Ian
Pearson: Clause 85 builds upon existing reliefs and
reforms the treatment of chargeable gains arising within the ring fence
regime to ensure that oil and gas assets are in the hands of those most
likely to develop them. The first change enacted by the clause is that,
where companies swap licence interests for developed areas within the UK
continental shelf, the disposal of the licence interest will not give
rise to a chargeable gain or to an allowable loss where the
consideration received is also a developed licence interest. That will
enable gas and oil companies to swap licence interests that they do not
intend to fully develop with other companies to build hubs, around
which further development will take place. That will increase
production and extend the life of North sea infrastructure, which is a
policy objective of
ours. 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
40Oil:
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;
(b) the licence, or at least one of the licences,
comprised in disposal B 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—
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
(3) In a case where company R acquires two or more
licences, as regards each licence acquired, company R is to be treated
as if it had acquired the licence for a consideration
of—
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—
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
(b) whatever the amount of the non-licence
consideration (“C”) which company G
gives’. 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—
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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