OT20250 - Corporation Tax General

Commencement

The date on which a trade commences is a matter of fact to be determined on long- established general principles. However, OTO has always taken full account of the special features of oil exploration and production activity. Exploration by itself does not constitute a trade, but OTO generally accepts that a petroliferous trade commences as soon as a decision is taken to proceed with the commercial development of a discovery, which will lead to production.

In respect of the North Sea, it is often suggested that the decision to proceed with the commercial development of a discovery is the same as the end of Stage 3 in the Appendix to the Joint 1967 Agreement but this is not necessarily so. The end of Stage 3 occurs when commercial development is considered worthwhile. There may be a gap, sometimes substantial between that date and the decision to proceed which triggers the start of the trade. On some occasions, for commercial reasons, the decision to proceed with commercial development follows hard on the heels of a decision that commercial development of a discovery is worthwhile. Equally, on other occasions, and again for commercial reasons, once it has been decided that commercial development is worthwhile there may be a period of some months or some years before a decision is taken to proceed. The actual date of commencement will depend on all the facts, but it will not be earlier than the end of Stage 3 and is likely to be later. The date is also unlikely to be directly linked to the field development plan. That plan is one of many procedures to be gone through before a field can be developed and such work may, at least in part, be done before commercial development commences. Where there are doubts as to the actual date of commencement it may be relevant for Inspectors to consider such matters as any detailed discussions with the DTI about the decision to proceed, advice and minutes etc to the Board of the company concerned, and any information about discussions at Board level. The examples are illustrative and not exhaustive. There may be other matters which are relevant amongst the background facts and information.