REV BN 22: Petroleum Revenue Tax: Exemption For New Tariffing Business
Who is likely to be affected?
1. Oil companies that own infrastructure, such as North Sea platforms and pipelines, that are subject to Petroleum Revenue Tax (PRT) and companies that pay tariffs to the owners of such infrastructure for the transportation or processing of the oil and gas they produce.
General description of the measure
2. The Government proposes, after consultation with the oil industry on the detail, to bring forward legislation in 2004 to remove from the scope of PRT new tariff business.
3. New tariff business for these purposes will be tariffs received under a contract entered into on or after 9 April 2003, for the transportation, processing and other services provided through the use of infrastructure in the UK or on the UK continental shelf in relation to:
- an oil or gas field that first receives development consent from the Secretary of State for Trade and Industry (or if a foreign oil or gas field, equivalent consent by the overseas authority) on or after 9 April 2003; or
- an oil or gas field that received development consent before 9 April 2003, where the field has never previously made use of assets in the UK or on its shelf that qualify for PRT relief (qualifying assets) other than assets belonging to the field participators which are situated within the field.
The foreign sector of a field which straddles the transboundary line between the UK and another State will be treated as a separate field for these purposes.
4. Capital and operating expenditure that relate to the new tariff business will cease to be eligible for PRT relief. Where any expenditure is incurred partly for the purposes of new tariff business and partly for other purposes a just and reasonable apportionment will be made.
Operative date
5. This exemption for new tariff business will come into effect for such tariffs received on or after 1 January 2004, the beginning of a PRT charging period.
6. Draft legislation will be prepared over the coming months and exposed for consultation with the industry. This measure will be included in Finance Bill 2004.
Current law and proposed revisions
7. The North Sea tax regime currently has three tiers:
- petroleum revenue tax (PRT) is a special field-based tax (currently levied at 50 per cent) which seeks to tax a proportion of the super-profits from UK oil and gas production. PRT does not apply to fields given development consent on or after 16 March 1993;
- the normal corporation tax (CT) rules apply to North Sea companies, but with a "ring fence" which prevents taxable profits from oil and gas extraction in the UK and UK continental shelf from being reduced by losses from other activities. There is a special 100% first-year allowance for most capital expenditure; and
- a supplementary charge of 10% applies in addition to CT to profits from companies' ring fence trades. The charge is calculated on the same basis as ring fence CT, but without any deduction for financing costs.
8. Oil Taxation Act 1983 expanded the PRT regime to give relief for expenditure on assets used for both equity production from the owner field and in connection with oil or gas produced from other fields where a tariff is paid. At the same time it brought tariffing income from the use of, and receipts on the disposal of, these assets into charge. Tariff receipts are defined as any consideration received for a chargeable period by the participator for the use of a qualifying asset or for the provision of services or other business facilities in connection with the use of such an asset. A qualifying asset is defined as an asset, other than a mobile asset not dedicated to a field, for which PRT expenditure relief has been or can be given in the field.
9. The new legislation will take tariff receipts relating to new business (as outlined above) out of the charge to PRT, and related expenditure out of entitlement to relief. So any field which is currently liable to PRT which in future provides services in relation to oil or gas from a new field (UK or foreign) will no longer have to pay PRT on tariffs received from the new field. Similarly, any PRT liable field providing services in relation to oil or gas to an existing field will no longer have to pay PRT on tariffs received from that field, if the existing field has not previously made use of any PRT liable infrastructure other than within the field itself.
10. Where a qualifying asset is in future disposed of other than on the sale of a participator's interest in the field, any charge due will be reduced to take account of the amount of previous usage for non PRT-liable new tariff business.
11. Likewise, when a qualifying asset that has been used for both PRT allowable purposes and non-PRT liable new tariff business is finally decommissioned, the amount of PRT relief available will be reduced in proportion to the non-PRT liable new tariff business usage.
Further advice
12. If you have any questions about this change, please contact the Public Enquiry Unit on 020 7438 6420 to 6425.
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