PART IU.K. PETROLEUM REVENUE TAX

1 Petroleum revenue tax.U.K.

(1)A tax, to be known as petroleum revenue tax, shall be charged in accordance with this Part of this Act in respect of profits from oil won under the authority of a licence granted under either the M1Petroleum (Production) Act 1934 or the M2Petroleum (Production) Act (Northern Ireland) 1964; and in this Part of this Act “oil” means any substance so won or capable of being so won other than methane gas won in the course of operations for making and keeping mines safe.

(2)For each oil field [F1which is a taxable field]the tax shall, in the case of each participator, be charged at the rate of [F2[F350] per cent.] on the assessable profit accruing to him in any chargeable period from that field, as reduced under section 7 of this Act by any allowable losses and under section 8 of this Act by reference to his share, if any, of the oil allowance for that period, subject however to the limit imposed in his case by section 9 of this Act.

(3)In relation to any oil field—

(a)the first chargeable period is the period ending at the end of the critical half year (including an unlimited time prior to the beginning of that half year); and

(b)each subsequent half year is a chargeable period.

(4)In this section—

• “the critical half year”, in relation to an oil field, means the first half year ending after 12th November 1974 at the end of which the total amount of oil ever won and saved from the field exceeds 1,000 [F4metric tonnes] (counting [F41,100 cubic metres] of gas at a temperature of 15 degrees centigrade and pressure of one atmosphere as equivalent to one [F4metric tonne]);

• “half year” means a period of six months ending at the end of June or December.

(5)Schedule 1 to this Act shall have effect with respect to the determination of oil fields, and Schedule 2 to this Act shall have effect with respect to the management and collection of the tax; and this Part of this Act shall have effect subject to the further provisions in Schedule 3 to this Act and, in connection with certain gas sold to the British Gas Corporation, to section 10 of this Act.

2 Assessable profits and allowable losses.U.K.

(1)For the purposes of the tax the assessable profit or allowable loss accruing to a participator in any chargeable period from an oil field shall be computed in accordance with the following provisions of this section.

(2)The assessable profit or allowable loss so accruing in the period is the difference (if any) between the sum of the positive amounts for the period and the sum of the negative amounts for the period; and that difference (if any) is an assessable profit if the sum of the positive amounts is greater than the sum of the negative amounts, and is otherwise an allowable loss.

(3)For the period—

(a)the positive amounts for the purposes of this section are the following (as defined in this section), namely the gross profit (if any) accruing to the participator in the period, his licence credit (if any) for the period, and any amount to be credited to him for the period in respect of expenditure; and

(b)the negative amounts for those purposes are the following (as so defined) namely the gross loss (if any) so accruing, his licence debit (if any) for the period, and any amount to be debited to him for the period in respect of expenditure.

(4)[F5For the purposes of the tax (including advance petroleum revenue tax)] the gross profit or loss (if any) accruing to the participator in the period is the difference (if any) between—

(a)the aggregate of the amounts mentioned in subsection (5) below; and

(b)one-half of the market value, [F6in the last calendar month] of the preceding chargeable period, of so much of his share of oil won from the field as he had [F6at the end of that period] either—

(i)not disposed of and not relevantly appropriated; or

(ii)disposed of but not delivered,

and the difference (if any) is a gross profit if the said aggregate is greater than one-half of the said market value, and is otherwise a gross loss.

(5)[F7Subject to subsection (5A) below] the amounts referred to in subsection (4)(a) above are—

(a)the price received or receivable for so much of any oil won from the field and disposed of by him crude in sales at arm’s length as was delivered by him in the period (excluding oil delivered before 13th November 1974);

(b)the aggregate market value, ascertained in accordance with Schedule 3 to this Act, of so much of any oil [F8(not being light gases)]so won and disposed of by him crude otherwise than in sales at arm’s length as was delivered by him in the period (excluding oil delivered before 13th November 1974);

(c)the aggregate market value, ascertained in accordance with Schedule 3 to this Act, of so much of any oil [F8(not being light gases)]so won as was relevantly appropriated by him in the period without being disposed of (excluding oil so appropriated before 13th November 1974); and

[F9(ca)the market value, ascertained in accordance with paragraph 3A of Schedule 3 to this Act, of so much of any light gases so won and disposed of by him otherwise than in sales at arm’s length as was delivered by him in the period; and

(cb)the market value, ascertained in accordance with paragraph 3A of Schedule 3 to this Act, of so much of any light gases so won as was relevantly appropriated by him in the period without being disposed of; and]

(d)one-half of the market value, [F6in the last calendar month] of the period, of so much of his share of oil so won as he had [F6at the end of that period] either—

(i)not disposed of and not relevantly appropriated; or

(ii)disposed of but not delivered [F10and]

[F11(e)the excess of the nominated proceeds for that period, as defined in section 61 of the Finance Act 1987].

