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Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

488

 

Schedule 35

Section 271

 

Oil taxation: tax-exempt tariffing receipts and assets producing them

Part 1

Amendments of the Oil Taxation Act 1983 relating to allowable expenditure

and disposal receipts

5

Introductory

1          

The Oil Taxation Act 1983 (c. 56) is amended in accordance with the

following provisions of this Part.

Expenditure incurred on long-term assets other than non-dedicated mobile assets

2     (1)  

Section 3 (expenditure incurred on long-term assets other than non-

10

dedicated mobile assets) is amended as follows.

      (2)  

In subsection (4) (whole of expenditure to be allowable, except as provided

by the provisions there specified) for “section 4” substitute “sections 3A and

4”.

Exclusion from s.3(4) of expenditure on assets giving rise to tax-exempt tariffing receipts

15

3          

After section 3 insert—

“3A     

Exclusion from section 3(4) of expenditure on assets giving rise to tax-

exempt tariffing receipts

(1)   

This section applies where—

(a)   

expenditure incurred on or after 1st January 2004 falls within

20

section 3(1) above, but

(b)   

some of the use (or expected use) of the asset in relation to

which the expenditure was incurred is use in a way that gives

rise to tax-exempt tariffing receipts (see section 6A(2) below).

(2)   

In any such case, such part of the expenditure as it is just and

25

reasonable to apportion to the use mentioned in subsection (1)(b)

above shall be excluded from the expenditure which is allowable as

mentioned in section 3(4) above.”.

Expenditure related to exempt gas: asset use giving rise to tax-exempt tariffing receipts

4     (1)  

Section 4 (expenditure related to exempt gas and deballasting) is amended

30

as follows.

      (2)  

After subsection (5) insert—

“(6)   

But where—

(a)   

expenditure would (apart from this subsection) fall within

paragraph (a) of subsection (5) above, and

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(b)   

the asset has, at any time in the period of 6 years ending with

the date on which the expenditure was incurred, been used in

a way that gives rise to tax-exempt tariffing receipts,

   

the expenditure shall not be regarded for the purposes of that

subsection as expenditure incurred in enhancing the value of the

40

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

489

 

asset with a view to the subsequent disposal of the asset, or of an

interest in it, to the extent that the amount of the expenditure falls to

be reduced in accordance with subsection (7) below.

(7)   

The reduction is to be made by applying section 7A below in relation

to the expenditure as it applies in relation to disposal receipts in

5

respect of a disposal, but with the substitution—

(a)   

for references to the disponor, of references to the person

incurring the expenditure (“the relevant participator”),

(b)   

for references to the amount or value (apart from that section)

of any disposal receipts of the disponor in respect of the

10

disposal, of references to the amount which would, apart

from subsection (6) above, be the amount of the expenditure

incurred by the relevant participator with a view to the

subsequent disposal of the asset or of an interest in it,

(c)   

for references to the interest disposed of, of references to the

15

asset or interest whose subsequent disposal gives or is

expected to give rise to disposal receipts,

(d)   

for references to the date of the disposal, of references to the

date on which the expenditure was incurred,

   

and taking the reference in subsection (6)(b) of that section to a

20

reduction made by virtue of that section as a reference to a reduction

made by virtue of that section for the purposes of section 7(9) of this

Act.”.

Disposal receipts from assets used in a way that gives rise to tax-exempt tariffing receipts

5     (1)  

Section 7 (chargeable receipts from disposals) is amended as follows.

25

      (2)  

In subsection (4) (no account to be taken of disposal more than 2 years after

cessation of use in connection with any oil field whatsoever or to give rise to

tariff receipts)—

(a)   

at the end of paragraph (b) insert “or

(c)   

ceases to give rise to tax-exempt tariffing receipts of

30

that participator,”; and

(b)   

in the closing words, for “later” substitute “latest”.

      (3)  

After subsection (8) insert—

“(9)   

In determining the amount or value of the disposal receipts of the

participator in question in a case where the qualifying asset has been

35

used in a way that gives rise to tax-exempt tariffing receipts, the

amount or value (apart from this subsection) of any disposal receipts

of his in respect of the disposal shall be reduced in accordance with

section 7A below.”.

