Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Oil activities
Chapter 7 — Reduction of supplementary charge for certain new oil fields
177

(3)
The amount of the field allowance which the transferee is to hold is calculated
in accordance with subsection (4).
(4)
The amount referred to in subsections (1) and (3) is—


where—
R is the amount of the reduction determined in accordance with section
5
346,
E3 is the share of the equity in the new oil field that the transferee has
acquired from the transferor, and
E1 and E2 are the same as in section 346.
(5)
This section has effect at the end of the day on which the disposal takes place.
10
Miscellaneous
348
Adjustments
(1)
This section applies if there is any alteration in a company’s adjusted ring fence
profits for an accounting period after this Chapter has had effect in relation to
the profits.
15
(2)
Any necessary adjustments to the operation of this Chapter (whether in
relation to the profits or otherwise) are to be made (including any necessary
adjustments to the effect of section 333 on the profits or to the calculation of the
company’s pool of field allowances for a subsequent accounting period).
349
Orders
20
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by order
make provision about the oil fields that are qualifying oil fields for the
purposes of this Chapter.
(2)
The Commissioners for Her Majesty’s Revenue and Customs may by order
make provision about the amount of the total field allowance for any
25
description of new oil field (whether or not provision has been made under
subsection (1) about that description of new oil field).
(3)
An order under this section may, in particular, amend any or all of sections 352
to 356.
(4)
No order may be made under this section unless a draft of the statutory
30
instrument containing it has been laid before and approved by a resolution of
the House of Commons.
Interpretation
350
“New oil field”
In this Chapter “new oil field” means an oil field—
35

Corporation Tax Bill
Part 8 — Oil activities
Chapter 7 — Reduction of supplementary charge for certain new oil fields
178

(a)
which is a qualifying oil field, and
(b)
whose development is authorised at any time on or after 22 April 2009.
351
“Authorisation of development of an oil field”
(1)
In this Chapter a reference to authorisation of development of an oil field is a
reference to a national authority—
5
(a)
granting a licensee consent for development for the field,
(b)
serving on a licensee a programme of development for the field, or
(c)
approving a programme of development for the field.
(2)
In this section—
“consent for development”, in relation to an oil field, does not include
10
consent which is limited to the purpose of testing the characteristics of
an oil-bearing area,
“development”, in relation to an oil field, means winning oil from the field
otherwise than in the course of searching for oil or drilling wells, and
“national authority” means—
15
(a)
the Secretary of State, or
(b)
a Northern Ireland Department.
352
“Qualifying oil field”
In this Chapter “qualifying oil field” means an oil field that is, on the
authorisation day—
20
(a)
a small oil field,
(b)
an ultra heavy oil field, or
(c)
an ultra high pressure/high temperature oil field.
353
“Small oil field”
(1)
In this Chapter “small oil field” means an oil field which has reserves of oil of
25
3,500,000 tonnes or less.
(2)
For the purposes of this section and section 356(2)—
(a)
the amount of reserves of oil which an oil field has is to be determined
on the authorisation day, and
(b)
1,100 cubic metres of gas at a temperature of 15 degrees celsius and
30
pressure of one atmosphere is to be counted as equivalent to one tonne.
354
“Ultra heavy oil field”
(1)
In this Chapter “ultra heavy oil field” means an oil field with oil at—
(a)
an API gravity below 18 degrees, and
(b)
a viscosity of more than 50 centipoise at reservoir temperature and
35
pressure.

Corporation Tax Bill
Part 8 — Oil activities
Chapter 7 — Reduction of supplementary charge for certain new oil fields
179

(2)
For that purpose API gravity, in relation to oil, is the amount determined by
the following calculation—


where G is the specific gravity of the oil at 15.56 degrees celsius.
355
“Ultra high pressure/high temperature oil field”
In this Chapter “ultra high pressure/high temperature oil field” means an oil
5
field with oil at—
(a)
a pressure of more than 1034 bar in the reservoir formation, and
(b)
a temperature of more than 176.67 degrees celsius in the reservoir
formation.
356
“Total field allowance for a new oil field”
10
(1)
For the purposes of this Chapter, the total field allowance for a new oil field
is—
(a)
in the case of a small oil field, the amount determined in accordance
with subsection (2),
(b)
in the case of an ultra heavy oil field, £800,000,000, and
15
(c)
in the cases of an ultra high pressure/high temperature oil field,
£800,000,000.
(2)
The total field allowance for a small oil field is—
(a)
if the oil field has reserves of oil of 2,750,000 tonnes or less, £75,000,000,
and
20
(b)
in any other case (where the oil field has reserves of more than 2,750,000
tonnes but not more than 3,500,000 tonnes), the following amount—