[F12(5A)In any case where [F13oil]is disposed of in a sale at arm’s length and the terms of the contract are such that the seller is required to transport the [F14oil] from a place on land in the United Kingdom [F15or another country for delivery at another place in or] outside the United Kingdom or to meet some or all of the costs of or incidental to its transportation from and to such places then, for the purposes of this Part of this Act—

(a)the price received or receivable for the [F14oil] shall be deemed to be that for which it would have been sold, and

(b)the [F14oil] shall be deemed to be delivered at the time it would have been delivered,

if the terms of the contract [F16did not require the seller to meet any such costs as are mentioned above but did require the [F14oil] to be delivered—

(i)in the case of [F14oil] extracted in the United Kingdom, at the place of extraction; or

(ii)in the case of [F14oil] extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom [F17or, in the case of oil first landed in another country, at the place in that or any other country]at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.]]

(6)The participator’s licence debit or credit (if any) for the period is the difference (if any) between—

(a)the sum of the amounts mentioned in subsection (7) below; and

(b)the sum of—

(i)the amount taken into account under paragraph (a) of that subsection in computing his licence debit or credit for the preceding chargeable period; and

(ii)the amount of any royalty repaid to the participator in the period in respect of the field;

and that difference (if any) is a licence debit if the sum mentioned in paragraph (a) above is greater than the sum mentioned in paragraph (b) above, and is otherwise a licence credit.

(7)The amounts referred to in subsection (6)(a) above are—

(a)the amount shown in the return for the period made under paragraph 2 of Schedule 2 to this Act as the amount of royalty payable for the period in respect of the participator’s share of oil won from the field;

(b)the amount of royalty paid in the period in respect of that share; and

(c)any amount paid in the period in respect of any periodic payment payable to the Secretary of State under any relevant licence otherwise than by way of royalty.

(8)The amount (if any) to be debited or credited to the participator for the period in respect of expenditure is the difference (if any) between—

(a)the sum of the amounts mentioned in subsection (9) below; and

(b)subject to subsection (10) below, any amount taken into account under paragraph (a) of the said subsection (9) in computing the assessable profit or allowable loss accruing to the participator in the last but one preceding chargeable period;

and that difference (if any) is an amount to be debited as aforesaid if the sum mentioned in paragraph (a) above is greater than the amount mentioned in paragraph (b) above, and is otherwise an amount to be credited as aforesaid.

(9)[F18Subject to section 192 of the Finance Act 1993] the amounts referred to in subsection (8)(a) above are—

(a)subject to subsection (11) below, an amount equal to 5 per cent. of the aggregate of—

(i)the sum of the amounts which, in the participator’s return under paragraph 2 of Schedule 2 to this Act for the period, are, in the case of deliveries falling within sub-paragraph (2)(a) of that paragraph, stated to be the price received or receivable for the oil F19. . ., its market value [F20at the material time] in the calendar month in which the delivery was made [F21or (in the case of light gases) its market value as determined in accordance with paragraph 3A of Schedule 3 to this Act, as the case may require]; and

(ii)the sum of the amounts which, in that return, are, in the case of appropriations falling within sub-paragraph (2)(b) of that paragraph, stated to be the market value of the oil [F20at the material time] in the calendar month in which the appropriation was made [F22or (in the case of light gases) the market value as determined in accordance with paragraph 3A of Schedule 3 to this Act];

(b)the participator’s share, as determined on a claim under Schedule 5 to this Act, of the aggregate of—

(i)any expenditure allowable under section 3 or 4 of this Act for the field which has been allowed on such a claim before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field; and

(ii)an amount equal to [F2335 per cent.] of so much of that expenditure as has been so allowed on such a claim as qualifying for supplement under this sub-paragraph by virtue of subsection (5) of the said section 3,

so far as that share has not been taken into account in any previous assessment to tax or determination;

(c)the aggregate of—

(i)any expenditure allowable in the case of the participator under section 3 or 4 of this Act which has, on a claim made by him under Schedule 6 to this Act, been allowed before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field; and

(ii)an amount equal to [F2335 per cent.] of so much of that expenditure as has been so allowed on such a claim as qualifying for supplement under this sub-paragraph by virtue of subsection (5) of the said section 3,

so far as that expenditure and amount have not been taken into account in any previous assessment to tax or determination;

(d)any abortive exploration expenditure allowable in the case of the participator under section 5 of this Act which on a claim made by him under Schedule 7 to this Act has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination; and

(e)any unrelievable field losses allowable in the case of the participator under section 6 of this Act which on a claim made by him under Schedule 8 to this Act have been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as those losses have not been taken into account in any previous assessment to tax or determination [F24; and]

[F25(f)any exploration and appraisal expenditure allowable in the case of the participator under section 5A of this Act which, on a claim made by him under Schedule 7 to this Act, has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination][F26; and]

[F27(g)any research expenditure allowable in the case of the participator under section 5B of this Act which, on a claim made by him under Schedule 7 to this Act, has been allowed under that Schedule before the Board have made an assessment to tax or a determination on or in relation to him for the period in respect of the field, so far as that expenditure has not been taken into account in any previous assessment to tax or determination.]

