Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
200

(5)
For income tax purposes—
(a)
the person is to be treated as having, at the time of the
appropriation, sold and purchased the oil as mentioned in
section 225I(4)(a) and (b), and
(b)
that sale and purchase is to be treated as having been at a
5
price equal to the market value of the oil.
(6)
Paragraphs 2 and 3A of Schedule 3 to OTA 1975 (definition of market
value of oil including light gases) apply for the purposes of this
section as they apply for the purposes of Part 1 of that Act, but with
the following modifications.
10
(7)
Those modifications are that—
(a)
any reference in paragraph 2 to the notional delivery day for
the actual oil is to be read as a reference to the day on which
the oil is appropriated as mentioned in this section,
(b)
any reference in paragraphs 2 and 2A to oil being relevantly
15
appropriated is to be read as a reference to its being
appropriated as mentioned in this section, and
(c)
paragraph 2(4) is to be treated as omitted.
Regional development grants
225K
Reduction of expenditure by reference to regional development grant
20
(1)
This section applies if conditions A and B are met.
(2)
Condition A is that a person has incurred expenditure (by way of
purchase, rent or otherwise) on the acquisition of an asset in a
transaction to which paragraph 2 of Schedule 4 to OTA 1975 applies
(transactions between connected persons or otherwise than at arm’s
25
length).
(3)
Condition B is that the expenditure incurred by the other person
mentioned in that paragraph in acquiring, bringing into existence or
enhancing the value of the asset as mentioned in that paragraph —
(a)
has been or is to be met by a regional development grant, and
30
(b)
falls (in whole or in part) to be taken into account under Part
2 or 6 of CAA 2001 (capital allowances relating to plant and
machinery or research and development).
(4)
Subsection (5) applies for the purposes of the charge to income tax on
the income arising from the activities of the person mentioned in
35
subsection (2) which are treated by section 16(1) (oil extraction and
related activities) as a separate trade for those purposes.
(5)
The expenditure mentioned in subsection (2) is to be reduced by the
amount of the regional development grant mentioned in subsection
(3).
40
(6)
In this section “regional development grant” means a grant falling
within section 534(1) of CAA 2001 (Northern Ireland regional
development grant).
225L
Adjustment as a result of regional development grant
(1)
This section applies if conditions A, B and C are met.
45

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
201

(2)
Condition A is that expenditure incurred by a person in relation to
an asset in a tax year (“the initial period”) has been or is to be met by
a regional development grant.
(3)
Condition B is that, despite the provisions of section 534(2) and (3) of
CAA 2001 (Northern Ireland regional development grants) and
5
section 225K of this Act, in determining that person’s liability to
income tax for the initial period, the whole or some part of that
expenditure falls to be taken into account under Part 2 or 6 of CAA
2001.
(4)
Condition C is that—
10
(a)
expenditure on the asset becomes allowable under section 3
or 4 of OTA 1975 in a tax year (an “adjustment period”)
subsequent to the initial period, or
(b)
the proportion of any such expenditure which is allowable in
an adjustment period is different as compared with the initial
15
period.
(5)
There is to be redetermined for the purposes of subsections (7) and
(8) the amount of the expenditure mentioned in subsection (2) which
would have been taken into account as mentioned in subsection (3)
if the circumstances mentioned in subsection (4) had existed in the
20
initial period.
(6)
According to whether the amount as so redetermined is greater or
less than the amount actually taken into account as mentioned in
subsection (3), the difference is referred to in subsections (7) and (8)
as the increase or the reduction in the allowance.
25
(7)
If there is an increase in the allowance, an amount of capital
expenditure equal to the increase is to be treated, for the purposes of
Part 2 or 6 of CAA 2001, as having been incurred by the person
concerned in the adjustment period on an extension of, or addition
to, the asset mentioned in subsection (2).
30
(8)
If there is a reduction in the allowance, the person concerned is to be
treated, for the purpose of determining that person’s liability to
income tax, as having received in the adjustment period, as income
of the trade in connection with which the expenditure mentioned in
subsection (2) was incurred, a sum equal to the amount of the
35
reduction in the allowance.
(9)
In this section “regional development grant” has the meaning given
by section 225K(6).
Tariff receipts etc
225M
Tariff receipts etc
40
(1)
Subsection (5) applies to a sum which meets conditions A, B and C.
(2)
Condition A is that the sum constitutes a tariff receipt or tax-exempt
tariffing receipt of a person who is a participator in an oil field.
(3)
Condition B is that the sum constitutes consideration in the nature of
income rather than capital.
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Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
202

(4)
Condition C is that the sum would not, but for subsection (5), be
treated as mentioned in that subsection.
(5)
The sum is to be treated as a receipt of the separate trade mentioned
in section 16(1) (oil extraction and related activities).
(6)
So far as they would not otherwise be so treated, the activities—
5
(a)
of a participator in an oil field, or
(b)
of a person connected with the participator,

in making available an asset in a way which gives rise to tariff
receipts or tax-exempt tariffing receipts of the participator are to be
treated for the purposes of this Chapter as oil extraction activities.
10
(7)
In determining for the purposes of subsection (2) whether a sum
constitutes a tariff receipt or tax-exempt tariffing receipt of a person
who is a participator, no account may be taken of any sum which—
(a)
is in fact received or receivable by a person connected with
the participator, and
15
(b)
constitutes a tariff receipt or tax-exempt tariffing receipt of
the participator.

