Finance Bill


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The second reform is that, where a company disposes of oil and gas assets used in a ring fence trade and reinvests the proceeds in further ring fence assets, the company may make a claim that any gain arising is not chargeable, provided that the reinvestment has taken place no more than 12 months before or three years after the disposal. That provides an additional incentive for companies that make disposals of such assets to reinvest the proceeds in further acquiring and developing UK oil fields and infrastructure in order to enable the development of the North sea to reach its full economic potential. Where a company disposes of assets and removes the proceeds from the North sea altogether, they will still face a chargeable gain.
There is a number of amendments to schedule 40. I apologise to the hon. Member for Hammersmith and Fulham that he did not have the text of the amendments further in advance. We have probably relied too much on the internal post system. We ought to investigate if there are better ways of communicating with Opposition Front Benchers, to ensure that they have any Government amendments in as timely a manner as possible. I will ask my officials to see whether that can be done.
The Chairman: Order. In fairness to everybody, I want to make it clear to the Committee that the text of the amendments was on the Order Paper on Tuesday, as I recall. I think that it is the letter that was delayed. However, the text of the amendments was here on Tuesday afternoon; I saw it. So the text of the amendments was available. In fact, I am told that it was available on Tuesday morning.
Ian Pearson: I welcome that clarification. However, I am keen to ensure that our information flows are as good as possible, so that the hon. Gentleman has the information that he feels that he needs in this area.
First, I want to stress that the Government amendments are technical amendments, which build on the reforms introduced in the existing schedule. As the hon. Gentleman mentioned, they have been introduced as a result of further constructive meetings with oil and gas stakeholders following publication of the Finance Bill. That was confirmed in the letter from my hon. Friend the Member for Burnley.
The Government amendments extend the proposed legislation to ensure that it applies in the full range of asset trading circumstances that may occur in relation to the North sea. Although there are a large number of Government amendments to the schedule—31 in all—I assure the Committee that they cover only four areas. The first two relate to part 1 of the schedule and deal with licence swaps. They will allow companies to swap licence interests in developed areas for licence interests in undeveloped areas, and to swap multiple licences in a single transaction.
Mr. Hands: I may be getting confused about something that I was not previously confused about. Is it also possible to swap assets in developed fields for other assets in developed fields, or is it possible only to swap developed assets for undeveloped assets?
Ian Pearson: I will come on to that point in a moment, hopefully. However, what I said was that the change would allow companies to swap licence interests in developed areas for licence interests in undeveloped areas and to swap multiple licences in a single transaction.
The third and fourth changes relate to part 2 of the schedule, which deals with reinvestment of ring fence assets. The third change will act to ensure that, where an asset trade has involved both a licence swap and a cash consideration, companies will be required to reinvest only the cash consideration, rather than the entire proceeds of the asset trade, to receive full roll-over relief.
The fourth change will ensure that the grouping rules, which apply more widely to reinvestment reliefs outside the North sea ring fence, apply equally to the new North sea reinvestment relief. I believe that that change covers the issue raised by amendment 266, which is one of the Conservative amendments. I confirm to the hon. Member for Hammersmith and Fulham that the Government changes have the same effect as that amendment was intended to have.
As we are all evidently agreed on the importance of the grouping rules applying to the legislation, I trust that the hon. Gentleman will feel able to withdraw his amendment and that he will support the Government amendments, which we believe are technically superior.
Mr. Hands: Will the Minister explain something in relation to amendment 266? He seems to be saying that a collection of Government amendments would have the same effect—an identical effect—as that single amendment would have. Would it not be easier to take the single, stand-alone Opposition amendment, rather than a panoply of Government amendments that try to achieve the same purpose?
Ian Pearson: I am advised that it would not be easier, which is why the Government amendments have been drafted as they have.
In response to the hon. Gentleman’s previous question about swapping developed assets for other developed assets, I can confirm that the legislation already allows the swapping of developed assets for other developed assets and the swapping of undeveloped assets for other undeveloped assets to take place. The change we are proposing now completes the picture.
I hope that it has become clear from what I have said that the Government are willing to listen to what stakeholders have to say on this subject and to take action. However I am unable to recommend amendments 262 to 265 to the Committee. As I understand them, they are designed to add costs incurred in drilling a well to the definitions of relevant assets that can be reinvested in for the purposes of the reinvestment relief in schedule 40. However, they do not provide any further definition of exactly what costs are to be included within the term “well costs” and what are to be excluded. The general reference to “well costs” does not state what the chargeable gains asset is that would be being reinvested in. Indeed, from a chargeable gains asset perspective, it is not at all clear why the amendments are required, because where a chargeable gains asset is being invested in for the purposes of drilling wells, it would be covered by the Government’s proposed legislation.
