Finance Bill

House of Commons

Session 2003 - 04
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Other Bills before Parliament

Finance Bill

Finance Bill
Part 5 — Oil
223

(2)
For the purposes of subsection (1) above “disqualifying asset”, in
relation to an existing field and any time in the 6 year period, means an
asset which at that time—
(a)
was a qualifying asset in relation to a participator in an oil field;
and
5
(b)
was not an excepted asset (see subsection (3) below).
(3)
For the purposes of subsection (2) above “excepted asset”, in relation to
an existing field and any time in the 6 year period, means any of the
following—
(a)
any asset (other than a tanker) which at that time was wholly
10
situated in the existing field;
(b)
any tanker which at that time was a non-dedicated tanker (see
subsection (10) below) being used for transporting from the
existing field oil which had been won from that field;
(c)
any asset which at that time was being used in relation to oil
15
which had been won from the existing field and transported
from that field by a non-dedicated tanker;
(d)
if the existing field is an oil field and is expected not to be a
tanker loading field (see subsection (7) below)—
(i)
any tanker which at that time was a dedicated tanker
20
(see subsection (9) below) being used for transporting
from the existing field oil which had been won from that
field;
(ii)
any asset which at that time was being used in relation
to oil which had been won from the existing field and
25
transported from that field by a dedicated tanker;
(iii)
any asset which at that time was being used to transport
from the existing field oil consisting of gas won from
that field to another oil field for the purpose of enabling
that oil to be used for assisting the extraction of oil from
30
that other field;
(e)
if at that time the existing field was not a taxable field, any asset
by reference to which an election under section 231 of the
Finance Act 1994 (election by reference to asset with excess
capacity) was at that time in operation with respect to an oil
35
field.
(4)
Where any use of an asset is, by virtue of subsection (3) above, use of an
excepted asset, the provision of any services or other business facilities
of whatever kind in connection with that use of that asset accordingly
falls to be disregarded for the purposes of subsection (1)(b) above.
40
(5)
Where an asset in a UK area—
(a)
is a qualifying asset in relation to a participator in such an oil
field as is mentioned in section 107 of the Finance Act 1980 (a
“participator in the UK sector”), and
(b)
is also, by virtue of paragraph 3 of Schedule 4 to this Act, a
45
chargeable asset in relation to a participator in a foreign field (a
“participator in the foreign sector”),

subsection (6) below applies in relation to use of the asset in relation to
the existing field or oil won from it.

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Part 5 — Oil
224

(6)
Where this subsection applies, then, in determining for the purposes of
subsection (1) above whether there has been any use of a disqualifying
asset in relation to the existing field or oil won from it, any use of the
asset in relation to that field or oil won from it shall be treated—
(a)
as use of a qualifying asset in relation to a participator in an oil
5
field, if or to the extent that the use is attributable, on a just and
reasonable basis, to a participator in the UK sector, or
(b)
as use of an asset which was not a qualifying asset in relation to
a participator in an oil field, if or to the extent that the use is
attributable, on a just and reasonable basis, to a participator in
10
the foreign sector.
(7)
For the purposes of subsection (3) above, the existing field is expected
not to be a tanker loading field if, at the time when the relevant contract
is entered into, it is expected that all (or virtually all) of the oil (other
than oil consisting of gas) to be won from that field and transported
15
from it after the beginning of the operational period will be so
transported otherwise than by tanker.
(8)
For the purposes of subsection (7) above—
(a)
“the relevant contract” means the contract mentioned in section
6A(2)(b) above; and
20
(b)
“the beginning of the operational period” means the time at
which the qualifying asset to which that contract relates begins
to be used under that contract in relation to the existing field or
oil won from that field.
(9)
For the purposes of subsection (3) above a tanker is a dedicated tanker
25
at any time if—
(a)
the existing field mentioned in that subsection is an oil field, and
(b)
at that time the tanker is a mobile asset dedicated to that oil field
(see section 2 above).
(10)
For the purposes of subsection (3) above a tanker is a non-dedicated
30
tanker—
(a)
at any time, if the existing field mentioned in that subsection is
not an oil field, or
(b)
where that field is an oil field, at any time when the tanker is not
a mobile asset dedicated to that oil field.
35
(11)
In this section “UK area” means each of the following—
(a)
the United Kingdom;
(b)
the territorial sea of the United Kingdom;
(c)
a designated area, to the extent that it does not fall to be treated
by virtue of section 6A(6) above as a foreign field.
40
(12)
This section shall be construed as one with section 6A above.”.
(4)
In Schedule 2 (supplemental provisions in relation to receipts from qualifying
assets) in paragraph 12 (purchase at place of extraction)—
(a)
in sub-paragraph (1), for “Subject to sub-paragraphs (4) and (5)”
substitute “Subject to sub-paragraphs (4) to (6)”, and
45
(b)
at the end of the paragraph add—
“(6)
In any chargeable period ending on or after 30th June 2004, sub-
paragraph (1) above does not apply to oil in a case where—