But in relation to the person by whom such a sum is actually
received, subsection (2) has effect as if the person were a participator
and as if condition A were met.
20
(8)
References in this section to a person connected with a participator
include a person with whom the person is associated, within the
meaning of paragraph 11 of Schedule 2 to the Oil Taxation Act 1983,
but section 878(5) of this Act (application of definition of “connected”
persons) does not apply for the purposes of this section.
25
(9)
In this section—
“tax-exempt tariffing receipt” has the meaning given by section
6A(2) of the Oil Taxation Act 1983, and
“tariff receipt” has the same meaning as in that Act.
Abandonment guarantees
30
225N
Expenditure on and under abandonment guarantees
(1)
Subsection (2) applies if, as a result of section 3(1)(hh) of OTA 1975
(obtaining abandonment guarantee), expenditure incurred by a
participator in an oil field is allowable (in whole or in part) for
petroleum revenue tax purposes under section 3 of that Act.
35
(2)
So far as that expenditure is so allowable, it is to be allowed as a
deduction in calculating the participator’s ring fence income.
(3)
Subsection (4) applies if a payment is made by the guarantor under
an abandonment guarantee.
(4)
So far as any expenditure for which the relevant participator is liable
40
is met, directly or indirectly, out of the payment, the expenditure is
not to be regarded for income tax purposes as having been incurred
by the relevant participator or any other participator in the oil field
concerned.

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
203

(5)
See also section 225P (payment under abandonment guarantee not
immediately applied).
(6)
In this Chapter—
“abandonment guarantee” has the same meaning as it has for
the purposes of section 105 of FA 1991 (see section 104 of that
5
Act), and
“the guarantor” and “the relevant participator” have the same
meaning as in section 104 of that Act.
225O
Relief for reimbursement expenditure under abandonment
guarantees
10
(1)
This section applies if—
(a)
a payment (“the guarantee payment”) is made by the
guarantor under an abandonment guarantee,
(b)
as a result of the making of the guarantee payment, the
relevant participator becomes liable under the terms of the
15
abandonment guarantee to pay any sum to the guarantor,
and
(c)
expenditure is incurred, or consideration in money’s worth is
given, by the relevant participator in or towards meeting that
liability.
20
(2)
In this section “reimbursement expenditure” means expenditure
incurred as mentioned in subsection (1)(c) or consideration (or the
value of consideration) given as so mentioned; and any reference to
the incurring of reimbursement expenditure is to be read
accordingly.
25
(3)
So much of any reimbursement expenditure as constitutes qualifying
expenditure (see subsection (4)) is to be allowed as a deduction in
calculating the relevant participator’s ring fence income; and no part
of the expenditure which is so allowed is to be otherwise deductible
or allowable by way of relief for income tax purposes.
30
(4)
The amount of reimbursement expenditure incurred in any tax year
by the relevant participator which constitutes qualifying
expenditure is determined by the formula—

where—
A is the reimbursement expenditure incurred in the tax year,
35
B is so much of the expenditure represented by the guarantee
payment as, had it been incurred by the relevant participator,
would have been taken into account (by way of capital
allowance or a deduction) in calculating the relevant
participator’s ring fence income, and
40
C is the total of the sums which, at or before the end of the tax
year, the relevant participator is or has become liable to pay
to the guarantor as mentioned in subsection (1)(b).

But this is subject to subsection (5).
(5)
In relation to the guarantee payment, the total of the reimbursement
45
expenditure (whenever incurred) which constitutes qualifying

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
204

expenditure may not exceed whichever is the less of B and C in
subsection (4).
(6)
Any limitation on qualifying expenditure under subsection (5) is to
be applied to the expenditure of a later tax year in preference to an
earlier one.
5
(7)
For the purposes of this section, the expenditure represented by the
guarantee payment is any expenditure—
(a)
for which the relevant participator is liable, and
(b)
which is met, directly or indirectly, out of the guarantee
payment (and which, accordingly, because of section 225N(4)
10
is not to be regarded as expenditure incurred by the relevant
participator).
(8)
See also—
(a)
section 225P (payment under abandonment guarantee not
immediately applied), and
15
(b)
section 225Q which excludes amounts from subsection (1).
225P
Payment under abandonment guarantee not immediately applied
(1)
This section applies if—
(a)
a payment made by the guarantor under an abandonment
guarantee is not immediately applied in meeting any
20
expenditure,
(b)
the payment is for any period invested (either specifically or
together with payments made by persons other than the
guarantor) so as to be represented by, or by part of, the assets
of a fund or account, and
25
(c)
at a subsequent time, any expenditure for which the relevant
participator is liable is met out of the assets of the fund or
account.
(2)
The references in sections 225N(4) and 225O(7) to expenditure which
is met, directly or indirectly, out of the payment are to be read as
30
references to so much of the expenditure for which the relevant
participator is liable as is met out of those assets of the fund or
account which, at the subsequent time mentioned in subsection
(1)(c), it is just and reasonable to attribute to the payment.
225Q
Amounts excluded from section 225O(1)
35
(1)
This section applies if—
(a)
the whole of the guarantee payment mentioned in section
225O, or of the assets which under section 225P are attributed
to the guarantee payment, is not applied in meeting liabilities
of the relevant participator so mentioned which fall within
40
section 104(1)(a) and (b) of FA 1991, and
(b)
a sum representing the unapplied part of the guarantee
payment or of those assets is repaid, directly or indirectly, to
the guarantor so mentioned.
(2)
Any liability of the relevant participator to repay that sum is to be
45
excluded in determining the total liability of the relevant participator
which falls within section 225O(1)(b).