(10)If, for the period, the expenditure falling within paragraph (b)(i) or (c)(i) of subsection (9) above includes an amount of expenditure (“the relevant amount”) incurred in the preceding chargeable period, then—

(a)the amount which would otherwise be taken into account under subsection (8)(b) above for the first-mentioned period shall be increased by the smaller of the following amounts, namely the relevant amount and the amount (if any) taken into account under paragraph (a) of subsection (9) above in computing the assessable profit or allowable loss accruing to the participator in the preceding chargeable period; and

(b)the amount which would otherwise be taken into account under subsection (8)(b) above for the chargeable period following the first-mentioned chargeable period shall be reduced by an amount equal to that increase.

(11)If, for the period, the expenditure falling within paragraph (b)(i) or (c)(i) of subsection (9) above includes an amount of expenditure incurred in the period, the amount mentioned in paragraph (a) of that subsection shall be reduced by that amount.

3 Allowance of expenditure (other than expenditure on long-term assets and abortive exploration expenditure). U.K.

(1)Subject to the provisions of this section and Schedules 4, 5 and 6 to this Act, the expenditure allowable under this section for any oil field is any expenditure (whether or not of a capital nature) which, not being expenditure to which section 4 of this Act applies, is incurred by a person at or before the time when he is a participator in the field to the extent [F28subject to subsection (7) below] that it is incurred for one or more of the following purposes, namely—

(a)searching for oil anywhere within the area of the field as subsequently determined under Schedule 1 to this Act or not more than 5,000 metres beyond the boundary of that area;

(b)making to the Secretary of State any payment under or for the purpose of obtaining a relevant licence, not being a payment by way of royalty or other periodic payment;

(c)ascertaining (whether before or after the determination of the field under Schedule 1 to this Act) the extent or characteristics of any oil-bearing area wholly or partly included in the field, or what the reserves of oil of any such oil-bearing area are;

(d)winning oil from the field;

(e)measuring the quantity of oil won or to be won from the field;

(f)in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, transporting it [F29(i)] to the place where it is first landed in the United Kingdom [F30[F31or

(ii)to the place in the United Kingdom or, in the case of oil first landed in another country, to the place in that or any other country (other than the United Kingdom)]

at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction];

(g)the initial treatment or initial storage of oil won from the field;

(h)disposing of any oil won from the field which is disposed of crude in sales at arm’s length;

[F32(hh)obtaining an abandonment guarantee, as defined in section 104 of the Finance Act 1991]

[F33(i)closing down, decommissioning, abandoning or wholly or partially dismantling or removing any qualifying asset;

(j)carrying out qualifying restoration work consequential upon the closing down of the field or any part of it.]

[F34(1A)In this section “qualifying asset” has the same meaning as in the Oil Taxation Act 1983; and, in the case of a qualifying asset which was leased or hired, the reference in subsection (1)(i) above to decommissioning includes a reference to carrying out any restoration or similar work which is required to be carried out to comply with the terms of the contract of lease or hire.

(1B)In subsection (1)(j) above “qualifying restoration work”, in relation to a participator in an oil field, means—

(a)restoring (including landscaping) land on which a qualifying asset is or was situated; or

(b)restoring the seabed (including the subsoil thereof) on which a qualifying asset is or was situated.

(1C)In any case where—

(a)expenditure is incurred by a participator for any of the purposes mentioned in paragraph (i) or paragraph (j) of subsection (1) above, and

(b)the participator is or was a participator in two or more oil fields and the qualifying asset which is relevant to the incurring of that expenditure is, at the end of the claim period concerned, a qualifying asset in respect of more than one of those oil fields,

the expenditure shall be apportioned between those oil fields in such manner as is just and reasonable.

(1D)Without prejudice to any apportionment under subsection (1C) above, in any case where—

(a)any expenditure incurred by a participator would, apart from this subsection, be regarded as wholly incurred for any of the purposes mentioned in paragraph (i) or paragraph (j) of subsection (1) above, and

(b)the qualifying asset which is relevant to the incurring of that expenditure has at some time been used otherwise than in connection with [F35 a taxable field]],

only such portion of the expenditure as it is just and reasonable to apportion to the use in connection with [F35a taxable field] shall be regarded as allowable for any of the purposes referred to in paragraph (a) above.

(2)Subject to the following provisions of this section and Schedules 4, 5 and 6 to this Act, where any amount is under subsection (2) of section [F36579] of the Taxes Act (statutory redundancy payments) allowable as a deduction in computing for any accounting period the profits or losses of the relevant trade carried on by a person who was in that period a participator in an oil field, or would be so allowable under that subsection if it were not otherwise so allowable, then that amount less the amount of the rebate recoverable (within the meaning of that subsection) shall be expenditure allowable under this section for that field.

In this subsection “the relevant trade”, in relation to a participator in an oil field, means the separate trade which by virtue of subsection (1) of section [F37492 of the Taxes Act] consists of activities carried on by him that fall within paragraph (a) or (b) of that subsection or which would have so consisted if that subsection had additionally had effect as regards all past chargeable periods (within the meaning of the Taxes Acts).