where X is the amount of the reserves of oil (in tonnes) which the oil field has.
357
Other definitions
In this Chapter—
25
“adjusted ring fence profits”, in relation to a company and an accounting
period, means the adjusted ring fence profits that would (if this Chapter
were ignored) be taken into account in calculating the supplementary
charge on the company under section 330(1) for the accounting period,
“authorisation day”, in relation to a new oil field, means the day when
30
development of the field is authorised,
“initial licensee”, in relation to a new oil field, means a company that is
licensee in the field on the authorisation day,
“licensee” has the same meaning as in Part 1 of OTA 1975, and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 1 — Introduction
180

“relevant income”, in relation to a new oil field and an accounting period
of a company, means production income of the company from any oil
extraction activities carried on in the field that is taken into account in
calculating the company’s adjusted ring fence profits for the
accounting period.
5
Part 9
Leasing plant or machinery
Chapter 1
Introduction
10
358
Introduction to Part
(1)
This Part makes provision about the taxation of leasing transactions involving
companies.
(2)
Chapter 2 makes provision about the treatment for corporation tax purposes of
companies which are lessors or lessees under long funding leases of plant or
15
machinery.
(3)
The sales of lessors Chapters make provision about the taxation of a company
which is within the charge to corporation tax in respect of a business of leasing
plant or machinery (within the meaning of Chapter 3 or 4)—
(a)
on the sale of, or certain other changes in interests in, the company, and
20
(b)
in certain circumstances where the company’s interest in the business
changes.
(4)
In this Part “the sales of lessors Chapters” means Chapters 3 to 6.
(5)
In the sales of lessors Chapters—
(a)
Chapter 3 deals with the case of a qualifying change of ownership in
25
relation to the company where it carries on the business otherwise than
in partnership,
(b)
Chapter 4 deals with—
(i)
the case of a qualifying change in the company’s interest in the
business where it carries on the business in partnership with
30
other persons, and
(ii)
the case of a qualifying change of ownership in relation to any
such company,
(c)
Chapter 5 contains anti-avoidance provisions, and
(d)
Chapter 6 provides for the general interpretation of those Chapters.
35
(6)
For the meaning of “qualifying change of ownership” in the sales of lessors
Chapters, see sections 392 to 398.
(7)
For the meaning of “qualifying change in a company’s interest in a business”
in Chapter 4, see section 415.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
181

Chapter 2
Long funding leases of plant or machinery
Introduction
359
Overview of Chapter
(1)
This Chapter makes provision about the calculation for corporation tax
5
purposes of the profits of companies which are—
(a)
lessors of plant or machinery under long funding finance leases (see
sections 360 to 362),
(b)
lessors of plant or machinery under long funding operating leases (see
sections 363 to 369),
10
(c)
lessees of plant or machinery under long funding finance leases (see
sections 377 and 378), or
(d)
lessees of plant or machinery under long funding operating leases (see
sections 379 and 380).
(2)
Sections 370 to 376 make provision about cases where sections 360 to 369 are
15
not to apply.
(3)
For the meaning of expressions used in this section and in this Chapter
generally, see section 381 and, in particular—
(a)
subsection (1) of that section (which provides for the application of
Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about
20
long funding leases) to this Chapter), and
(b)
subsections (2) and (3) of that section (which specify the provisions of
that Chapter in which some expressions used in this Chapter are
defined).
Lessors under long funding finance leases
25
360
Lessor under long funding finance lease: rental earnings
(1)
This section applies for any period of account of a company in which it is the
lessor of any plant or machinery under a long funding finance lease.
(2)
The amount to be brought into account as the lessor’s income from the lease for
the period is the amount of the rental earnings in respect of the lease for the
30
period.
(3)
The amount of those rental earnings is the amount which, in accordance with
generally accepted accounting practice, falls (or would fall) to be treated as the
gross return on investment for that period in respect of the lease.
(4)
If the lease is one which, in accordance with such practice, falls (or would fall)
35
to be treated as a loan for the period of account, so much of the rentals under
the lease as falls (or would fall) to be treated as interest is treated for the
purposes of this section as rental earnings.
361
Lessor under long funding finance lease: exceptional items
(1)
This section applies if—
40

