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Oil taxation: tax-exempt tariffing receipts and assets producing them |
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Amendments of the Oil Taxation Act 1983 relating to allowable expenditure |
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1 | The Oil Taxation Act 1983 (c. 56) is amended in accordance with the |
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following provisions of this Part. |
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Expenditure incurred on long-term assets other than non-dedicated mobile assets |
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2 (1) | Section 3 (expenditure incurred on long-term assets other than non- |
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dedicated mobile assets) is amended as follows. |
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(2) | In subsection (4) (whole of expenditure to be allowable, except as provided |
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by the provisions there specified) for “section 4” substitute “sections 3A and |
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Exclusion from s.3(4) of expenditure on assets giving rise to tax-exempt tariffing receipts |
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3 | After section 3 insert— |
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“3A | Exclusion from section 3(4) of expenditure on assets giving rise to tax- |
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exempt tariffing receipts |
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(1) | This section applies where— |
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(a) | expenditure incurred on or after 1st January 2004 falls within |
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(b) | some of the use (or expected use) of the asset in relation to |
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which the expenditure was incurred is use in a way that gives |
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rise to tax-exempt tariffing receipts (see section 6A(2) below). |
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(2) | In any such case, such part of the expenditure as it is just and |
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reasonable to apportion to the use mentioned in subsection (1)(b) |
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above shall be excluded from the expenditure which is allowable as |
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mentioned in section 3(4) above.”. |
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Expenditure related to exempt gas: asset use giving rise to tax-exempt tariffing receipts |
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4 (1) | Section 4 (expenditure related to exempt gas and deballasting) is amended |
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(2) | After subsection (5) insert— |
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(a) | expenditure would (apart from this subsection) fall within |
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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 |
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the date on which the expenditure was incurred, been used in |
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a way that gives rise to tax-exempt tariffing receipts, |
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| the expenditure shall not be regarded for the purposes of that |
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subsection as expenditure incurred in enhancing the value of the |
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asset with a view to the subsequent disposal of the asset, or of an |
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interest in it, to the extent that the amount of the expenditure falls to |
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be reduced in accordance with subsection (7) below. |
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(7) | The reduction is to be made by applying section 7A below in relation |
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to the expenditure as it applies in relation to disposal receipts in |
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respect of a disposal, but with the substitution— |
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(a) | for references to the disponor, of references to the person |
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incurring the expenditure (“the relevant participator”), |
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(b) | for references to the amount or value (apart from that section) |
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of any disposal receipts of the disponor in respect of the |
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disposal, of references to the amount which would, apart |
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from subsection (6) above, be the amount of the expenditure |
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incurred by the relevant participator with a view to the |
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subsequent disposal of the asset or of an interest in it, |
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(c) | for references to the interest disposed of, of references to the |
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asset or interest whose subsequent disposal gives or is |
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expected to give rise to disposal receipts, |
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(d) | for references to the date of the disposal, of references to the |
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date on which the expenditure was incurred, |
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| and taking the reference in subsection (6)(b) of that section to a |
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reduction made by virtue of that section as a reference to a reduction |
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made by virtue of that section for the purposes of section 7(9) of this |
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Disposal receipts from assets used in a way that gives rise to tax-exempt tariffing receipts |
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5 (1) | Section 7 (chargeable receipts from disposals) is amended as follows. |
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(2) | In subsection (4) (no account to be taken of disposal more than 2 years after |
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cessation of use in connection with any oil field whatsoever or to give rise to |
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(a) | at the end of paragraph (b) insert “or |
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(c) | ceases to give rise to tax-exempt tariffing receipts of |
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(b) | in the closing words, for “later” substitute “latest”. |
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(3) | After subsection (8) insert— |
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“(9) | In determining the amount or value of the disposal receipts of the |
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participator in question in a case where the qualifying asset has been |
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used in a way that gives rise to tax-exempt tariffing receipts, the |
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amount or value (apart from this subsection) of any disposal receipts |