(3)Expenditure is not allowable under this section for any oil field if, or to the extent that, it has been allowed under Schedule 5 or 6 to this Act for any other oil field or has been allowed under Schedule 7 to this Act in connection with any oil field [F38but where expenditure allowable under section 5A [F39or section 5B] of this Act has been allowed on a claim under Schedule 7 to this Act, nothing in this subsection shall prevent a claim being made for an allowance under this section in respect of the same expenditure unless the person making the claim is the participator who made the claim under that Schedule].

(4)The expenditure allowable under this section for any oil field does not include—

(a)expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit; or

(b)the cost of acquiring any land or interest in land, other than the cost of making to the Secretary of State any payment falling within subsection (1)(b) above; or

(c)the cost of acquiring or erecting any building or structure on land, except—

(i)a structure to be subsequently placed on the sea bed F40. . .; or

(ii)a building or structure used or to be used wholly in the process of winning oil from strata in or under land or of measuring the quantity of oil won or to be won from such strata; or

(iii)a building or structure used or to be used for initial treatment or initial storage of oil; or

[F41(iv)a building or structure used or to be used for transporting such oil as is mentioned in subsection (1)(f) above from the place where it is first landed [F42to the place in the United Kingdom or, in the case of oil first landed in another country, to the place in that or any other country (other than the United Kingdom)]at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction; or]

(d)any expenditure wholly or partly depending on or determined by reference to the quantity, value or proceeds of, or the profits from, oil won from the field; . . . F43

(e)any payment made for the purpose of obtaining a direct or indirect interest in oil won or to be won from the field, other than a payment made to the Secretary of State; [F44or]

[F45(f)any payment made in pursuance of a notice under paragraph 4 of Schedule 15 to the Finance Act 1973 (provisions supplementing the territorial extension of charge to tax under section 38 of that Act);]

but nothing in paragraph (e) above shall be taken to apply to a payment made by a participator in pursuance of a contract whereby expenditure incurred for any of the purposes mentioned in subsection (1) above is to be shared between that participator and any of the other participators in the field.

(5)[F46Subject to subsection (5A) below] expenditure allowable under this section for an oil field qualifies for supplement under section 2(9)(b)(ii) or (c)(ii) of this Act if and to the extent that it is incurred for one or more of the following purposes, namely—

(a)bringing about the commencement of the winning of oil from the field or the commencement of the transporting of oil won from it to the United Kingdom [F47or another country];

(b)ascertaining (whether before or after the determination of the field under Schedule 1 to the Act) any of the matters mentioned in subsection (1)(c) above;

(c)carrying out works for, or acquiring an asset or an interest in an asset to be used for the purpose of, substantially improving the rate at which oil can be won or transported to the United Kingdom [F47or another country]from the field, or preventing or substantially reducing a decline in that rate; or

(d)providing any installation for the initial treatment or initial storage of oil won from the field;

but expenditure incurred in hiring an asset shall not so qualify unless the asset is used in carrying out works for a purpose mentioned in paragraph (a), (b) or (c) above or works for the provision of any such installation as is mentioned in paragraph (d) above.

[F48(5A)Where expenditure incurred in relation to an asset is incurred—

(a)in part for one of the purposes specified in subsection (5) above (or for what would be one of those purposes if section 10(2) below were disregarded), and

(b)in part for the purpose of enabling the asset to be used in a way giving rise to tariff receipts within the meaning of the Oil Taxation Act 1983,

then, to the extent that the expenditure is incurred for the purpose mentioned in paragraph (b) above, it shall be treated for the purposes of this Part of this Act as incurred for one of the purposes specified in subsection (5) above.]

[F49(5B)Expenditure incurred by a participator in an oil field shall be taken to be incurred for the purpose mentioned in paragraph (hh) of subsection (1) above if, and only if,—

(a)it consists of fees, commission or incidental costs incurred wholly and exclusively for the purposes of obtaining an abandonment guarantee; and

(b)the abandonment guarantee is obtained in order to comply with a term of a relevant agreement relating to that field under which the participator is required to provide security (whether or not specifically in the form of an abandonment guarantee) in respect of his liabilities to contribute to field abandonment costs;

and expressions used in this subsection shall be construed in accordance with section 104 of the Finance Act 1991.]

(6)[F50Without prejudice to any apportionment under subsection (1C) or subsection (1D) above] for the purposes of subsections (1) and (5) above [F50other than paragraph (hh) of subsection (1)] expenditure incurred partly for one or more of the purposes there mentioned and partly not shall [F46subject to subsection (7) below] be apportioned in such manner as is just and reasonable [F51and where, in the case of oil won as mentioned in paragraph (f) of subsection (1) above, expenditure is incurred in transporting—.

(a)oil first landed in the United Kingdom to a place in the United Kingdom which is not the nearest place referred to in sub-paragraph (ii) of that paragraph, or

(b)oil first landed in another country to a place in that or any other country (other than the United Kingdom) which is not the nearest place so referred to, so much of that expenditure as does not exceed what would have been the expenditure incurred in transporting it to that nearest place shall be regarded as falling within the said paragraph (f).]