      (4)  

After section 7 insert—

40

“7A     

Reduction of disposal receipts: use giving rise to tax-exempt tariffing

receipts

(1)   

Where this section applies, the amount or value (apart from this

section) of any disposal receipts of the participator (“the disponor”)

in respect of the disposal shall be reduced in accordance with the

45

following provisions of this section.

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

490

 

(2)   

The reduction is to be made by multiplying that amount or value by

the fraction that is equal to—equation: plus[num[1.00000000,"1"],minus[over[char[T],char[A]]]]

(3)   

In that formula—

   

T is the aggregate of the tax-exempt tariffing use of the asset in

the reference period by—

5

(a)   

the disponor, so far as referable to the interest

disposed of, and

(b)   

each of the previous owners, so far as referable to that

previous owner’s represented interest, and

   

A is the aggregate of all use of the asset in the reference period

10

by—

(a)   

the disponor, so far as referable to the interest

disposed of, and

(b)   

each of the previous owners, so far as referable to that

previous owner’s represented interest,

15

   

but only taking into account for this purpose use of the asset by a

person at a time when he is or was a participator in a taxable field.

(4)   

For the purposes of this section—

   

“the interest disposed of” means the asset, or the interest in an

asset, the disposal of which gives rise to the disposal receipts

20

mentioned in sub-paragraph (1) above;

   

“previous owner” means any person from whom the disponor

directly or indirectly derives his title to the whole or any part

of the interest disposed of;

   

“the reference period” means the shortest of the following

25

periods ending with the date of the disposal—

(a)   

the period of 6 years; or

(b)   

the period beginning with the bringing into existence

of the asset;

   

“represented interest”, in the case of a previous owner, means

30

so much of the interest which that previous owner had in the

asset as is represented in the interest disposed of;

   

“tax-exempt tariffing use”, in relation to an asset, means use of

the asset in a way that gives rise to tax-exempt tariffing

receipts.

35

(5)   

Any apportionment that falls to be made for the purpose of

determining a previous owner’s represented interest shall be made

using a method which is just and reasonable, having regard to—

(a)   

the proportion of any person’s interest that was acquired

from any particular person, and

40

(b)   

the proportion of any person’s interest that was transferred

to any particular person.

(6)   

Where—

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

491

 

(a)   

the disponor or any previous owner acquired the asset or an

interest in the asset from another person, and

(b)   

on that other person’s corresponding disposal of the asset or

interest a reduction was made by virtue of this section,

   

use of the asset shall not be brought into account in determining T or

5

A in the formula in subsection (2) above to the extent that it was so

brought into account in relation to that corresponding disposal.

(7)   

Where paragraph 9 of Schedule 2 to this Act (reduction of disposal

receipts in respect of brought-in assets) applies in relation to an asset,

no account shall be taken for the purposes of this section of any use

10

of the asset during the initial period.

   

In this subsection “the initial period”, in relation to an asset, has the

same meaning as it has in relation to that asset in paragraph 7 of

Schedule 1 to this Act (restriction on allowable expenditure on

brought-in asset).

15

(8)   

For the purposes of this section, the amount of use of an asset—

(a)   

where the use is in relation to oil, is to be determined by

reference to the volume of oil in relation to which the asset is

used, and

(b)   

where the use is otherwise than in relation to oil, is to be

20

determined on a just and reasonable basis.

(9)   

For the purposes of this section, the extent to which use of an asset is

referable to—

(a)   

the interest disposed of, or

(b)   

the represented interest of a previous owner,

25

   

shall be determined on a just and reasonable basis, having regard to

the size of the interest in question and the size from time to time of

the whole interest in the asset of the disponor or, as the case may be,

that previous owner.”.

Assets no longer in use for the principal field

30

6     (1)  

In Schedule 1 (allowable expenditure) in Part 1 (extensions of allowable

expenditure for assets generating receipts) paragraph 3 is amended as

follows.

