A discussion paper on the tax treatment of late-life oil and gas assets has been published.
On 20 March we saw the release of the discussion document on changes to the fiscal regime to encourage ‘maximising economic recovery’ (MER) from late life oil and gas assets. The Government is considering the introduction of a transferable tax history (TTH) and other modifications and clarifications to help mitigate tax-based obstacles to late-life asset transfers and is convening an expert panel to provide analysis. In forthcoming discussions between industry and the Government, HM Treasury (HMT) would need to be convinced of ‘a compelling case for change’ and confirm the changes meet a number of specific objectives. HMT have requested comments by 30 June 2017 and we can expect an update at the second 2017 Budget in the autumn.
The discussion paper, Tax issues for late-life oil and gas assets, focuses on three areas:
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 of 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.
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