[F48(7)In any case where—

(a)expenditure which is incurred by any person as mentioned in subsection (6) above is so incurred in connection with a long-term asset, and

(b)the long-term asset gives rise to receipts which, for the purposes of the Oil Taxation Act 1983, are tariff receipts of that person attributable to the field for which any of that expenditure is so allowable,

then, so far as relates to that field, in making in accordance with subsection (6) above any apportionment for the purposes of either or both of subsections (1) and (5) above, the whole of the relevant expenditure shall be apportioned to one or more of the purposes mentioned in that subsection or, as the case may be, those subsections.

(8)In subsection (7) above—

(a)“long-term asset” means an asset whose useful life continues after the end of the claim period for which a claim is first made for an allowance in respect of expenditure incurred in connection with the asset; and

(b)“relevant expenditure” means that portion of the expenditure in connection with the asset which is reasonably attributable to the use of the asset which gives rise to the receipts referred to in subsection (7)(b) above.]

4 Allowance of expenditure on long-term assets. U.K.

(1)Subject to subsection (13) below [F52and section 1 of the Oil Taxation Act 1983], this section applies to expenditure (whether or not of a capital nature) which is incurred by a person at or before the time when he is a participator in an oil field, being expenditure incurred in acquiring, bringing into existence, or enhancing the value of an asset which is to be or is subsequently used in connection with the field and [F53which, at the end of the first relevant claim period, is or is expected to be a long-term asset as defined in section 3(8) of the Oil Taxation Act 1983]:

(2)The following provisions of this section are subject to Schedules 4, 5 and 6 to this Act.

(3)-(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F54

(5)Subject to the following provisions of this section, a proportion of the expenditure shall be allowable under this section on a claim for the first relevant claim period, and that proportion is . . . F54the proportion which the time during which the asset has been used in [F53connection with the field] in the period between the incurring of the expenditure or the asset’s first use in [F53connection with the field] (whichever is later) and the end of the first relevant claim period bears to the time between the incurring of the expenditure and the date when the asset’s useful life is reasonably likely to end:

(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F54

(7)[F53For each claim period subsequent to the first relevant claim period and] up to and including that in which use of the asset in connection with the field permanently ceases, the proportion of the expenditure allowable under this section for the relevant period shall be computed by applying the provisions of [F53subsection (5)] above with the omission of the words “on a claim” (wherever occurring) and the substitution of references to the relevant period for references to the first relevant claim period.

For the purposes of this subsection “the relevant period”, in relation to a claim period, means the period consisting of that claim period and each earlier claim period back to and including that in which the expenditure was incurred.

(8)If, as computed under subsection (7) above for any claim period, the proportion of the expenditure allowable for the relevant period exceeds the amount thereof which (taking into account any previous adjustments made under the following subsection) has been allowed on claims made for earlier claim periods falling within the relevant period, the excess shall be allowable under this section on a claim for that claim period.

(9)If, as computed under subsection (7) above for any claim period, the proportion of the expenditure allowable for the relevant period is exceeded by the amount thereof which (taking into account any previous adjustments made under this subsection) has been allowed on claims made for earlier claim periods falling within the relevant period, the total amount of expenditure allowable under this and the preceding section on a claim for the first-mentioned claim period shall be reduced by an amount equal to the excess.

(10)Subsections (3) to (5) of section 3 of this Act shall apply for the purposes of this section as they apply for the purposes of that section; and where in accordance with subsection (9) above the total amount of the expenditure allowable under this and the preceding section on a claim for any claim period is reduced, the amount falling to be taken into account under section 2(9)(b)(ii) or (c)(ii) of this Act by reference to that expenditure shall be reduced by a proportion equal to the proportion by which the total amount of that expenditure is so reduced.

(11)For the purposes of [F53subsection (5) above (including that subsection as it applies] under subsection (7) above) an asset which is throughout any period of time simultaneously used partly in connection with the field and partly otherwise shall be treated as being used in connection with the field for a proportion of that period equal to the proportion which the extent of its use in the period in that connection bears to the extent of its use in the period in that connection and otherwise.

(12)For the purposes of this section—

(a)the asset is a brought-in asset if, between the time when it was acquired or brought into existence and its first use in connection with the field, the asset was used otherwise than in connection with the field; and

(b)“the first relevant claim period”—

(i)in the case of expenditure incurred in acquiring or bringing into existence a brought-in asset, means the claim period in which the asset was first used in connection with the field; and

(ii)in the case of any other expenditure, means the claim period in which the expenditure was incurred.

(13)The preceding provisions of this section, and any other provisions in this Part of this Act as to which it is provided that this subsection applies, shall, with any necessary modifications, apply in relation to expenditure incurred by a person in acquiring an interest in an asset, or in bringing into existence an asset in which he is to have an interest, or in enhancing the value of an asset in which he has an interest, as the provisions in question apply in relation to expenditure incurred by a person in acquiring, bringing into existence, or enhancing the value of an asset, as the case may be.

