Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 8 — Oil activities
Chapter 2 — Basic definitions
140

272
“Oil extraction activities”
(1)
In this Part “oil extraction activities” means activities within any of subsections
(2) to (5) (but see also section 291(6)).
(2)
Activities of a company in searching for oil in the United Kingdom or a
designated area or causing such searching to be carried out for it.
5
(3)
Activities of a company in extracting, or causing to be extracted for it, oil at any
place in the United Kingdom or a designated area under rights which—
(a)
authorise the extraction, and
(b)
are held by it or by a company associated with it.
(4)
Activities of a company in transporting, or causing to be transported for it, oil
10
extracted at any such place not on dry land under rights which—
(a)
authorise the extraction, and
(b)
are held as mentioned in subsection (3)(b),

if the transportation meets condition A or B (see subsections (6) and (7)).
(5)
Activities of a company in effecting, or causing to be effected for it, the initial
15
treatment or initial storage of oil won from any oil field under rights which—
(a)
authorise its extraction, and
(b)
are held as mentioned in subsection (3)(b).
(6)
Condition A is that the transportation is to the place where the oil is first landed
in the United Kingdom.
20
(7)
Condition B is that the transportation—
(a)
is to the place in the United Kingdom, or
(b)
in the case of oil first landed in another country, is to the place in that
or any other country (other than the United Kingdom),

at which the seller in a sale at arm’s length could reasonably be expected to
25
deliver it (or, if there is more than one such place, the one nearest to the place
of extraction).
(8)
The definition of “initial storage” in section 12(1) of OTA 1975 applies for the
purposes of this section.
(9)
But in its application for those purposes in relation to the company mentioned
30
in subsection (5) and to oil won from any one oil field, that definition is to have
effect as if the reference to the maximum daily production rate of oil for the
field mentioned in that definition were to a share of that maximum daily
production rate proportionate to that company’s share of the oil won from that
field.
35
(10)
In this section “initial treatment” has the same meaning as in Part 1 of OTA
1975 (see section 12(1) of that Act).
273
“Oil rights”
In this Part “oil rights” means—
(a)
rights to oil to be extracted at any place in the United Kingdom or a
40
designated area, or
(b)
rights to interests in or to the benefit of such oil.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 2 — Basic definitions
141

274
“Oil-related activities”
In this Part “oil-related activities” means—
(a)
oil extraction activities, and
(b)
any activities consisting of the acquisition, enjoyment or exploitation of
oil rights.
5
275
“Ring fence income”
In this Part “ring fence income” means income arising from oil extraction
activities or oil rights.
276
“Ring fence profits”
In this Part “ring fence profits”, in relation to an accounting period, means—
10
(a)
if in accordance with section 197(3) of TCGA 1992 a company has an
aggregate gain for that period, that gain and that company’s ring fence
income (if any) for that period, or
(b)
otherwise, that company’s ring fence income for that period.
277
“Ring fence trade”
15
In this Part “ring fence trade” means activities which—
(a)
are within the definition of “oil-related activities” in section 274, and
(b)
constitute a separate trade (whether because of section 279 or
otherwise).
278
Other definitions
20
In this Part—
“chargeable period” has the same meaning as in Part 1 of OTA 1975 (see
section 1(3) of that Act),
“designated area” means an area designated by Order in Council under
section 1(7) of the Continental Shelf Act 1964,
25
“oil” means any substance won or capable of being won under the
authority of a licence granted under Part 1 of the Petroleum Act 1998 or
the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)),
other than methane gas won in the course of operations for making and
keeping mines safe,
30
“oil field” has the same meaning as in Part 1 of OTA 1975 (see section 12(1)
of that Act),
“OTA 1975” means the Oil Taxation Act 1975, and
“participator” has the same meaning as in Part 1 of OTA 1975 (see section
12(1) of that Act).
35

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
142

Chapter 3
Deemed separate trade
279
Oil-related activities treated as separate trade
If a company carries on any oil-related activities as part of a trade, those
activities are treated for the purposes of the charge to corporation tax on
5
income as a separate trade, distinct from all other activities carried on by the
company as part of the trade.
Chapter 4
Calculation of profits
Oil valuation
10
280
Disposal to be valued by reference to section 2(5A) of OTA 1975
(1)
This section applies if each of conditions A to G is met.
(2)
Condition A is that oil is won from an oil field in the United Kingdom.
(3)
Condition B is that there is a disposal of the oil by a company.
(4)
Condition C is that the disposal is a disposal of the oil by the company crude
15
in a sale at arm’s length (as defined in paragraph 1 of Schedule 3 to OTA 1975).
(5)
Condition D is that the circumstances are such that the price received or
receivable—
(a)
falls to be taken into account under section 2(5)(a) of that Act in
calculating for petroleum revenue tax purposes the assessable profit or
20
allowable loss accruing to the company in a chargeable period from the
oil field, or
(b)
would fall to be so taken into account, had the oil field been a taxable
field (as defined in section 185 of FA 1993).
(6)
Condition E is that the terms of the contract are such as are described in the
25
opening words of section 2(5A) of OTA 1975 (transportation etc).
(7)
Condition F is that, but for subsection (9), the company is not entitled to a
transportation allowance in respect of the oil in calculating ring fence profits.
(8)
Condition G is that the company does not claim a transportation allowance in
respect of the oil in calculating for corporation tax purposes any profits that are
30
not ring fence profits.
(9)
Section 2(5A) of OTA 1975 is to apply in determining the amount which the
company is to bring into account for the purposes of the charge to corporation
tax on income in respect of the disposal as it applies (or would apply) for
petroleum revenue tax purposes.
35
(10)
In this section “transportation allowance”, in relation to any oil, means—
(a)
a deduction in respect of the expense of transporting the oil as
mentioned in the opening words of section 2(5A) of OTA 1975,

