OT20312 - Corporation Tax General: Sales of Oil etc - Disposals. ICTA88\s493(1)

ICTA88\s493(1) covers the disposal of oil which, for PRT purposes, has been charged by reference to its market value under OTA75\s2 (or would have been but for the fact that the disposal was of gas exempt under OTA75\s10), rather than on its sale price. The oil is treated for CT purposes as having been disposed of and acquired by the person to whom it was disposed of at the market value used for PRT purposes.

Changes for sales after 30th June 2006.

CT Onshore transport costs: S493(A1) to (A3) ICTA88

For disposals after 30th June 2006, FA2006/Sch18/para12 extends ICTA88/S493, to allow “transport costs” under certain circumstances. This is achieved by bringing in a reduced sale price into the charge to tax.

Transportation costs from the point of extraction to point of normal delivery will be, in effect, allowed within the ring-fence for CT if all of these five conditions are met:

1. Oil produced onshore and ,
   
   
2. sold at arms length on or after 1st July 2006 and
   
   
3. sold under a CIF-type contract (the terms of which are “such as described under S2(5A) OTA’75” (see OT05100) and
   
   
4. the seller is not entitled to a “transportation allowance” when computing his Ring Fence CT (RFCT) profit for the oil in question and
   
   
5. The seller does not claim a “transportation allowance” in any of his non-RFCT profit calculations for the oil in question.

“Transportation allowance” means any of the following:

• A deduction in respect of any transportation costs incurred under a CIF contract,
• A deduction in respect of any costs incidental to such transportation costs,
• Any reduction in the sale price resulting from the application of S2(5A) OTA’75 to oil sold under CIF contracts.

If the five conditions are met then the price that applies (or would apply) for PRT is also to be used for CT. That is;

• Sale (for seller only) is deemed at point of extraction.
• The price at that point is the actual sales price LESS the transport costs (“netback” pricing).

So deduction for CT is obtained by reducing the sale price by the transport cost.

Practically, since sales prices and transport costs are quoted per barrel, the amount brought into charge for CT is the net cost of the oil (FOB price LESS CIF element- for meaning of FOB see OT05100) multiplied by the volume of oil sold.

PRT Nomination Excesses: S493(1A) ICTA88

See OT20315