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of his in respect of the disposal shall be reduced in accordance with |
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(4) | After section 7 insert— |
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“7A | Reduction of disposal receipts: use giving rise to tax-exempt tariffing |
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(1) | Where this section applies, the amount or value (apart from this |
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section) of any disposal receipts of the participator (“the disponor”) |
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in respect of the disposal shall be reduced in accordance with the |
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following provisions of this section. |
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(2) | The reduction is to be made by multiplying that amount or value by |
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the fraction that is equal to—![equation: plus[num[1.00000000,"1"],minus[over[char[T],char[A]]]]](missing.gif) |
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| T is the aggregate of the tax-exempt tariffing use of the asset in |
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(a) | the disponor, so far as referable to the interest |
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(b) | each of the previous owners, so far as referable to that |
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previous owner’s represented interest, and |
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| A is the aggregate of all use of the asset in the reference period |
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(a) | the disponor, so far as referable to the interest |
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(b) | each of the previous owners, so far as referable to that |
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previous owner’s represented interest, |
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| but only taking into account for this purpose use of the asset by a |
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person at a time when he is or was a participator in a taxable field. |
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(4) | For the purposes of this section— |
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| “the interest disposed of” means the asset, or the interest in an |
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asset, the disposal of which gives rise to the disposal receipts |
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mentioned in sub-paragraph (1) above; |
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| “previous owner” means any person from whom the disponor |
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directly or indirectly derives his title to the whole or any part |
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of the interest disposed of; |
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| “the reference period” means the shortest of the following |
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periods ending with the date of the disposal— |
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(a) | the period of 6 years; or |
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(b) | the period beginning with the bringing into existence |
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| “represented interest”, in the case of a previous owner, means |
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so much of the interest which that previous owner had in the |
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asset as is represented in the interest disposed of; |
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| “tax-exempt tariffing use”, in relation to an asset, means use of |
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the asset in a way that gives rise to tax-exempt tariffing |
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(5) | Any apportionment that falls to be made for the purpose of |
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determining a previous owner’s represented interest shall be made |
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using a method which is just and reasonable, having regard to— |
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(a) | the proportion of any person’s interest that was acquired |
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from any particular person, and |
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(b) | the proportion of any person’s interest that was transferred |
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to any particular person. |
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(a) | the disponor or any previous owner acquired the asset or an |
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interest in the asset from another person, and |
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(b) | on that other person’s corresponding disposal of the asset or |
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interest a reduction was made by virtue of this section, |
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| use of the asset shall not be brought into account in determining T or |
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A in the formula in subsection (2) above to the extent that it was so |
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brought into account in relation to that corresponding disposal. |
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(7) | Where paragraph 9 of Schedule 2 to this Act (reduction of disposal |
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receipts in respect of brought-in assets) applies in relation to an asset, |
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no account shall be taken for the purposes of this section of any use |
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of the asset during the initial period. |
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| In this subsection “the initial period”, in relation to an asset, has the |
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same meaning as it has in relation to that asset in paragraph 7 of |
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Schedule 1 to this Act (restriction on allowable expenditure on |
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(8) | For the purposes of this section, the amount of use of an asset— |
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(a) | where the use is in relation to oil, is to be determined by |
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reference to the volume of oil in relation to which the asset is |
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(b) | where the use is otherwise than in relation to oil, is to be |
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determined on a just and reasonable basis. |
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(9) | For the purposes of this section, the extent to which use of an asset is |
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(a) | the interest disposed of, or |
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(b) | the represented interest of a previous owner, |
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| shall be determined on a just and reasonable basis, having regard to |
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the size of the interest in question and the size from time to time of |