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
205

(3)
The repayment to the guarantor of that sum is not be regarded as
expenditure incurred by the relevant participator as mentioned in
section 225O(1)(c).
Abandonment expenditure
225R
Introduction to sections 225S and 225T
5
(1)
Sections 225S and 225T apply if—
(a)
paragraph 2A of Schedule 5 to OTA 1975 applies, or would
apply if a claim under paragraph 2A(2) of that Schedule were
made, and
(b)
the default payment falls (in whole or part) to be attributed to
10
the contributing participator under paragraph 2A(2) of that
Schedule.
(2)
In section 225S “the additional abandonment expenditure” means
the amount which is attributed to the contributing participator as
mentioned in subsection (1)(b) (whether representing the whole or
15
only part of the default payment).
(3)
In this Chapter “default payment”, “the defaulter” and “contributing
participator” have the same meaning as in paragraph 2A of Schedule
5 to OTA 1975.
225S
Relief for expenditure incurred by a participator in meeting
20
defaulter’s abandonment expenditure
(1)
Relief by way of capital allowance, or a deduction in calculating ring
fence income, is to be available to the contributing participator in
respect of the additional abandonment expenditure if any such relief
or deduction would have been available to the defaulter if—
25
(a)
the defaulter had incurred the additional abandonment
expenditure, and
(b)
at the time that that expenditure was incurred the defaulter
continued to carry on a ring fence trade.
(2)
The basis of qualification for or entitlement to any relief or deduction
30
which is available to the contributing participator under this section
is to be determined on the assumption that the conditions in
subsection (1)(a) and (b) are met.
(3)
But, subject to subsection (2), any such relief or deduction is to be
available in the same way as if the additional abandonment
35
expenditure had been incurred by the contributing participator for
the purposes of the ring fence trade carried on by the contributing
participator.
225T
Reimbursement by defaulter in respect of certain abandonment
expenditure
40
(1)
This section applies if expenditure is incurred, or consideration in
money’s worth is given, by the defaulter in reimbursing the
contributing participator in respect of, or otherwise making good to
the contributing participator, the whole or any part of the default
payment.
45

Taxation (International and Other Provisions) Bill
Schedule 1 — Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005
206

(2)
In this section “reimbursement expenditure” means expenditure
incurred as mentioned in subsection (1) or consideration (or the
value of consideration) given as so mentioned; and any reference to
the incurring of reimbursement expenditure is to be read
accordingly.
5
(3)
Reimbursement expenditure is to be allowed as a deduction in
calculating the defaulter’s ring fence income (but this is subject to
subsection (6)).
(4)
Reimbursement expenditure received by the contributing
participator is to be treated as a receipt (in the nature of income) of
10
the participator’s ring fence trade for the relevant tax year (but this is
subject to subsection (6)).
(5)
Any additional assessment to income tax required in order to take
account of the receipt of reimbursement expenditure by the
contributing participator may be made at any time not later than 4
15
years after the end of the calendar year in which the reimbursement
expenditure is so received.
(6)
In relation to a particular default payment, reimbursement
expenditure incurred at any time—
(a)
is to be allowed as mentioned in subsection (3), and
20
(b)
is to be taken into account as a result of subsection (4) in
calculating the contributing participator’s ring fence income,

only so far as, when aggregated with any reimbursement
expenditure previously incurred in respect of that default payment,
it does not exceed so much of the default payment as falls to be
25
attributed to the contributing participator as mentioned in section
225R(1)(b).
(7)
The incurring of reimbursement expenditure is not to be regarded,
by virtue of section 532 of CAA 2001 (the general rule excluding
contributions), as the meeting of the expenditure of the contributing
30
participator in making the default payment.
(8)
In subsection (4) “the relevant tax year” means—
(a)
the tax year in which the reimbursement expenditure is
received by the contributing participator, or
(b)
if the contributing participator’s ring fence trade is
35
permanently discontinued before the receipt of the
reimbursement expenditure, the last tax year in which that
trade was carried on.
225U
Interest on repayment of APRT
(1)
Subsection (2) applies if interest is paid to a participator under
40
paragraph 10(4) of Schedule 19 to FA 1982 (interest on advance
petroleum revenue tax which becomes repayable).
(2)
The interest paid is to be disregarded in calculating the participator’s
income for income tax purposes.”