5 Allowance of abortive exploration expenditure.U.K.

(1)Subject to the following provisions of this section and Schedule 7 to this Act, the abortive exploration expenditure allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) incurred on or after 1st January 1960 [F55and before 16th March 1983] which—

(a)was incurred by that person or, if that person is a company, by that company or a company associated with it in respect of the expenditure; and

(b)was incurred wholly and exclusively for the purpose of searching for oil in the United Kingdom, the territorial sea thereof or a designated area; and

(c)is not, and is unlikely to become, allowable under section 3 or 4 of this Act for any oil field,

but so that any expenditure to which subsection (2) below applies shall not be allowable under this section except to the extent that it falls by virtue of that subsection to be treated as incurred wholly and exclusively for the purpose mentioned in paragraph (b) above.

(2)Where any person has incurred expenditure in acquiring, bringing into existence, or enhancing the value of an asset which is subsequently used by him for the purpose mentioned in paragraph (b) of subsection (1) above, then—

(a)subject to paragraph (b) below, if the useful life of the asset continues after the end of the twelve months beginning with the day on which he acquired the asset or brought it into existence, he shall be treated for the purposes of that subsection as having incurred wholly and exclusively for that purpose a fraction of that expenditure on each day after the expenditure was incurred on which the asset is used by him wholly and exclusively for that purpose, and that fraction is the fraction of which the numerator is 1 and the denominator is the number of days in the period beginning with the day on which he incurred that expenditure and ending with the day on which the asset’s useful life is reasonably likely to end;

(b)if a subsequent disposal of the asset by that person otherwise than to a person connected with him gives rise to the receipt of a sum that falls to be taken into account under subsection (6) below, being a sum not less than the price which the asset might reasonably have been expected to fetch if sold in the open market at the time of the disposal, paragraph (a) above shall apply with the substitution, for the reference to the day on which the asset’s useful life is reasonably likely to end, of a reference to the day on which the disposal was made.

Section 4(13) of this Act applies to the preceding provisions of this subsection.

[F56(2A)For the purpose only of determining under paragraph (c) of subsection (1) above whether expenditure is or is likely to become allowable for any oil field, it shall be assumed that any oil field which, apart from this subsection, would be a non-taxable field is or, as the case may be, will be a taxable field and, accordingly, that section 185(4)(e) of the Finance Act 1993 (no expenditure allowable for non-taxable fields) does not apply.]

(3)Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 7 to this Act in connection with any oil field.

(4)Subsection (4) of section 3 of this Act shall apply for the purposes of this section with the following modifications, that is to say—

(a)in paragraph (c) the words from “except” to the end of sub-paragraph (iii) shall be omitted;

(b)paragraph (d) shall be omitted;

(c)in paragraph (e), the reference to oil won or to be won from the field shall be read as a reference to oil won or to be won from any area whatsoever.

(5)Paragraph 2 of Schedule 4 to this Act shall, . . . F57, apply in relation to this section as it applies in relation to sections 3 and 4 of this Act.

(6)Where any expenditure which would otherwise be allowable under this section gives rise to the receipt of any sum (whether or not of a capital nature) by the person who incurred the expenditure or any person connected with him, that expenditure shall for the purposes of this section be reduced by an amount equal to that sum.

(7)For the purposes of this section—

(a)“company” means any body corporate;

(b)section [F58839] of the Taxes Act (connected persons) shall apply; and

(c)a company which is a participator in an oil field is associated with another company in respect of expenditure incurred by the other company if—

(i)throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company; or

(ii)each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself a 51 per cent. subsidiary of any company.

(8)For the purposes of subsection (7)(c) above—

(a)“the relevant period” is the period beginning immediately before the expenditure was incurred and ending with the end of whichever of the following periods ends later, that is to say—

(i)the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

(ii)the chargeable period (for that field) in which the expenditure was incurred,

(or, if they are the same period, with the end of that period); and

(b)section [F58838] of the Taxes Act (subsidiaries) shall apply.

[F595A Allowance of exploration and appraisal expenditure.U.K.

(1)The exploration and appraisal expenditure which, subject to the provisions of this section and Schedule 7 to this Act, is allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) which—

(a)is incurred after 15th March 1983 by that person or, if that person is a company, by that company or a company associated with it in respect of the expenditure; and

[F60(aa)either is incurred before 16th March 1993 or is incurred within the period of two years beginning on that date and is expenditure to which that person or, if that person is a company, that company or a company associated with it in respect of the expenditure, is committed immediately before that date; and]

(b)is so incurred wholly and exclusively for one or more of the purposes specified in subsection (2) below; and

(c)at the time it is so incurred, does not relate to a field for which a development decision has previously been made.

[F61(1A)For the purposes of subsection (1)(aa) above, in respect of expenditure incurred on or after 16th March 1993, a person is to be regarded as committed to that expenditure immediately before that date if—

(a)he has an obligation under an exploration and appraisal contract entered into before that date to incur the expenditure; or

(b)the expenditure is incurred wholly and exclusively for the same purpose as that for which the contract referred to in paragraph (a) above was entered into and is so incurred pursuant to an obligation under an exploration and appraisal contract entered into on or after 16th March 1993 and before 16th June 1993.