Finance Bill
Part 5 — Oil
225

(a)
had the operation or operations to which the oil was
subjected as mentioned in paragraph (b) of that sub-
paragraph been carried out under a contract entered
into on or after 9th April 2003, and
(b)
had an amount been received or receivable under the
5
contract in that chargeable period by the participator,

that amount would have been a tax-exempt tariffing receipt.”.
(5)
Schedule 35 to this Act has effect; and in that Schedule—

Part 1 makes amendments to the Oil Taxation Act 1983 (c. 56) relating to
allowable expenditure and disposal receipts;
10

Part 2 makes transitional provision;

Part 3 makes amendments to the Taxes Act 1988;

Part 4 makes amendments to other enactments.
(6)
In Part 1 of Schedule 35 to this Act—
(a)
the amendments made by paragraph 5 (which relate to disposal
15
receipts) have effect in relation to disposals in chargeable periods
ending on or after 30th June 2004, and
(b)
the other amendments made by that Part have effect in relation to
expenditure incurred on or after 1st January 2004.
(7)
The amendments made by Part 3 of that Schedule have effect in relation to
20
chargeable periods, within the meaning of the Taxes Act 1988, ending on or
after 1st January 2004.
(8)
The amendments made by Part 4 of that Schedule have effect in relation to
chargeable periods (within the meaning of section 98 of the Finance Act 1999
(c. 16)) ending on or after 30th June 2004.
25
272
Petroleum extraction activities: exploration expenditure supplement
(1)
Chapter 5 of Part 12 of the Taxes Act 1988 (petroleum extraction activities) is
amended as follows.
(2)
After section section 496 (tariff receipts) insert—
“496A
Exploration expenditure supplement
30
Schedule 19B to this Act (exploration expenditure supplement) shall
have effect.”.
(3)
Before Schedule 20 insert the Schedule 19B set out in Schedule 36 to this Act.
273
Restrictions on expenditure allowable
(1)
In Schedule 4 to the Oil Taxation Act 1975 (c. 22), paragraph 2 (restrictions on
35
expenditure allowable where acquisition etc is from connected person or
otherwise not at arm’s length) is amended as follows.
(2)
In sub-paragraph (1), for the words following paragraph (b) (which limit the
expenditure allowable to the cost in a transaction to which paragraph 2 does
not apply) substitute—
40

“as having incurred that expenditure only to the extent that it does not
exceed the lowest of the amounts described in sub-paragraph (1ZA)
below which is applicable in the particular case.”.

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Part 5 — Oil
226

(3)
After sub-paragraph (1) insert—
“(1ZA)
Those amounts are—
(a)
the amount of expenditure (other than loan expenditure)
incurred up to the time mentioned in sub-paragraph (1) above
in a transaction to which this paragraph does not apply (or, if
5
there has been more than one such transaction, the later or latest
of them) in acquiring, bringing into existence, or enhancing the
value of, the asset;
(b)
the amount of the open market consideration for the
acquisition, bringing into existence, or enhancement of the
10
value, of the asset;
(c)
in a case where the other party to the transaction is a
participator in a taxable field and in the case of that participator
either—
(i)
an amount is brought into account under section 2 of
15
this Act in accordance with section 7(1) of the Oil
Taxation Act 1983 as disposal receipts in respect of the
transaction, or
(ii)
no amount is so brought into account by reason of
reductions falling to be made in the amount that would
20
have been so brought into account apart from those
reductions,

