Finance Act 2000

81 Production sharing contracts

(1) After section 64 of the [1990 c. 1.] Capital Allowances Act 1990 insert—

“64A Production sharing contracts

(1) Subsection (2) below applies where—

(a) a person (“the contractor”) is entitled to an interest in a contract made with, or with the authorised representative of, the government of a country or territory in which oil is or may be produced;

(b) the contract provides (among other things) that any machinery or plant of a description specified in the contract which—

(i) is provided by the contractor; and

(ii) is used for qualifying purposes under the contract,

shall (whether immediately or at some later time) be transferred to the government or representative;

(c) the contractor incurs capital expenditure on the provision of machinery or plant of a description so specified which, for the purposes of a trade of oil extraction carried on by him, is to be used for qualifying purposes under the contract;

(d) the amount of that expenditure is commensurate with the value of the contractor’s interest under the contract; and

(e) in accordance with the provision mentioned in paragraph (b) above, the machinery or plant is transferred to the government or representative.

(2) The machinery or plant shall, notwithstanding the transfer and subject to subsection (6) below, be deemed for the purposes of this Part to belong to the contractor (and not to any other person) until such time as it—

(a) ceases to belong to the government or representative; or

(b) ceases to be used, or held for use, by any person under the contract.

(3) Subsection (4) below applies where, in a case falling within subsection (1)(a) and (b) above—

(a) a person (“the participator”) acquires an interest in the contract, whether from the contractor or from another person who has acquired it (directly or indirectly) from the contractor;

(b) the participator incurs capital expenditure on the provision of machinery or plant which, for the purposes of a trade of oil extraction carried on by him, is to be used for qualifying purposes under the contract;

(c) the amount of that expenditure is commensurate with the value of the participator’s interest under the contract; and

(d) in accordance with the provision mentioned in subsection (1)(b) above, the machinery or plant is transferred to the government or representative.

(4) The machinery or plant shall, notwithstanding the transfer and subject to subsection (6) below, be deemed for the purposes of this Part to belong to the participator (and not to any other person) until such time as it—

(a) ceases to belong to the government or representative; or

(b) ceases to be used, or held for use, by any person under the contract.

(5) Subsections (6) to (9) below apply where, in a case falling within subsection (1)(a) and (b) above—

(a) a person (“the participator”) acquires an interest in the contract, whether from the contractor or from another person who has acquired it (directly or indirectly) from the contractor; and

(b) some of the expenditure incurred by the participator to acquire his interest in the contract is attributable to machinery or plant which—

(i) is deemed by subsection (2) above to belong to the contractor; or

(ii) is deemed by subsection (4) above or subsection (6) below to belong to another person (“the other participator”).

(6) The machinery or plant shall, subject to any subsequent application of this subsection, be deemed for the purposes of this Part to belong to the participator (and not to any other person) until such time as it—

(a) ceases to belong to the government or representative; or

(b) ceases to be used, or held for use, by any person under the contract.

(7) The contractor or, as the case may be, the other participator shall be deemed for the purposes of this Part to have disposed of the machinery or plant for a consideration equal to the expenditure attributable as mentioned in subsection (5)(b) above.

(8) The participator shall be deemed for the purposes of this Part to have incurred, on the provision of the machinery or plant, capital expenditure of an amount which, subject to subsection (9) below, is equal to the expenditure so attributable.

(9) There shall be disregarded for the purposes of this Part so much (if any) of the expenditure deemed to be incurred by the participator on the provision of the machinery or plant as exceeds any disposal value which falls to be brought into account by the contractor or, as the case may be, the other participator by reason of his deemed disposal of the machinery or plant.

(10) In determining for the purposes of this Part the expenditure which is attributable as mentioned in subsection (5)(b) above, regard shall be had to what is just and reasonable in all the circumstances.

(11) For the purposes of this section machinery or plant is used for qualifying purposes if it is used—

(a) to explore for, win access to or extract oil;

(b) for the initial storage or treatment of oil; or

(c) for other purposes ancillary to the extraction of oil.

(12) In this section “oil” has the same meaning as in section 196 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.”.

(2) In section 26(1) of the [1990 c. 1.] Capital Allowances Act 1990 (disposal value), for the word “and” at the end of paragraph (ee) there shall be substituted—

“(ef) if that event is a deemed disposal of the machinery or plant which arises solely by virtue of subsection (2), (4) or (6) of section 64A and capital compensation is received by the contractor or participator (within the meaning of that subsection), equals the amount of that compensation;

(eg) if that event is such a deemed disposal and no such compensation is so received, equals nil; and”.

(3) This section has effect where the capital expenditure—

(a) is incurred on or after 21st March 2000; or

(b) is treated as incurred by virtue of section 81(1)(a) of the [1990 c. 1.] Capital Allowances Act 1990 and the condition mentioned in that provision is fulfilled on or after that date.