(1B)In considering whether a person has at any time such a contractual obligation as is referred to in paragraph (a) or paragraph (b) of subsection (1A) above in respect of any expenditure,

(a)if the contract contains a power (however exercisable) by virtue of which the person concerned, or a company associated with him in respect of the expenditure, is able to bring any contractual obligations to an end, he shall not be regarded as committed to any expenditure which, if the power were to be exercised, would not be incurred; and

(b)if the person concerned (or a company associated with him in respect of the expenditure) has an option (however described) which was not exercised before 16th March 1993 but the exercise of which would increase his expenditure under the contract, he shall not be regarded as committed to any expenditure which would be incurred only as a result of the exercise of the option.

(1C)For the purposes of subsection (1A) above a contract is an exploration and appraisal contract if it is a contract for the provision of any services or other business facilities or assets for any of the purposes specified in subsection (2) below.]

(2)The purposes referred to in [F62subsections (1) to (1C)] above are—

(a)the purpose of searching for oil in [F63the territorial sea of the United Kingdom] or a designated area;

(b)the purpose of ascertaining the extent or characteristics of any oil-bearing area in [F63the territorial sea of the United Kingdom] or a designated area;

(c)the purpose of ascertaining what are the reserves of oil of any such oil-bearing area; and

(d)subject to subsection (3) below, the purpose of making to the Secretary of State any payment under or for the purpose of obtaining a licence (not being a payment by way of royalty or other periodic payment).

[F64(2A)Any reference in subsection (2) above to a designated area does not include a sector which, by virtue of subsection (3)(b) of section 107 of the Finance Act 1980 (transmedian fields), is deemed to be a designated area.]

(3)Expenditure incurred for the purpose mentioned in subsection (2)(d) above is not allowable under this section unless, at the time the allowance is claimed,—

(a)the licence to which the expenditure related has expired or has been determined or revoked; or

(b)part of the licensed area has been surrendered;

and where paragraph (b) above applies only that proportion of the expenditure which corresponds to the proportion of the licensed area which has been surrendered is expenditure falling within subsection (1) above.

(4)Subject to subsection (5) below, subsections (2) and (4) to (8) of section 5 of this Act apply for the purposes of this section as they apply for the purposes of that section.

(5)In the application for the purposes of this section of the provisions of section 5 of this Act referred to in subsection (4) above,—

(a)any reference in subsection (2) of section 5 to the purpose mentioned in subsection (1)(b) of that section shall be construed as a reference to any of the purposes specified in subsection (2) of this section;

(b)the reference in subsection (2)(a) of section 5 to subsection (1) of that section shall be construed as a reference to subsection (1) of this section; and

(c)the reference in subsection (6) of section 5 to a sum received—

[F65(i)includes a reference to a sum received, or treated by virtue of subsection (5A) below as received, from the disposal of oil won in the course of operations carried out for any of the purposes in paragraphs (a) to (c) of subsection (2) of this section; but

(ii)does not include a reference to a sum received for the assignment of any of the rights conferred by a licence or of any interest in a licensed area.]

[F66(5A)Subsection (5B) below applies in any case where—

(a)oil which is won as mentioned in paragraph (c)(i) of subsection (5) above is either disposed of otherwise than in sales at arm’s length or appropriated to refining or to any use except for production purposes of an oil field, and

(b)if that oil had been disposed of in a sale at arm’s length, then, by virtue of section 5(6) of this Act as applied by subsection (5) above, certain expenditure would have been reduced by reference to the receipt of a sum from that disposal.

(5B)Where this subsection applies, the oil concerned shall be treated for the purposes of subsection (5)(c)(i) above and section 5(6) of this Act as having been disposed of for a sum equal to its market value [F67at the material time] in the calendar month in which it was disposed of or appropriated as mentioned in subsection (5A)(a) above and, accordingly, for those purposes—

(a)a sum equal to that market value shall be treated as having been received from that disposal; and

(b)no account shall be taken of any sum actually received from the disposal of any of that oil.

(5C)In the application of Schedule 3 to this Act for the purpose of ascertaining the market value of oil as mentioned in subsection (5B) above,—

(a)in paragraph 2, in paragraph [F68(f)] of sub-paragraph (2) for the words from the beginning to “paragraph in question” there shall be substituted “ the contract is for the sale of the whole quantity of oil whose market value falls to be ascertained for the purposes of section 5A(5B) of this Act ”;

(b)sub-paragraphs (3) and (4) of paragraph 2 shall be omitted; and

(c)any reference in paragraphs 2 and 2A to oil being relevantly appropriated shall be construed as a reference to its being appropriated as mentioned in subsection (5A)(a) above.]

(6)Expenditure is not allowable under this section in connection with an oil field if, or to the extent that, it has been allowed under Schedule 5, Schedule 6 or Schedule 7 to this Act in connection with any oil field.