the amount so brought into account or, as the case may be, nil;
(d)
in a case where the other party to the transaction is not a
participator in a taxable field but—
25
(i)
the transaction is the latest in a series of transactions in
respect of the asset (or in respect of an asset or assets in
which the asset was comprised),
(ii)
those transactions are transactions to which this
paragraph applies,
30
(iii)
in the case of at least one of those transactions, there is a
party who is a participator in an oil field, and
(iv)
in the case of any such party, an amount either is
brought into account as mentioned in paragraph (c)(i)
above in respect of the transaction or would have been
35
so brought into account but for such reductions as are
mentioned in paragraph (c)(ii) above,

so much of the amount so brought into account in respect of that
transaction (or, where there are two or more such transactions,
the later or latest of them) as is justly and reasonably referable
40
to the asset mentioned in sub-paragraph (1) above (taking that
amount as being nil in the case of any transaction where no
amount is so brought into account by reason of any such
reductions).”.
(4)
In sub-paragraph (1B) (meaning of “loan expenditure” in sub-paragraph (1))
45
for “(1)” substitute “(1ZA)(a)”.
(5)
After sub-paragraph (1B) insert—
“(1C)
The reference in sub-paragraph (1ZA)(b) above to the open market
consideration for the acquisition, bringing into existence, or
enhancement of the value, of an asset is a reference to the consideration
50

Finance Bill
Part 5 — Oil
227

which might reasonably have been given for the acquisition, bringing
into existence, or enhancement of the value, of the asset (whatever the
nature of the acquisition, bringing into existence or enhancement of the
value) had it been made in a transaction to which this paragraph does
not apply.”.
5
(6)
The amendments made by this section have effect in relation to expenditure
incurred on or after 17th March 2004.
274
Terminal losses
(1)
Schedule 17 to the Finance Act 1980 (c. 48) (transfers of interests in oil fields) is
amended as follows.
10
(2)
For paragraph 15 (terminal losses) substitute—
“Terminal losses
15    (1)
This paragraph applies in any case where—
(a)
such an allowable loss as falls to be relieved under section
7(3) accrues to the new participator from the field in a
15
chargeable period ending after 17th March 2004, but
(b)
some or all of the loss cannot be relieved under section 7(3)
against assessable profits accruing to him from the field.
      (2)
So much of the loss as cannot be so relieved (“the remaining loss”)
shall be regarded as an allowable unrelievable field loss in relation to
20
the new participator (“the loss-maker”) only to the extent that—
(a)
so much of it as cannot be relieved in accordance with sub-
paragraphs (3) to (6) below,
  exceeds
(b)
the aggregate of any relevant previous participators’
25
expenditure unrelated to the field (see sub-paragraphs (10)
and (11) below).
      (3)
The remaining loss shall be treated as an allowable loss which falls to
be relieved under section 7(3) against so much of any assessable
profits accruing to the old participator from the field as is
30
attributable to his represented interest (see sub-paragraphs (9) and
(12) below).
      (4)
Where a person is the new participator in relation to two or more old
participators—
(a)
the remaining loss shall be apportioned between those old
35
participators in such manner as is just and reasonable having
regard to the interests respectively transferred by them to the
new participator,
(b)
sub-paragraph (3) above shall have effect separately in
relation to each of them (and the part of the remaining loss
40
apportioned to him).
      (5)
Any relief by virtue of sub-paragraph (3) above shall be given against
the assessable profits accruing to the old participator in an earlier
chargeable period only to the extent to which it cannot be given
against the assessable profits accruing to him in a later chargeable
45
period.

