Section 89, Schedule 31: Decommissioning Relief: Miscellaneous Amendments Relating to Decommissioning
Summary
1.Section 89 introduces Schedule 31. Part 1 of Schedule 31 makes a number of amendments to existing legislation. These taken collectively have two effects. Firstly, they remove an anomaly whereby in the case of oil fields that were not subject to petroleum revenue tax (PRT), tax relief was not available for expenditure on obtaining an abandonment guarantee and expenditure incurred by a company as a result of another company’s defaulting on its own abandonment commitments. Secondly, these amendments disapply, for the purposes of ring fence corporation tax (RFCT), PRT, and income tax (IT) in the context of oil activities, the general principle that a person is not entitled to relief in respect of expenditure to the extent that it has been met by another party’s contribution (contribution and reimbursement rules). Part 2 of Schedule 31 provides for the taxation of any profit which arises to a person from the incurring of decommissioning expenditure as a consequence of the default of another person. The amendments come into force in relation to expenditure incurred on or after the date of Royal Assent to Finance Act 2013.
Details of the Schedule
Part 1
Expenditure on abandonment guarantees
2.Paragraphs 1 and 2 amend sections 225N and 225R of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) and sections 292 and 296 Corporation Tax Act 2010 (CTA) to ensure these sections also apply in respect of oil fields that are not subject to PRT.
Expenditure under abandonment guarantees
3.Paragraphs 3 and 4 provide that paragraph 8 of Schedule 3 and paragraph 2A of Schedule 5 to the Oil Taxation Act 1975 (OTA) do not apply to expenditure which is met out of a payment under an abandonment guarantee or security.
4.Paragraphs 5 to 7 omit sections and sub-sections in the Finance Act 1991 (FA), ITTOIA and CTA.
Reimbursement by defaulter in respect of abandonment expenditure
5.Paragraphs 8 to 10 omit sections in FA, ITTOIA and CTA so as to disapply, for the purposes of oil activities, the reimbursement rules.
Consequential amendments
6.Paragraphs 11 to 20 make minor consequential changes resulting from the amendments made by this Schedule.
Part 2
7.Paragraph 21 inserts section 298A into Corporation Tax Act 2010 (CTA 2010).
8.Subsection (1) of section 298A provides that the section applies if:
a company carrying on a ring fence trade (‘the defaulter’) has defaulted on a liability to pay decommissioning expenditure,
another company carrying on a ring fence trade (‘the contributing company’) pays an amount (‘the relevant contribution’) towards meeting the default, and
the relevant contribution is less than the sum of the amounts within subsection (2).
9.Subsection (2) of section 298A provides that the amounts within this subsection are:
any payments made to the contributing company by the guarantor under an abandonment guarantee,
any reimbursement payments, and
any tax relief which the contributing company obtains in respect of the relevant contribution.
10.Subsection (3) of section 298A provides that the difference between the sum of the amounts within subsection (2) and the relevant contribution (“the relevant difference”) is to be treated as a receipt of the contributing company’s ring fence trade for the relevant accounting period.
11.Subsections (4) to (6) of section 298A define “the certification date” and “the relevant accounting period”.
12.Subsection (7) of section 298A provides the basis on which the “relevant difference” is to be determined.
13.Subsection (8) of section 298A provides that where subsections (5) or (6) apply corporation tax is due and payable as if it were corporation tax for an accounting period beginning with the certification date.
14.Subsection (9) of section 298A provides that any additional assessment required to take account of a receipt under this section may be made at any time not later than 4 years after the end of the calendar year in which the certification date falls.
15.Subsection (10) of section 298A provides the meaning of certain terms used in this section.
16.Paragraph 22 inserts section 225V into Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).
17.Section 225V replicates, for the purposes of ITTOIA 2005, the effect of new section 298A CTA 2010.
Background
18.Section 292 (1) and (2) CTA and section 225N ITTOIA provide that where expenditure on an abandonment guarantee qualifies for relief for PRT purposes it also qualifies as a deduction in computing ring fence income.
19.Section 296 CTA and section 225R ITTOIA operate where the PRT provisions in paragraph 2A of Schedule 5 to OTA apply.
20.The changes made by Schedule 1 ensure sections 292 (1) and (2) and 296 CTA and sections 225N and 225R ITTOIA apply in respect of non-PRT fields.
21.Schedule 1 also amends and repeals the RFCT, PRT and IT contribution and reimbursement rules. This is being done to ensure that companies which accept decommissioning security on a post-tax basis will receive full tax relief for any expenditure they incur in respect of a defaulting company’s decommissioning obligations.
22.The amendments made by Schedule 1 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.
23.The amendments come into force in relation to expenditure incurred on or after the date of Royal Assent to Finance Act 2013.
