRT relief already given in the PRT-paying field on expenditure on building the assets and the lack of an effective PRT charge on future tariff income.
New clause 15 prevents that PRT loss by ensuring that, where a restructuring would lead to a change in the field to which tariffs are attributed for PRT purposes, the tariffs will continue to be attributable to the current field. In addition, if the owner of the tariff-generating assets would not, following restructuring, be a participator in the field to which tariffs remain attributable for PRT purposes, he will be deemed to be a participator in that field. That will ensure that PRT can be charged in that field on the tariffs that are attributable to it.
New clause 15 is aimed at retaining the current PRT charge on tariffs which could be lost due to the restructuring of companies' interests in North sea oil and gas fields, but it should not prevent restructuring of these interests. Where there are good commercial reasons for the restructuring, new clause 15 should not prevent the companies from going ahead with it.
The total tax potentially at risk from companies being able to shift tariffs from PRT-paying fields to non-PRT-paying fields is about £100 million per year. New clause 15 will protect those tax receipts.
New clause 15 has been introduced at this stage due to the evidence that has very recently come to light about some companies considering the restructuring of their interests in North sea oil and gas fields in a way that would have led to a loss of PRT on tariff income. To protect that tax, we have had to act very quickly.
One effect of new clause 15 is that there will be more companies that are participators in a North sea oilfield but that do not own an interest in the oil produced.
PRT, as the House knows, is paid by monthly instalment. The amount of the instalment is based on the PRT liability for the previous period, and an adjusting payment or repayment is made, two months after the end of each chargeable period, to take account of any underpayment or overpayment of PRT for the current period. Where a participator in a field has not delivered or appropriated any oil in any month, he can withhold the PRT instalment that is due in the following month. That is because an oil company that has received no cash flow from the field in the previous month may not have sufficient cash to pay its PRT instalment.
Companies that are deemed to be participators by new clause 15 will be able to use that rule to withhold all PRT instalments, given that, as they have no interest in the oil produced by the field, they will never have received oil in a previous month. But there is no justification for allowing a company to withhold instalments if the company has received tariff income in the previous month. New clause 16 therefore ensures that a PRT instalment for a month cannot be withheld if the participator has any tariff receipts that are received or receivable in the previous month. New clauses 15 and 16 therefore aim to protect the Exchequer from the loss of tax that would arise from tax avoidance.
New clause 17, on the other hand, extends a relief--roll-over relief--to gains that oil companies make on the disposal of UK oil licences. Roll-over relief allows a business to sell one business asset and acquire another without facing an immediate capital gains tax charge. By deferring the tax charge, the relief helps reduce the effect of tax on companies' investment decisions.
UK oil licences were removed from the scope of roll-over relief in 1987. As a result, if a company sold its interest in a UK oil licence, it was liable to an immediate tax charge on any chargeable gain that arose. That charge was levied even if the proceeds of the sale were reinvested in another UK oil licence.
Our recent discussions with oil companies have revealed that the North sea oil industry has changed significantly since 1987. There is now far more emphasis on developing mature fields, maximising the use of existing infrastructure and managing projects efficiently. In that context, the absence of roll-over relief is causing problems for companies as they seek to rationalise and consolidate their North sea interests. It is now no longer appropriate to deny roll-over relief on UK oil licences.
'.--(1) Subsection (2) below applies where--
(a) an asset which is not a mobile asset is a qualifying asset for the purposes of the Oil Taxation Act 1983 in relation to a person ("the taxpayer") who is a participator in an oil field ("the field");
(b) tariff receipts or disposal receipts of the taxpayer which are referable to the asset are attributable to the field for a chargeable period ("the earlier period");
(c) receipts of the taxpayer which are referable to the asset for a subsequent chargeable period ("the later period") would not, apart from this section, be tariff receipts or disposal receipts attributable to the field for that period as a result of--
(i) the taxpayer's ceasing to be a participator in the field; or
(ii) his becoming a participator in another oil field; and
(d) not more than two chargeable periods intervene between the earlier period and the later period.
(2) The Oil Taxation Acts shall have effect, in relation to the later period and any subsequent chargeable period, as if--
(a) receipts of the taxpayer which are referable to the asset for the period concerned were tariff receipts or disposal receipts attributable to the field for that period; and
(b) in a case falling within subsection (1)(c)(i) above, the taxpayer continued to be a participator in the field.
(3) Subsection (4) below applies where--
(a) an asset which is not a mobile asset is a qualifying asset for the purposes of the Oil Taxation Act 1983 in relation to a person ("the taxpayer") who is a participator in an oil field ("the field");
(b) tariff receipts or disposal receipts of the taxpayer which are referable to the asset are attributable to the field for a chargeable period ("the earlier period");
(c) in a subsequent chargeable period ("the later period") the taxpayer disposes of--
(i) the asset; or
(ii) an interest in the asset,
to another person ("the transferee") in circumstances such that section 7 of the Oil Taxation Act 1983 does not apply to the disposal; and
(d) not more than two chargeable periods intervene between the earlier period and the later period.
(4) The Oil Taxation Acts shall have effect, in relation to the later period and any subsequent chargeable period, as if--
(a) receipts of the transferee which are referable to the asset for the period concerned were tariff receipts or disposal receipts attributable to the field for that period; and
(b) the transferee were a participator in the field.
(5) Subject to subsection (6) below, any reference in this section to receipts of any person which are referable to the asset for a period is a reference to any sums which--
(a) are received or receivable by that person in that period in respect of the use of the asset, or the provision of services or other business facilities of whatever kind in connection with its use; or
(b) are received or receivable by that person in respect of the disposal in that period of the asset, or an interest in the asset.
(6) In a case falling within subsection (3)(c)(ii) above--
(a) any sums which are received or receivable by the transferee otherwise than by virtue of his acquisition of the interest shall not be regarded for the purposes of subsection (4) above as receipts of his which are referable to the asset for any period; and
(7) This section shall be construed as one with Part I of the Oil Taxation Act 1975; and in this section "the Oil Taxation Acts" means--
(a) the enactments relating to petroleum revenue tax (including this section);
(b) Chapter V of Part XII of the Taxes Act 1988 (petroleum extraction activities); and
(c) sections 62 to 65 of the Finance Act 1991 (oil industry).
(8) Nothing in this section shall be taken to affect the meaning of "participator" in paragraph 4 of Schedule 2 to the principal Act.
(9) Subject to subsection (11) below, subsection (1) above applies where--
(a) the disposal by virtue of which the taxpayer ceased to be a participator in the field; or
(b) the acquisition by virtue of which he became a participator in the other oil field,
was made on or after 1st July 1999.
(10) Subject to subsection (11) below, subsection (3) above applies where the asset, or the interest in the asset, was disposed of on or after that date.
(11) Neither subsection (1) nor subsection (3) above applies where the disposal or acquisition concerned was made pursuant to an agreement which was made before 1st July 1999 and either--
(a) the agreement was not conditional; or
(b) the agreement was conditional and the condition was satisfied before that date.'.--[Mrs. Roche.]
'.--(1) Section 193 of the Taxation of Chargeable Gains Act 1992 is hereby repealed with effect from 6th April 1999.
(2) In section 155 of the Taxation of Chargeable Gains Act 1992 (classes of assets for the purposes of roll-over relief) after Class 8 there shall be inserted--
A licence under Part I of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964.
This section applies to all licences (or interests in them) disposed of on or after the 6th April 1999.".'.
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