      (2)  

After sub-paragraph (2) insert— 

“(2A)   

But where—

35

(a)   

the expenditure would (apart from this sub-paragraph) be

regarded as incurred with a view to the subsequent disposal

of the asset or of an interest in it, and

(b)   

the asset has, at any time in the period of 6 years ending with

the date on which the expenditure was incurred, been used in

40

a way that gives rise to tax-exempt tariffing receipts,

   

the expenditure shall not be regarded for the purposes of this

paragraph as expenditure incurred with a view to the subsequent

disposal of the asset or of an interest in it, to the extent that the

amount of the expenditure falls to be reduced in accordance with

45

sub-paragraph (2B) below.

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 1 — Amendments of the Oil Taxation Act 1983 relating to allowable expenditure and disposal receipts

492

 

(2B)   

The reduction is to be made by applying section 7A of this Act in

relation to the expenditure as it applies in relation to disposal

receipts in respect of a disposal, but with the substitution—

(a)   

for references to the disponor, of references to the

participator incurring the expenditure (“the relevant

5

participator”),

(b)   

for references to the amount or value (apart from that section)

of any disposal receipts of the disponor in respect of the

disposal, of references to the amount which would, apart

from sub-paragraph (2A) above, be the amount of the

10

expenditure incurred by the relevant participator with a view

to the subsequent disposal of the asset or of an interest in it,

(c)   

for references to the interest disposed of, of references to the

asset or interest whose subsequent disposal gives or is

expected to give rise to disposal receipts,

15

(d)   

for references to the date of the disposal, of references to the

date on which the expenditure was incurred,

   

and taking the reference in subsection (6)(b) of that section to a

reduction made by virtue of that section as a reference to a reduction

made by virtue of that section for the purposes of section 7(9) of this

20

Act.”.

Brought-in assets

7     (1)  

In Part 2 of Schedule 1, paragraph 7 is amended as follows.

      (2)  

In sub-paragraph (1)(c) (use of asset otherwise than in connection with a

taxable field between acquisition etc and first use in connection with oil

25

field)—

(a)   

after “was used” insert “(i)”;

(b)   

after “otherwise than in connection with a taxable field,” insert “or”;

(c)   

after the word “or” so inserted, insert the following sub-paragraph—

“(ii)   

in connection with a taxable field in a way that

30

gives rise to tax-exempt tariffing receipts,”.

Subsequent use of new asset otherwise than in connection with a taxable field

8     (1)  

In Part 2 of Schedule 1, paragraph 8 is amended as follows.

      (2)  

In sub-paragraph (3) (asset giving rise to tariff receipts attributable to taxable

field treated as used in connection with a taxable field)—

35

(a)   

after “gives rise to” insert “(a)”;

(b)   

after “attributable to a taxable field,” insert “or”;

(c)   

after the word “or” so inserted, insert the following paragraph—

“(b)   

tax-exempt tariffing receipts which, if they were tariff

receipts (and expenditure were or had been allowable

40

accordingly), would be tariff receipts of the purchaser

attributable to a taxable field,”.

      (3)  

In sub-paragraph (5) (chargeable period to be determined in relation to field

in respect of which asset last gave rise to tariff receipts of purchaser etc) at

the end of paragraph (b) insert “or

45

(c)   

if it is later than paragraph (a) and (where otherwise

applicable) paragraph (b) above, in respect of which the asset

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 2 — Transitional provision

493

 

would have last given rise to tariff receipts of the purchaser

had tax-exempt tariffing receipts of the purchaser been tariff

receipts of his (and if expenditure were or had been allowable

accordingly);”.

Part 2

5

Transitional provision

Expenditure incurred in transitional period: restriction of tax-exempt tariffing receipts

9     (1)  

In this paragraph—

“claim period” has the same meaning as in Part 1 of the Oil Taxation

Act 1975 (c. 22);

10

“relevant receipts” means each of the following—

(a)   

tax-exempt tariffing receipts;

(b)   

amounts that would be tax-exempt tariffing receipts apart

from sub-paragraph (4);

“the transitional period” means the period—

15

(a)   

beginning with 9th April 2003, and

(b)   

ending with 31st December 2003.

