Section 85: Decommissioning Relief: Decommissioning Relief Agreements: Claims under Agreement Not to Affect Oil Allowance
Summary
1.Section 85 restricts the operation of section 83 which has the effect of ensuring that there is no consequential reduction of profits by virtue of relief by way of oil allowance. The amendments come into force in relation to any sum payable to a company under a decommissioning relief agreement on or after the date of Royal Assent to Finance Act 2013.
Details of the Section
2.Subsection (1) provides that this section applies where a company that has rights under a decommissioning relief agreement incurs decommissioning expenditure as a consequence of another company’s default on a decommissioning liability with the result that section 83 applies to reduce the profits of that company or any other company
3.Subsection (2) provides that the reduction in profits by virtue of section 83 does not have any effect for the operation of oil allowance under section 8(1) of OTA 1975.
4.Subsection (3) provides definitions for “abandonment programme”, “company”, “decommissioning expenditure”, “decommissioning relief agreement”, “oil field” and “relevant agreement”.
Background
5.Companies may obtain relief under a decommissioning relief agreement in respect of expenditure incurred for the purposes of tax. For Petroleum Revenue Tax (PRT) this relief is calculated by reference to assessable profits arising in current and previous chargeable periods. Moreover in a situation where a claimant is incurring decommissioning expenditure as a result of another company defaulting on its decommissioning liability, the profits referred to may be in respect of companies other than the claimant.
6.Section 83 reduces, for the purposes of PRT, assessable profits of a company where those profits have been used to calculate the reference amount under a decommissioning relief agreement. This is achieved by deeming expenditure to have been incurred and applied in the same way as provided for under the decommissioning relief agreement. The effect of this is to prevent a company obtaining tax relief in respect of profits that have already been used in order to provide relief through the decommissioning relief agreement.
7.One of the consequences of the operation of section 83 is to make available additional oil allowance under the operation of section 8 of OTA 1975. This in turn may, under certain circumstances, have the effect of reducing the profits of other companies and, as a result, reduce relief available through the decommissioning relief agreement.
8.The effect of this section is to prevent section 83 from giving effect to further relief under the oil allowance provisions of section 8 of OTA 1975.
9.The amendments made by this section form part of the Government’s wider package of measures to provide greater certainty in respect of decommissioning tax relief, remove barriers to the transfer of licence interests and increase capacity for additional investment in the UK Continental Shelf.