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
182

(a)
a company is or has been the lessor under a long funding finance lease,
and
(b)
an exceptional profit or loss arises to the company in connection with
the lease.
(2)
A profit or loss is exceptional for the purposes of subsection (1) if—
5
(a)
in accordance with generally accepted accounting practice it falls (or
would fall) to be recognised for accounting purposes in a period of
account, but
(b)
apart from this section, it would not be brought into account in
calculating the profits of the company for corporation tax purposes.
10
(3)
Such a profit is treated for corporation tax purposes as income of the company
attributable to the lease.
(4)
Such a loss is treated for corporation tax purposes as a revenue expense
incurred by the company in connection with the lease.
(5)
It does not matter for the purposes of this section whether the profit or loss is
15
of an income or capital nature.
(6)
The reference in subsection (2) to an amount falling to be recognised for
accounting purposes in a period of account is a reference to an amount falling
to be recognised for accounting purposes in—
(a)
the company’s profit and loss account, income statement or statement
20
of comprehensive income for that period,
(b)
the company’s statement of total recognised gains and losses,
statement of recognised income and expense, statement of changes in
equity or statement of income and retained earnings for that period, or
(c)
any other statement of items taken into account in calculating the
25
company’s profits or losses for that period.
362
Lessor under long funding finance lease making termination payment
(1)
This section applies if—
(a)
a company is or has been the lessor under a long funding finance lease,
(b)
the lease terminates, and
30
(c)
a sum calculated by reference to the termination value is paid to the
lessee.
(2)
No deduction in respect of the sum is allowed in calculating the profits of the
company for corporation tax purposes.
(3)
This section does not prevent a deduction in respect of a sum so far as it is
35
brought into account in determining the company’s rental earnings.
(4)
For the meaning of “termination value”, see section 381(3)(m).
Lessors under long funding operating leases
363
Lessor under long funding operating lease: periodic deduction
(1)
This section applies if a company is the lessor of any plant or machinery under
40
a long funding operating lease for the whole or part of a period of account.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
183

(2)
A deduction is allowed in calculating the profits of the company for the period
of account for corporation tax purposes.
(3)
The amount of the deduction is so much of the expected gross reduction in
value over the term of the lease as is attributable to the period of account.
(4)
The expected gross reduction in value over the term of the lease is—
5
(a)
the starting value of the plant or machinery, less
(b)
the amount which at the commencement of the term of the lease is
expected to be its residual value (or, if section 365 applies, would have
been expected to be that value had that value been estimated at that
time).
10
(5)
The expected gross reduction in value over the term of the lease that is
attributable to the period of account is found by apportioning that reduction
on a time basis according to the proportion of the term of the lease that falls in
the period of account.
(6)
For the meaning of “starting value”, see—
15
(a)
section 364 (“starting value”: general), and
(b)
section 365 (“starting value” where plant or machinery originally
unqualifying).
(7)
For the meaning of “residual value”, see section 381(4).
364
“Starting value”: general
20
(1)
This section is about the meaning of “starting value” in section 363 in relation
to a long funding operating lease (“the section 363 lease”).
(2)
But this section does not apply if the conditions in section 365(2) (“starting
value” where plant or machinery originally unqualifying) are met.
(3)
If the only use of the plant or machinery by the lessor has been the leasing of it
25
under the section 363 lease as a qualifying activity, the starting value is the
amount of the expenditure incurred by the lessor on the provision of the plant
or machinery (“cost”).
(4)
If subsection (3) does not apply, the starting value depends on the last previous
use of the plant or machinery by the lessor.
30
(5)
If that use was the leasing of it under another long funding operating lease as
a qualifying activity, the starting value is the market value of the plant or
machinery at the commencement of the term of the section 363 lease (“market
value”).
(6)
If that use was the leasing of it under a long funding finance lease as a
35
qualifying activity, the starting value is the value at which the plant or
machinery is recognised in the books or other finance records of the lessor at
the commencement of the term of the section 363 lease.
(7)
If that use was for the purposes of a qualifying activity other than leasing under
a long funding lease, the starting value is the lower of cost and market value.
40
(8)
For the meaning of “qualifying activity”, see section 381(4).