Section 280: Disposal to be valued by reference to section 2(5A) of OTA 1975
953.This section modifies the calculation of profits for corporation tax purposes where certain expenses are incurred in connection with the transportation of oil. It is based on section 493(A1) to (A3) of ICTA. There is no equivalent for income tax.
954.The starting point is section 2(5A) of OTA 1975, which involves situations where the seller disposes of oil at arm’s length and is required to meet certain transportation costs – subsection (6).
955.Section 2(5A) OTA 1975 replaces:
actual sales proceeds from a sale at arm’s length under a contract which requires the seller to meet the transport costs,
with
deemed proceeds based on a hypothetical sale at arm’s length under which the seller does not have to meet the transport costs and has to transport the oil to the nearest landing point (or, in the case of onshore fields, to the place of extraction itself).
956.Subsection (9) adopts the price given by section 2(5A) of OTA 1975, for the seller only – it has no impact on the purchaser. Section 3(1)(f) of OTA 1975 allows transport costs for transportation to that point. If a company does not claim transportation costs for corporation tax then for practical purposes the price at that point is the actual sale price minus the transport costs to that point.
957.In order to prevent double counting, subsections (7)and (8) require that the company does not otherwise get a deduction for the transportation cost or “transportation allowance” against either its ring fence or non ring fence profits, as that allowance is in effect netted off to reach the price in subsection (9).