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228

      (6)
If—
(a)
the old participator acquired some or all of his interest in the
field by a previous transfer in relation to which he was the
new participator,
(b)
Parts 2 and 3 of this Schedule applied in relation to that
5
previous transfer, and
(c)
some or all of the part of the remaining loss treated as an
allowable loss of his cannot be relieved in accordance with
sub-paragraph (3) above,

sub-paragraphs (3) to (5) above shall apply in relation to so much of
10
that part of the remaining loss as cannot be so relieved as they apply
in relation to the remaining loss, but construing the references in
those sub-paragraphs to the new participator and the old
participator by reference to that previous transfer and the parties to
it, and then applying this sub-paragraph accordingly (and so on).
15
      (7)
But where—
(a)
the person who is the old participator in relation to a transfer
made before 17th March 2004 (“the later transfer”) is also the
new participator in relation to a previous transfer, and
(b)
Parts 2 and 3 of this Schedule applied in relation to both of
20
those transfers,

sub-paragraph (3) above shall not apply by virtue of sub-paragraph
(6) above in relation to so much of the assessable profits of the person
who is the old participator in relation to that previous transfer as is
attributable to so much of his interest as constitutes the whole or part
25
of his represented interest by virtue of the later transfer.
      (8)
Where losses accruing to each of two or more participators fall to be
relieved by virtue of sub-paragraph (3) above against the same
assessable profits, a loss accruing to the person who last had an
interest representing the whole or part of the transferred interest at
30
an earlier time shall be so relieved before one accruing to a person
who last had such an interest at a later time.

In this sub-paragraph “the transferred interest” means the interest
transferred by the person against whose assessable profits the losses
fall to be relieved.
35
      (9)
In determining for the purposes of this paragraph the assessable
profits of a participator that are attributable to his represented
interest, the assessable profits shall be apportioned between—
(a)
the represented interest, and
(b)
the remainder of the participator’s interest,
40

using such method as is just and reasonable, having regard to the
respective sizes of those interests.
     (10)
For the purposes of this paragraph “relevant previous participators’
expenditure unrelated to the field” means so much of each relevant
previous participator’s allowed expenditure unrelated to the field as
45
is referable to his represented interest, other than excepted old
expenditure.
     (11)
For the purposes of sub-paragraph (10) above—
“allowed expenditure unrelated to the field”, in relation to a
participator, is expenditure unrelated to the field which is
50
allowed on a claim or election made by the participator;

Finance Bill
Part 6 — Other taxes
229

“excepted old expenditure” is expenditure which has been
allowed in pursuance of a claim or election for its allowance
received by the Board before 17th March 2004;
“relevant previous participator” means a participator against
any of whose assessable profits relief is given in accordance
5
with sub-paragraphs (3) to (6) above;

and sub-paragraph (9) above shall apply in relation to allowed
expenditure unrelated to the field as it applies in relation to
assessable profits.
     (12)
In this paragraph—
10
“expenditure unrelated to the field” has the meaning given by
section 6(9);
“the loss-maker” shall be construed in accordance with sub-
paragraph (2) above;
“previous owner” means a person from whom the loss-maker
15
directly or indirectly derives his title to the whole or any
part of his interest;
“represented interest”, in the case of a previous owner, means
so much of the interest which that previous owner
transferred, by a transfer to which Parts 2 and 3 of this
20
Schedule apply, as is represented in the loss-maker’s
interest by virtue only of—
(a)
that transfer, or
(b)
that transfer and one or more subsequent transfers
to which those Parts apply,
25
making, for the purposes of paragraph (b) above, such
apportionments as are just and reasonable, having regard to
the interests transferred by each of the transferors.”.
(3)
The amendment made by this section has effect in relation to losses accruing in
chargeable periods ending after 17th March 2004.
30
Part 6
Other taxes
Climate change levy
275
Supplies to producers of commodities
(1)
Schedule 6 to the Finance Act 2000 (c. 17) (climate change levy) is amended as
35
set out in subsections (2) to (5).
(2)
In paragraph 13 (exemption for supplies to producers of commodities), in
paragraph (b), after sub-paragraph (ii) insert—
“(iia)
in producing biodiesel for chargeable use within the
meaning of section 6AA of the Hydrocarbon Oil
40
Duties Act 1979 (excise duty on biodiesel),
(iib)
in producing bioblend for delivery for home use from
any place mentioned in section 6AB(1)(b) of that Act
(excise duty on bioblend),