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Energy Act 2004

Section 27 and Schedule 4: Tax exemption for NDA activities

116.Section 27 allows for the exemption from corporation tax, with appropriate safeguards, of certain activities carried on by or on behalf of the NDA. The main activities to be considered for exemption from corporation tax are those which count as a trade for tax purposes but are undertaken by or on behalf of the NDA where such activities are closely intertwined with decommissioning and clean up work and are likely to be loss-making for tax. For the NDA, under normal tax rules, the work of decommissioning and clean up will not in itself count as a trade for tax purposes. (Although subject to section 30, provisions for such work arising from current income generating activities may be taken into account in calculating the profit or loss from those activities for tax purposes.)

117.Under subsection (1), trading income from exempt activities of the NDA or an NDA company is not taxed, nor can the exempt activities give rise to tax losses. To be exempt the activities need to be specified in regulations. Subsection (2) gives effect to Schedule 4, which makes further, detailed provisions for the exemption. Further information can be found in the notes to that Schedule.

118.The exempt activities are defined in subsection (3) and are activities covered by section 3(1) and which are also specified in Treasury regulations. Activities that could be covered by the exemption include THORP and SMP at Sellafield, which are likely to be loss-making for tax and where any activity that could in theory be taxable is intimately bound up with the wider decommissioning and clean up activities on the Sellafield site. Other trading activities, such as electricity generation, are more clearly separable from decommissioning and clean up, and more likely to be profitable for tax, so the intention is that such activities will not be specified in Treasury regulations and so will remain taxable.

119.An NDA company is defined in subsection (4) as either a wholly owned subsidiary of the NDA, or alternatively as a relevant site licensee. This is so that any tax exemption is given only to NDA subsidiaries or site licensee companies linked to the NDA carrying out trades that include and are intimately bound up with nuclear legacy decommissioning and clean up activities. In such cases the cost and effort of ascertaining the tax position (where losses would be likely) would be disproportionate. It is Government’s intention that private companies will not be able to realise tax-free profits through the tax exemption. The intention is that regulations to allow exemption will only apply where the detail of the arrangements with the site licensee companies carrying on the activity is such that any losses or profits would in economic terms be the NDA’s.

120.Subsection (5) lists the conditions to be met if a company is to qualify as a relevant site licensee company. These include holding a nuclear site licence and where a management contract is in force with the NDA, the contract is with the company in question or with its parent. Conditions to be specified in Treasury regulations will also have to be met for a company to qualify as a relevant site licensee company. The specified conditions will be drafted so as to ensure that where shares of site licensee companies are held by management contractors, the contractor cannot extract any profits or utilise any losses in respect of the exempt activities of the site licensee company.

121.Subsection (6) requires the agreement of the Secretary of State for any Treasury regulations made under subsection (3)(b) specifying activities exempt from corporation tax or subsection (5)(d) setting out conditions that need to be met for a company to qualify as a relevant site licensee. Subsection (7) explains that the regulations are to be made under the negative resolution procedure in the House of Commons.

122.Various definitions are given in subsection (8), including those for “management contract”, “trading income” and “trading losses”.

123.Subsection (9) specifically concerns the tax treatment of trade credits under the loan relationships and derivative contracts legislation. Where, but for particular tax rules, they would be regarded as trading receipts, and the trade in question is exempted, the credits themselves are exempted.

124.Subsection (10) ties this section to the corporation tax legislation.

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