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
143

(b)
a deduction in respect of any costs of or incidental to the transportation
of the oil as so mentioned, or
(c)
any such reduction in the price to be regarded as received or receivable
for the oil as would result from the application of section 2(5A) of OTA
1975, if that provision applied for corporation tax purposes.
5
281
Valuation where market value taken into account under section 2 of OTA 1975
(1)
This section applies if a person disposes of oil in circumstances such that the
market value of the oil—
(a)
falls to be taken into account under section 2 of OTA 1975, otherwise
than by virtue of paragraph 6 of Schedule 3 to that Act, in calculating
10
for petroleum revenue tax purposes the assessable profit or allowable
loss accruing to that person in a chargeable period from an oil field, or
(b)
would so fall but for section 10 of that Act.
(2)
For the purposes of the charge to corporation tax on income, the disposal of the
oil, and its acquisition by the person to whom it was disposed of, are to be
15
treated as having been for a consideration equal to the market value of the oil—
(a)
as so taken into account under section 2 of that Act, or
(b)
as would have been so taken into account under that section but for
section 10 of that Act.
282
Valuation where disposal not sale at arm’s length
20
(1)
This section applies if conditions A, B and C are met.
(2)
Condition A is that a person disposes of oil acquired by the person—
(a)
in the course of oil extraction activities carried on by the person, or
(b)
as a result of oil rights held by the person.
(3)
Condition B is that the disposal is not a sale at arm’s length (as defined in
25
paragraph 1 of Schedule 3 to OTA 1975).
(4)
Condition C is that section 281 does not apply in relation to the disposal.
(5)
For the purposes of the charge to corporation tax on income, the disposal of the
oil, and its acquisition by the person to whom it was disposed of, are to be
treated as having been for a consideration equal to the market value of the oil.
30
(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.
(7)
Those modifications are that—
(a)
any reference in paragraph 2 to the notional delivery day for the actual
35
oil is to be read as a reference to the day on which the oil is disposed of
as mentioned in this section, and
(b)
paragraph 2(4) is to be treated as omitted.
283
Valuation where excess of nominated proceeds
(1)
This section applies if an excess of nominated proceeds for a chargeable
40
period—