      (2)  

This paragraph applies where—

(a)   

expenditure was incurred in the transitional period by a participator

in an oil field in acquiring, bringing into existence or enhancing the

20

value of an asset,

(b)   

the asset is one whose useful life continues, or is expected to

continue, after the end of the claim period in which the expenditure

was incurred,

(c)   

the expenditure is allowable for a claim period ending after 9th April

25

2003,

(d)   

at the time the expenditure was incurred, the asset was being, or was

expected to be, used to any extent in relation to—

(i)   

an oil field or foreign field (a “user field”), or

(ii)   

oil won from such a field, and

30

(e)   

that use (or expected use) is use in such a way as, in a chargeable

period ending on or after 30th June 2004, gives rise, or would have

given rise, to relevant receipts of the participator or, where sub-

paragraph (3) applies, of a successor.

      (3)  

This sub-paragraph applies where—

35

(a)   

after the incurring of the expenditure, there is or has been a transfer

of an interest of the participator’s in the asset, and

(b)   

as a result of that transfer (or of any subsequent transfer of the whole

or any part of that interest), relevant receipts (“consequential

relevant receipts”) arise, or are expected to arise, to a person (a

40

“successor”) who is a participator in an oil field.

      (4)  

In the case of each user field, the initial portion of the aggregate of the

relevant receipts of the participator, and the consequential relevant receipts

of each successor, that are referable to—

(a)   

use of the asset in relation to that field or oil won from it, or

45

 

 

Finance Bill
Schedule 35 — Oil taxation: tax-exempt tariffing receipts and assets producing them
Part 3 — Amendments of the Taxes Act 1988

494

 

(b)   

the provision of services or other business facilities of whatever kind

in connection with any such use of the asset (otherwise than by the

participator or the successor himself),

           

shall not be tax-exempt tariffing receipts (and shall accordingly continue to

be tariff receipts).

5

      (5)  

In this paragraph—

“the initial portion”, in relation to the aggregate of any relevant

receipts, means so much of that aggregate as does not exceed the

qualifying threshold for the user field in question;

and for this purpose amounts received or receivable at an earlier

10

date are to be attributed to the initial portion before amounts

received or receivable at a later date;

“the qualifying threshold”, in relation to a user field, means an

amount equal to such part of the aggregate of the expenditure—

(a)   

incurred by the participator in relation to the asset in

15

question, and

(b)   

falling within sub-paragraph (2),

as it is just and reasonable to apportion to the use (or expected use)

of the asset, in relation to that user field or oil won from it, in a way

that gives rise to relevant receipts of the participator or

20

consequential relevant receipts of any successor.

      (6)  

Expressions used in this paragraph and in section 6A of the Oil Taxation Act

1983 (c. 56) have the same meaning in this paragraph as they have in that

section.

Part 3

25

Amendments of the Taxes Act 1988

Introductory

10         

The Taxes Act 1988 is amended in accordance with the following provisions

of this Part.

Section 496: treatment of tax-exempt tariffing receipts for income and corporation tax

30

11    (1)  

Section 496 (tariff receipts) is amended as follows.

      (2)  

In subsection (1)(a) (tariff receipts to be treated as receipts of the separate

trade referred to in section 492(1)) after “tariff receipt” insert “or tax-exempt

tariffing receipt”.

      (3)  

In subsection (2) (activities of participator etc giving rise to tariff receipts to

35

be treated as oil extraction activities) after “tariff receipts” insert “or tax-

exempt tariffing receipts”.

      (4)  

In subsection (3) (disregard of certain sums in fact received or receivable by

person connected with participator)—

(a)   

in the opening words, after “tariff receipt” insert “or tax-exempt

40

tariffing receipt”;

(b)   

in paragraph (b), after “tariff receipt” insert “or tax-exempt tariffing

receipt”.

      (5)  

In consequence of the amendments made by this paragraph, the sidenote to

the section becomes “Tariff receipts and tax-exempt tariffing receipts”.

45

 

 

 
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