Section 84: Decommissioning Relief Agreements: Terminal Losses Accruing by Virtue of Another’s Default
Summary
1.Section 84 makes amendments to existing petroleum revenue tax (PRT) legislation which have the effect of ensuring that, where a company that has rights under a decommissioning relief agreement has incurred decommissioning expenditure as a consequence of another company defaulting on its own decommissioning liability, the terminal loss provisions of paragraph 15 of Schedule 17 to FA 1980 will not apply with the proviso that the disapplication of the terminal loss provisions by virtue of this section does not give rise to an allowable unrelievable field loss. The amendments come into force in relation to a default occurring on or after the date of Royal Assent to Finance Act 2013.
Details of the Section
2.Subsection (1) provides that this section applies where a company that has rights under a decommissioning relief agreement incurs decommissioning expenditure as a consequence of another company’s default on a decommissioning liability, and but for paragraph 15 of Schedule 17 to FA 1980 a sum would be payable to the company under the decommissioning relief agreement.
3.Subsection (2) provides that paragraph 15 of Schedule 17 to FA 1980 does not apply.
4.Subsection (3) provides that any allowable unrelievable field loss that would arise as a result of subsection (2) is not to be regarded as arising.
5.Subsection (4) provides that this section does not affect the operation of section 83(3) or (5).
6.Subsection (5) provides definitions for “abandonment programme”, “company”, “decommissioning expenditure”, “decommissioning relief agreement”, “oil field”, “relevant agreement” and “unrelieved portion”.
Background
7.For the purposes of PRT paragraph 15 of Schedule 17 to FA 1980 provides for terminal losses in respect of a current participator in an oil field to be carried back and relieved against profits of a former participator in that oil field. This will result in a participator obtaining tax relief in respect of expenditure incurred by another participator.
8.In many cases the effect of this provision is recognised and mitigated through commercial arrangements between the parties involved which often provide for the participator incurring the expenditure to receive the benefit of the relief paid to a former participator.
9.However, where a participator incurs decommissioning expenditure as a result of another participator defaulting on its decommissioning liability then such commercial arrangements are unlikely to apply and the participator incurring the expenditure is denied the benefit of the relief paid to former predecessors in respect of that expenditure.
10.To address this issue this section disapplies paragraph 15 of Schedule 17 to FA 1980 where a participator has incurred decommissioning expenditure as a consequence of a default and has rights under a decommissioning relief agreement. In such cases, a participator will instead be able to achieve an equivalent amount of relief directly through a decommissioning relief agreement.
11.The section also ensures that the disapplication of paragraph 15 of Schedule 17 to FA 1980 by virtue of this section does not give rise to any allowable unrelievable field loss.
12.The amendments made by this section form part of the Government’s wider package of measures to provide greater certainty in respect of decommissioning tax relief, remove barriers to the transfer of licence interests and increase capacity for additional investment in the UK Continental Shelf.