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the whole interest in the asset of the disponor or, as the case may be, |
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Assets no longer in use for the principal field |
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6 (1) | In Schedule 1 (allowable expenditure) in Part 1 (extensions of allowable |
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expenditure for assets generating receipts) paragraph 3 is amended as |
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(2) | After sub-paragraph (2) insert— |
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(a) | the expenditure would (apart from this sub-paragraph) be |
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regarded as incurred with a view to the subsequent disposal |
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of the asset or of an interest in it, and |
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(b) | the asset has, at any time in the period of 6 years ending with |
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the date on which the expenditure was incurred, been used in |
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a way that gives rise to tax-exempt tariffing receipts, |
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| the expenditure shall not be regarded for the purposes of this |
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paragraph as expenditure incurred with a view to the subsequent |
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disposal of the asset or of an interest in it, to the extent that the |
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amount of the expenditure falls to be reduced in accordance with |
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sub-paragraph (2B) below. |
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(2B) | The reduction is to be made by applying section 7A of this Act in |
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relation to the expenditure as it applies in relation to disposal |
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receipts in respect of a disposal, but with the substitution— |
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(a) | for references to the disponor, of references to the |
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participator incurring the expenditure (“the relevant |
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(b) | for references to the amount or value (apart from that section) |
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of any disposal receipts of the disponor in respect of the |
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disposal, of references to the amount which would, apart |
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from sub-paragraph (2A) above, be the amount of the |
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expenditure incurred by the relevant participator with a view |
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to the subsequent disposal of the asset or of an interest in it, |
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(c) | for references to the interest disposed of, of references to the |
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asset or interest whose subsequent disposal gives or is |
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expected to give rise to disposal receipts, |
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(d) | for references to the date of the disposal, of references to the |
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date on which the expenditure was incurred, |
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| and taking the reference in subsection (6)(b) of that section to a |
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reduction made by virtue of that section as a reference to a reduction |
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made by virtue of that section for the purposes of section 7(9) of this |
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7 (1) | In Part 2 of Schedule 1, paragraph 7 is amended as follows. |
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(2) | In sub-paragraph (1)(c) (use of asset otherwise than in connection with a |
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taxable field between acquisition etc and first use in connection with oil |
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(a) | after “was used” insert “(i)”; |
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(b) | after “otherwise than in connection with a taxable field,” insert “or”; |
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(c) | after the word “or” so inserted, insert the following sub-paragraph— |
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“(ii) | in connection with a taxable field in a way that |
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gives rise to tax-exempt tariffing receipts,”. |
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Subsequent use of new asset otherwise than in connection with a taxable field |
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8 (1) | In Part 2 of Schedule 1, paragraph 8 is amended as follows. |
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(2) | In sub-paragraph (3) (asset giving rise to tariff receipts attributable to taxable |
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field treated as used in connection with a taxable field)— |
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(a) | after “gives rise to” insert “(a)”; |
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(b) | after “attributable to a taxable field,” insert “or”; |
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(c) | after the word “or” so inserted, insert the following paragraph— |
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“(b) | tax-exempt tariffing receipts which, if they were tariff |
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receipts (and expenditure were or had been allowable |
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accordingly), would be tariff receipts of the purchaser |
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attributable to a taxable field,”. |
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(3) | In sub-paragraph (5) (chargeable period to be determined in relation to field |
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in respect of which asset last gave rise to tariff receipts of purchaser etc) at |
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the end of paragraph (b) insert “or |
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(c) | if it is later than paragraph (a) and (where otherwise |
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applicable) paragraph (b) above, in respect of which the asset |
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would have last given rise to tariff receipts of the purchaser |
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had tax-exempt tariffing receipts of the purchaser been tariff |
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receipts of his (and if expenditure were or had been allowable |
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Expenditure incurred in transitional period: restriction of tax-exempt tariffing receipts |
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| “claim period” has the same meaning as in Part 1 of the Oil Taxation |
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| “relevant receipts” means each of the following— |
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(a) | tax-exempt tariffing receipts; |