If the amendments refer to general well-drilling expenditure, because that is not expenditure on either a licence or plant and machinery and hence would not itself be liable to chargeable gains, it would not come within the chargeable gains regime. Consequently it would be incorrect if it were eligible for the reinvestment relief. I remind the Committee that such general well-drilling expenditure already receives generous tax reliefs, for example through mineral extraction allowances.
The hon. Gentleman is correct in his assessment that tieback infrastructure would be eligible, although the costs of drilling wells are not. We are aware of industry’s view that exploration and appraisal expenditure should qualify for the relief, and we are willing to discuss the matter further with the industry.
As I said, I hope that the hon. Gentleman will feel able to withdraw amendment 266, as it is already covered by Government amendments, as well as the other Opposition amendments in the group. We are more than happy to engage further with the industry on these important matters.
The Chairman: Order. In fact, the Opposition amendments are not moved at this stage.
Question put and agreed to.
Clause 85 accordingly ordered to stand part of the Bill.

Schedule 40

Oil: chargeable gains
Amendments made: 229, in schedule 40, page 315, line 8, leave out ‘only’ and insert ‘consideration’.
Amendment 230, in schedule 40, page 315, line 8, leave out ‘and C’ and insert ‘C and D’.
Amendment 231, in schedule 40, page 315, line 11, leave out ‘and D’ and insert ‘, C and E’.
Amendment 232, in schedule 40, page 315, line 12, leave out ‘a UK licence that relates to a developed area (“licence A”)’ and insert ‘one or more UK licences’.
Amendment 233, in schedule 40, page 315, line 14, after ‘length’ insert ‘(“disposal A”)’.
Amendment 234, in schedule 40, page 315, line 15, leave out ‘another UK licence that relates to a developed area (“licence B”)’ and insert ‘one or more UK licences’.
Amendment 235, in schedule 40, page 315, line 17, after ‘length’ insert ‘(“disposal B”)’.
Amendment 236, in schedule 40, page 315, line 17, at end insert—
‘(4A) Condition C is that either or both of the following paragraphs applies—
(a) the licence, or at least one of the licences, comprised in disposal A relates to a developed area;
Amendment 237, in schedule 40, page 315, line 18, leave out from ‘Condition’ to end of line 29 and insert “D is that both—
(a) disposal A is the only consideration given for disposal B, and
(b) disposal B is the only consideration given for disposal A.
(6) Condition E is that either—
(a) disposal A is the only consideration given for disposal B, or
(b) disposal B is the only consideration given for disposal A,
(and accordingly one of the disposals is part of the consideration given for the other disposal).’
Amendment 238, in schedule 40, page 315, line 35, leave out ‘only’ and insert ‘consideration’.
Amendment 239, in schedule 40, page 315, line 36, leave out from ‘a’ to end of line 5 on page 316 and insert ‘licence-consideration swap.
(2) Each company participating in the swap is to be treated as follows.
(3) As regards the licence, or each licence, which the company disposes of, the company is to be treated as if it had disposed of that licence for a consideration of such amount as to secure that on the disposal neither a gain nor a loss accrues to the company.
(4) In a case where the company acquires only one licence, the company is to be treated as if it had acquired the licence for a consideration of the same amount as the deemed disposal consideration.
(5) In a case where the company acquires two or more licences, as regards each licence acquired, the company is to be treated as if it had acquired that licence for a consideration of—
A
DDC   x   
TA
where—
DDC is the deemed disposal consideration;
A is the value of the licence acquired;
TA is total value of all the licences acquired.
(6) In this section “deemed disposal consideration”, in relation to a company participating in the swap, means—
(a) the amount of the consideration for which the company is, under subsection (3), treated as having disposed of its licence (if the company disposes of only one licence), or
(b) the aggregate of all such amounts (if the company disposes of two or more licences).’.
Amendment 240, in schedule 40, page 316, line 7, after ‘swap’ insert ‘if—
(a) the no gain/no loss amount (“N”) of the company that receives the mixed consideration (“company R”) exceeds
(b) the amount of non-licence consideration (“C”) which company R receives’.
Amendment 241, in schedule 40, page 316, leave out lines 8 to 12 and insert—
‘(2) In a case where company R acquires only one licence, company R is to be treated as if it had acquired the licence for a consideration of—
N - C
A
(N - C)   x   
TA
where—
A is the value of the licence acquired;
TA is total value of all the licences acquired.’.
Amendment 242, in schedule 40, page 316, line 13, leave out ‘its licence’ and insert ‘a licence under the swap’.
Amendment 243, in schedule 40, page 316, line 19, leave out from ‘acquires’ to ‘company’ in line 20 and insert
‘a licence under the swap (“company G”) subsequently disposes of the licence,’.
