Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
147

(2)
Condition A is that a company (“the seller”) carrying on a trade has disposed
of—
(a)
an asset which was used for the purposes of that trade, or
(b)
an interest in such an asset.
(3)
Condition B is that the asset is used, under a lease, by the seller or a company
5
associated with the seller (“the lessee”) for the purposes of a ring fence trade
carried on by the lessee.
(4)
Condition C is that the lessee uses the asset before the end of the period of two
years beginning with the disposal.
(5)
Subsection (6) applies to so much (if any) of the expenditure incurred by the
10
lessee under the lease as—
(a)
falls, in accordance with generally accepted accounting practice, to be
treated in the accounts of the lessee as a finance charge, or
(b)
falls, if the lease is a long funding operating lease, to be deductible in
calculating the profits of the lessee for corporation tax purposes (after
15
first making against any such expenditure any reductions falling to be
made as a result of section 379 (lessee under long funding operating
lease)).

But subsection (6) is subject to subsection (7).
(6)
The expenditure is not allowable in calculating for the purposes of Part 3 of
20
CTA 2009 the profits of the ring fence trade.
(7)
Expenditure is not to be disallowed because of subsection (6) so far as the
disposal mentioned in subsection (2) is made for a consideration which—
(a)
is used to meet expenditure incurred by the seller in carrying on oil
extraction activities or in acquiring oil rights otherwise than from a
25
company associated with the seller, or
(b)
is appropriated to meeting expenditure to be so incurred by the seller.
(8)
If any expenditure—
(a)
would, but for subsection (6), be allowable in calculating for the
purposes of Part 3 of CTA 2009 the profits of the ring fence trade for an
30
accounting period, but
(b)
because of that subsection is not so allowable,

the expenditure is to be brought into account for the purposes of Part 5 of CTA
2009 (loan relationships) as if it were a non-trading debit in respect of a loan
relationship of the lessee for that period.
35
(9)
In this section—
“long funding operating lease” means a long funding operating lease for
the purposes of Part 2 of CAA 2001 (see section 70YI(1) of that Act), and
“lease”, in relation to an asset, has the same meaning as in Chapter 3 of
Part 19 (see section 868).
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Regional development grants
289
Reduction of expenditure by reference to regional development grant
(1)
This section applies if conditions A and B are met.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
148

(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 length).
(3)
Condition B is that the expenditure incurred by the other person mentioned in
5
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
(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
10
research and development).
(4)
Subsection (5) applies for the purposes of the charge to corporation tax on the
income arising from the activities of the person mentioned in subsection (2)
which are treated by section 279 as a separate trade for those purposes.
(5)
The expenditure mentioned in subsection (2) is to be reduced by the amount of
15
the regional development grant mentioned in subsection (3).
(6)
In this section “regional development grant” means a grant falling within
section 534(1) of CAA 2001 (Northern Ireland regional development grant).
290
Adjustment as a result of regional development grant
(1)
This section applies if conditions A, B and C are met.
20
(2)
Condition A is that expenditure incurred by a company in relation to an asset
in an accounting period (“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 section 289 of this Act, in
25
determining that company’s liability to corporation 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—
(a)
expenditure on the asset becomes allowable under section 3 or 4 of
30
OTA 1975 in an accounting period (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 period.
(5)
There is to be redetermined for the purposes of subsections (7) and (8) the
35
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 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
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difference is referred to in subsections (7) and (8) as the increase or the
reduction in the allowance.
(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 company concerned in the adjustment period on
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an extension of, or addition to, the asset mentioned in subsection (2).

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
149

(8)
If there is a reduction in the allowance, the company concerned is to be treated,
for the purpose of determining its liability to corporation 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 reduction in the allowance.
5
(9)
In this section “regional development grant” has the meaning given by section
289(6).
Tariff receipts etc
291
Tariff receipts etc
(1)
Subsection (5) applies to a sum which meets conditions A, B and C.
10
(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.
(4)
Condition C is that the sum would not, but for subsection (5), be treated as
15
mentioned in that subsection.
(5)
The sum is to be treated as a receipt of the separate trade mentioned in section
279.
(6)
So far as they would not otherwise be so treated, the activities—
(a)
of a participator in an oil field, or
20
(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 Part as oil extraction activities.
(7)
In determining for the purposes of subsection (2) whether a sum constitutes a
25
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
(b)
constitutes a tariff receipt or tax-exempt tariffing receipt of the
30
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.
(8)
References in this section to a person connected with a participator include a
35
person with whom the person is associated, within the meaning of paragraph
11 of Schedule 2 to the Oil Taxation Act 1983, but section 1176(1) of this Act
(meaning of “connected” persons) does not apply for the purposes of this
section.
(9)
In this section—
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“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.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
150

Abandonment guarantees
292
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
5
section 3 of that Act.
(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.
10
(4)
So far as any expenditure for which the relevant participator is liable is met,
directly or indirectly, out of the payment, the expenditure is not to be regarded
for corporation tax purposes as having been incurred by the relevant
participator or any other participator in the oil field concerned.
(5)
See also section 294 (payment under abandonment guarantee not immediately
15
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 Act), and
“the guarantor” and “the relevant participator” have the same meaning as
20
in section 104 of that Act.
293
Relief for reimbursement expenditure under abandonment guarantees
(1)
This section applies if—
(a)
a payment (“the guarantee payment”) is made by the guarantor under
an abandonment guarantee,
25
(b)
as a result of the making of the guarantee payment, the relevant
participator becomes liable under the terms of the 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.
30
(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.
(3)
So much of any reimbursement expenditure as constitutes qualifying
35
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 corporation tax purposes.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 4 — Calculation of profits
151

(4)
The amount of reimbursement expenditure incurred in any accounting period
by the relevant participator which constitutes qualifying expenditure is
determined by the formula—


where—
A is the reimbursement expenditure incurred in the accounting period,
5
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
C is the total of the sums which, at or before the end of the accounting
10
period, 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
expenditure (whenever incurred) which constitutes qualifying expenditure
15
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 accounting period in preference to an earlier one.
(7)
For the purposes of this section, the expenditure represented by the guarantee
payment is any expenditure—
20
(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 292(4) is not to be regarded as
expenditure incurred by the relevant participator).
(8)
See also—
25
(a)
section 294 (payment under abandonment guarantee not immediately
applied), and
(b)
section 295 which excludes amounts from subsection (1).
294
Payment under abandonment guarantee not immediately applied
(1)
This section applies if—
30
(a)
a payment made by the guarantor under an abandonment guarantee is
not immediately applied in meeting any 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
35
(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 292(4) and 293(7) to expenditure which is met,
directly or indirectly, out of the payment are to be read as references to so much
of the expenditure for which the relevant participator is liable as is met out of
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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.