OT19420 - PRT: Appendices

Collapse of an Illustrative Agreement

An illustrative agreement is said to have been collapsed when the trade/assets of the company with the economic interest is transferred to the licensee leaving the latter as sole participator for PRT. The immediate consequence is that OTA75/SCH3/PARA5 ceases to apply.

No PRT field interest at the time of transfer/collapse

If, at the time of transfer/collapse there is no determined PRT oil field comprised in the licence which is subject to the agreement then Schedule 17 FA 1980, which relates only to transfers in whole or in part of an interest in an oil field, cannot apply. If a field is subsequently determined, the licensee to whom the interest was transferred can claim all the relevant historic costs, incurred by him and the transferor, against field income under the normal rules of Schedules 5 and 6.

PRT field interest transferred on collapse

Where the cancelled agreement relates an interest in a determined oil field, different considerations apply. But FA80/SCH17/PARA1(1)(a) only excludes the making of an illustrative agreement not the collapse or cancellation of one (see OT18020). By virtue of OTA75/SCH3/PARA5(2) the company with the economic interest is a participator. The licensee is also a participator. If an agreement is collapsed or cancelled the share, or part of the first company, becomes the share of the other company (i.e. it reverts to the licensee). In these circumstances FA80/SCH17 applies. If Schedule 17 did not apply there would be no effective link between the transferor and transferee regarding the transfer of losses, safeguard capital base etc.