Amendment 244, in schedule 40, page 316, leave out lines 22 to 25 and insert—
‘(7) In this section the reference to the no gain/no loss amount of company R is a reference to—
(a) in a case where company R disposes of only one licence, company R’s no gain/no loss amount in relation to that disposal, or
(b) in a case where company R disposes of two or more licences, the aggregate of company R’s no gain/no loss amounts in relation to all of those disposals.’.
Amendment 245, in schedule 40, page 316, line 27, after ‘swap’ insert ‘if—
(a) the no gain/no loss amount (“N”) of the company that receives the mixed consideration (“company R”) does not exceed
(b) the amount of non-licence consideration (“C”) which company R receives’.
Amendment 246, in schedule 40, page 316, leave out lines 28 to 44 and insert—
‘(2) As regards the licence, or each licence, which company R acquires, company R is to be treated as if it had acquired the licence for nil consideration.
(3) In a case where company R disposes of only one licence, company R is to be treated as if, on the disposal of the licence, there had arisen a gain of—
C - N
(4) In a case where company R disposes of two or more licences, as regards each licence disposed of, company R is to be treated as if, on the disposal of the licence, there had arisen a gain of—
D
(C - N)   x   
TD
where—
D is the value of the licence disposed of;
TD is total value of all the licences disposed of.’.
Amendment 247, in schedule 40, page 317, line 2, after ‘swap’ insert ‘—
(a) whatever the no gain/no loss amount (“N”) of the company that gives the mixed consideration (“company G”), and
Amendment 248, in schedule 40, page 317, leave out lines 3 to 7 and insert—
‘(2) In a case where company G acquires only one licence, company G is to be treated as if it had acquired the licence for a consideration of—
N + C
(3) In a case where company G acquires two or more licences, as regards each licence acquired, company G is to be treated as if it had acquired the licence for a consideration of—
A
(N + C)   x   
TA
where—
A is the value of the licence acquired;
TA is total value of all the licences acquired.’.
Amendment 249, in schedule 40, page 317, line 8, leave out ‘its licence’ and insert ‘a licence under the swap’.
Amendment 250, in schedule 40, page 317, line 14, leave out from ‘acquires’ to ‘company’ in line 15 and insert
‘a licence under the swap (“company R”) subsequently disposes of the licence,’.
Amendment 251, in schedule 40, page 317, leave out lines 17 to 20 and insert—
‘(7) In this section the reference to the no gain/no loss amount of company G is a reference to—
(a) in a case where company G disposes of only one licence, company G’s no gain/no loss amount in relation to that disposal, or
(b) in a case where company G disposes of two or more licences, the aggregate of company G’s no gain/no loss amounts in relation to all of those disposals.’.
Amendment 252, in schedule 40, page 317, line 22, at end insert—
‘(2A) In subsection (1), after “section 194” insert “and this section”.’.
Amendment 253, in schedule 40, page 317, line 32, leave out ‘only’ and insert ‘consideration’.
Amendment 254, in schedule 40, page 318, line 2, after ‘licence’ insert
‘, as determined at the time the swap arrangements are entered into’.
Amendment 255, in schedule 40, page 318, line 2, at end insert—
‘“swap arrangements”, in relation to a licence-consideration swap or a mixed-consideration swap, means the arrangements under which the swap takes place;”.
(7) After subsection (5A) insert—
“(5B) In any of sections 195B to 195E, a reference to the value of a licence comprised in disposal A or disposal B (see section 195A) is a reference to the value of the licence as determined under the swap arrangements at the time the swap arrangements are entered into.”.’.
Amendment 256, in schedule 40, page 320, line 36, at end insert ‘and disposal consideration’.
Amendment 257, in schedule 40, page 320, line 37, leave out ‘198C’ and insert ‘198G’.
Amendment 258, in schedule 40, page 320, line 46, leave out ‘P’s ring fence trade’ and insert
‘one or more of the following trades—
(i) P’s ring fence trade;
(ii) if P is a member of a group of companies (within the meaning given in section 170), a ring fence trade of another member of that group’.
Amendment 259, in schedule 40, page 321, line 1, at end insert—
‘(2A) If the disposal consists of—
(a) disposal of a licence to which section 195D(3) applies, or
(b) disposal of two or more licences to which section 195D(4) applies,
the consideration for the disposal is to be taken to be the whole of the non-licence consideration obtained on the disposal (which is referred to as “C” in section 195D).
(2B) Accordingly, in sections 198A to 198G (including section 198A(4)), any reference to the consideration obtained on the disposal has effect subject to subsection (2A).’.—(Ian Pearson.)
 
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