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
144

(a)
is taken into account in calculating a company’s profits under section
2(5)(e) of OTA 1975, or
(b)
would have been so taken into account if the company were chargeable
to tax under OTA 1975 in respect of an oil field.
(2)
For the purposes of the charge to corporation tax on income, the amount of the
5
excess is to be added to the consideration which the company is treated as
having received in respect of oil disposed of by it in the period.
(3)
For corporation tax purposes, that amount is to be available to the company as
a deduction in calculating the profits of any trade which (whether because of
section 279 or otherwise) does not consist of activities falling within the
10
definition of “oil-related activities” in section 274.
284
Valuation where relevant appropriation but no disposal
(1)
This section applies if conditions A and B are met.
(2)
Condition A is that a company makes a relevant appropriation of oil without
disposing of it.
15
(3)
Condition B is that the company does so in circumstances such that the market
value of the oil—
(a)
falls to be taken into account under section 2 of OTA 1975 in calculating
for petroleum revenue tax purposes the assessable profit or allowable
loss accruing to it in a chargeable period from an oil field, or
20
(b)
would so fall but for section 10 of that Act.
(4)
For the purposes of the charge to corporation tax on income, the company is to
be treated as having, at the time of the appropriation—
(a)
sold the oil in the course of the separate trade consisting of activities
falling within the definition of “oil-related activities” in section 274, and
25
(b)
purchased it in the course of the separate trade consisting of activities
not so falling.
(5)
For those purposes, that sale and purchase is to be treated as having been at a
price equal to the market value of the oil—
(a)
as so taken into account under section 2 of OTA 1975, or
30
(b)
as would have been so taken into account under that section but for
section 10 of that Act.
(6)
In this section “relevant appropriation” has the meaning given by section 12(1)
of OTA 1975.
285
Valuation where appropriation to refining etc
35
(1)
This section applies if conditions A, B and C are met.
(2)
Condition A is that a company appropriates oil acquired by it—
(a)
in the course of oil extraction activities carried on by it, or
(b)
as a result of oil rights held by it.
(3)
Condition B is that the oil is appropriated to refining or to any use except the
40
production purposes of an oil field (as defined in section 12(1) of OTA 1975).
(4)
Condition C is that section 284 does not apply in relation to the appropriation.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
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(5)
For the purposes of the charge to corporation tax on income—
(a)
the company is to be treated as having, at the time of the appropriation,
sold and purchased the oil as mentioned in section 284(4)(a) and (b),
and
(b)
that sale and purchase is to be treated as having been at a price equal to
5
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.
(7)
Those modifications are that—
10
(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
appropriated is to be read as a reference to its being appropriated as
15
mentioned in this section, and
(c)
paragraph 2(4) is to be treated as omitted.
Loan relationships
286
Restriction on debits to be brought into account
(1)
Debits may not be brought into account for the purposes of Part 5 of CTA 2009
20
(loan relationships) in respect of a company’s loan relationships in any way
that results in a reduction of what would otherwise be the company’s ring
fence profits, but this is subject to subsections (2) to (4).
(2)
Subsection (1) does not apply so far as a loan relationship is in respect of money
borrowed by the company which has been—
25
(a)
used to meet expenditure incurred by the company in carrying on oil
extraction activities or in acquiring oil rights otherwise than from a
connected person, or
(b)
appropriated to meeting expenditure to be so incurred by the company.
(3)
Subsection (1) does not apply, in the case of debits falling to be brought into
30
account as a result of section 329 of CTA 2009 in respect of a loan relationship
that has not been entered into, so far as the relationship would have been one
entered into for the purpose of borrowing money to be used or appropriated
as mentioned in subsection (2).
(4)
Subsection (1) does not apply, in the case of debits in respect of a loan
35
relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending
relationships) applies, so far as—
(a)
the payment of interest under the relationship is expenditure incurred
as mentioned in subsection (2)(a), or
(b)
the exchange loss arising from the relationship is in respect of a money
40
debt on which the interest payable (if any) is, or would be, such
expenditure.
(5)
If a debit—
(a)
falls to be brought into account for the purposes of Part 5 of CTA 2009
in respect of a loan relationship of a company, but
45

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
146

(b)
as a result of this section cannot be brought into account in a way that
results in any reduction of what would otherwise be the company’s
ring fence profits,

the debit is to be brought into account for those purposes as a non-trading debit
despite anything in section 297 of that Act.
5
(6)
References in this section to a loan relationship, in relation to the borrowing of
money, do not include a relationship to which Chapter 2 of Part 6 of CTA 2009
(relevant non-lending relationships) applies.
287
Restriction on credits to be brought into account
(1)
Credits in respect of exchange gains from a company’s loan relationships may
10
not be brought into account for the purposes of Part 5 of CTA 2009 (loan
relationships) in any way that results in an increase of what would otherwise
be the company’s ring fence profits, but this is subject to subsections (2) to (4).
(2)
Subsection (1) does not apply so far as a loan relationship is in respect of money
borrowed by the company which has been—
15
(a)
used to meet expenditure incurred by the company in carrying on oil
extraction activities or in acquiring oil rights otherwise than from a
connected person, or
(b)
appropriated to meeting expenditure to be so incurred by the company.
(3)
Subsection (1) does not apply, in the case of credits falling to be brought into
20
account as a result of section 329 of CTA 2009 in respect of a loan relationship
that has not been entered into, so far as the relationship would have been one
entered into for the purpose of borrowing money to be used or appropriated
as mentioned in subsection (2).
(4)
Subsection (1) does not apply, in the case of credits in respect of a loan
25
relationship to which Chapter 2 of Part 6 of CTA 2009 (relevant non-lending
relationships) applies, so far as—
(a)
the payment of interest under the relationship is expenditure incurred
as mentioned in subsection (2)(a), or
(b)
the exchange gain arising from the relationship is in respect of a money
30
debt on which the interest payable (if any) is, or would be, such
expenditure.
(5)
If a credit—
(a)
falls to be brought into account for the purposes of Part 5 of CTA 2009
in respect of any loan relationship of a company, but
35
(b)
as a result of this section cannot be brought into account in a way that
results in any increase of what would otherwise be the company’s ring
fence profits,

the credit is to be brought into account for those purposes as a non-trading
credit despite anything in section 297 of that Act.
40
(6)
Section 286(6) applies for the purposes of this section.
Sale and lease-back
288
Sale and lease-back
(1)
This section applies if conditions A, B and C are met.