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(b) | amounts that would be tax-exempt tariffing receipts apart |
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| “the transitional period” means the period— |
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(a) | beginning with 9th April 2003, and |
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(b) | ending with 31st December 2003. |
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(2) | This paragraph applies where— |
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(a) | expenditure was incurred in the transitional period by a participator |
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in an oil field in acquiring, bringing into existence or enhancing the |
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(b) | the asset is one whose useful life continues, or is expected to |
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continue, after the end of the claim period in which the expenditure |
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(c) | the expenditure is allowable for a claim period ending after 9th April |
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(d) | at the time the expenditure was incurred, the asset was being, or was |
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expected to be, used to any extent in relation to— |
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(i) | an oil field or foreign field (a “user field”), or |
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(ii) | oil won from such a field, and |
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(e) | that use (or expected use) is use in such a way as, in a chargeable |
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period ending on or after 30th June 2004, gives rise, or would have |
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given rise, to relevant receipts of the participator or, where sub- |
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paragraph (3) applies, of a successor. |
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(3) | This sub-paragraph applies where— |
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(a) | after the incurring of the expenditure, there is or has been a transfer |
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of an interest of the participator’s in the asset, and |
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(b) | as a result of that transfer (or of any subsequent transfer of the whole |
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or any part of that interest), relevant receipts (“consequential |
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relevant receipts”) arise, or are expected to arise, to a person (a |
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“successor”) who is a participator in an oil field. |
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(4) | In the case of each user field, the initial portion of the aggregate of the |
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relevant receipts of the participator, and the consequential relevant receipts |
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of each successor, that are referable to— |
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(a) | use of the asset in relation to that field or oil won from it, or |
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(b) | the provision of services or other business facilities of whatever kind |
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in connection with any such use of the asset (otherwise than by the |
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participator or the successor himself), |
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| shall not be tax-exempt tariffing receipts (and shall accordingly continue to |
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| “the initial portion”, in relation to the aggregate of any relevant |
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receipts, means so much of that aggregate as does not exceed the |
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qualifying threshold for the user field in question; |
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| and for this purpose amounts received or receivable at an earlier |
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date are to be attributed to the initial portion before amounts |
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received or receivable at a later date; |
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| “the qualifying threshold”, in relation to a user field, means an |
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amount equal to such part of the aggregate of the expenditure— |
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(a) | incurred by the participator in relation to the asset in |
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(b) | falling within sub-paragraph (2), |
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| as it is just and reasonable to apportion to the use (or expected use) |
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of the asset, in relation to that user field or oil won from it, in a way |
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that gives rise to relevant receipts of the participator or |
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consequential relevant receipts of any successor. |
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(6) | Expressions used in this paragraph and in section 6A of the Oil Taxation Act |
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1983 (c. 56) have the same meaning in this paragraph as they have in that |
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Amendments of the Taxes Act 1988 |
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10 | The Taxes Act 1988 is amended in accordance with the following provisions |
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Section 496: treatment of tax-exempt tariffing receipts for income and corporation tax |
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11 (1) | Section 496 (tariff receipts) is amended as follows. |
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(2) | In subsection (1)(a) (tariff receipts to be treated as receipts of the separate |
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trade referred to in section 492(1)) after “tariff receipt” insert “or tax-exempt |
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(3) | In subsection (2) (activities of participator etc giving rise to tariff receipts to |
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be treated as oil extraction activities) after “tariff receipts” insert “or tax- |
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exempt tariffing receipts”. |
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(4) | In subsection (3) (disregard of certain sums in fact received or receivable by |
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person connected with participator)— |
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(a) | in the opening words, after “tariff receipt” insert “or tax-exempt |
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(b) | in paragraph (b), after “tariff receipt” insert “or tax-exempt tariffing |
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(5) | In consequence of the amendments made by this paragraph, the sidenote to |
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the section becomes “Tariff receipts and tax-exempt tariffing receipts”. |
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