The government released its discussion paper on tax issues in late life assets in the oil and gas sector on 20 March. This article summarises the key changes outlined in the paper.
Following the Chancellor’s announcement last week we have seen the release of the much anticipated discussion document on changes to the fiscal regime to encourage 'maximising economic recovery' (MER) from late life assets.
The welcome news is that the government is to consider the introduction of 'transferable tax history' (TTH) and is convening an expert panel to provide analysis. Industry will need to meet the challenge of providing 'a compelling case for change' over the coming months by engaging with government and the expert panel.
We summarise below the content of the 'Tax issues for late-life oil and gas assets' published on Monday 20th March.
The government has published its discussion paper focuses on three areas:
The impact of any changes to the tax regime will be evaluated by HM Treasury ('HMT') against the following objectives:
HMT have requested comments by 30 June 2017 and we can expect an update at the second 2017 Budget in the Autumn.
The issues for discussion
Transferable Tax History
HMT are considering a TTH in which a seller transfers a portion of its ring fence corporation tax payment history to a buyer, alongside an asset. The buyer could then carry back any decommissioning losses against the TTH, allowing it to receive a tax refund that may otherwise not have been available.
Given this would represent a significant change to the current regime, HMT have raised a number of questions:
Retained decommissioning and PRT
HMT have outlined two options to enable effective PRT relief where the seller retains the decommissioning liability:
Treatment of losses on transfer of trade
Industry has expressed concern over the application the 'major change in the nature or conduct of trade' rules which can extinguish losses and prevent the carry back of decommissioning losses.
The test is subjective and there is limited guidance in the context of oil and gas activities, and what might be considered 'major' in this context is often unclear.
HMT have sought views on what actions could provide certainty, while meeting the aim of preventing tax avoidance.