(7)For the purposes of subsection (1)(c) above, a development decision is made when—

(a)consent for development is granted to a licensee by the Secretary of State in respect of the whole or part of an oil field; or

(b)a programme of development is served on a licensee or approved by the Secretary of State for the whole or part of an oil field;

and subsections (4) and (5) of section 36 of the Finance Act 1983 (meaning of development etc.) apply in relation to this subsection as they apply in relation to subsections (2) and (3) of that section.

(8)If, at the time when it is incurred, expenditure relates to an area—

(a)which is not then an oil field, but

(b)in respect of which notice of a proposed determination has previously been given under paragraph 2(a) of Schedule 1 to this Act,

that area shall be treated for the purposes of this section as having become an oil field at the time the notice was given unless, when the actual determination is made, the area is not included in an oil field.]

[F695B Allowance of research expenditure.U.K.

(1)Subject to the following provisions of this section and Schedule 7 to this Act, the research expenditure which is allowable in the case of a person who is a participator in an oil field is any expenditure (whether or not of a capital nature) which—

(a)is incurred by him on or after 17th March 1987; and

(b)at the expiry of the period of three years from the time at which it was incurred, has not become allowable under section 3 or section 4 of this Act or section 3 of the Oil Taxation Act 1983; and

(c)was not incurred for purposes relating to a particular oil field; and

(d)was not incurred wholly and exclusively for one or more of the purposes which, subject to subsection (2) below, are specified in section 5A(2) of this Act; and

(e)was incurred for the purpose of research of such a description that, if it had been incurred by the participator in relation to a particular field, it would have been allowable for that field under section 3 or section 4 of this Act or section 3 of the Oil Taxation Act 1983; and

(f)was incurred wholly or partly for United Kingdom purposes.

(2)For the purposes only of subsection (1)(d) above, any reference in section 5A(2) of this Act to the territorial sea of the United Kingdom shall be taken to include a reference to the United Kingdom itself.

(3)Where expenditure falling within paragraphs (a) to (e) of subsection (1) above is incurred partly for United Kingdom purposes and partly for other purposes, only such part of the expenditure as it is just and reasonable to apportion to United Kingdom purposes shall be allowable by virtue of this section.

(4)In subsections (1)(f) and (3) above, “United Kingdom purposes” means purposes relating to the United Kingdom, the territorial sea thereof or designated areas, excluding any sector which, by virtue of subsection (3)(b) of section 107 of the Finance Act 1980 (transmedian fields), is deemed to be a designated area.

(5)Expenditure is not allowable under this section if, or to the extent that, it has been allowed under Schedule 5, Schedule 6 or Schedule 7 to this Act for or in connection with an oil field.

(6)To the extent that it is reasonable to assume that expenditure which, apart from this subsection, would be allowable under this section has been incurred for purposes relating to excluded oil, within the meaning of section 10(1) of this Act [F70or for purposes relating to non-taxable fields], that expenditure is not allowable under this section.

(7)Subject to subsection (3) above, subsections (2) and (6) of section 5 of this Act apply for the purposes of this section as they apply for the purposes of that section except that—

(a)any reference in subsection (2) of section 5 to the purpose mentioned in subsection (1)(b) of that section shall be construed as a reference to the purpose referred to in subsection (1)(e) of this section;

(b)the reference in paragraph (a) of subsection (2) to subsection (1) of that section shall be construed as a reference to subsection (1) of this section; and

(c)where any expenditure falls to be apportioned under subsection (3) of this section, any receipt to which it gives rise shall be similarly apportioned in the application of subsection (6) of section 5.

(8)Paragraph 2 of Schedule 4 to this Act applies in relation to this section as it applies in relation to sections 3 and 4 of this Act.]

6 Allowance of unrelievable loss from abandoned field.U.K.

(1)Subject to [F71subsections (5) to (9) below and]Schedule 8 to this Act, the following is, in the case of a participator in an oil field, an allowable unrelievable field loss, that is to say so much of any allowable loss which, in the case of any other oil field being a field from which the winning of oil has permanently ceased, has in any chargeable period accrued therefrom to the participator or, if the participator is a company, to a company associated with it in respect of that loss as cannot under the provisions of section 7 of this Act be relieved against assessable profits accruing from that other field to the participator or the company so associated with the participator.

[F72(1A)In this section, in relation to an unrelievable field loss,—

(a)“the abandoned field” means the oil field from which the winning of oil has permanently ceased; and

(b)“the person to whom the loss accrued” means the person to whom, as a participator in the abandoned field, the loss accrued (whether or not he is the participator in another oil field who makes the claim for the allowance of the unrelievable field loss).]

(2)In determining for the purposes of this section whether an allowable loss has accrued as mentioned in subsection (1) above from an oil field from which the winning of oil permanently ceased before the total amount of oil ever won and saved from it reached the amount by reference to which the critical half year is defined in section 1(4) of this Act, the first chargeable period for that field shall be taken to have been the period ending at the end of the half year in which the winning of oil from the field so ceased (including an unlimited time prior to the beginning of that half year).

In this subsection “half year” has the same meaning as in section 1 of this Act.

(3)For the purposes of this section—

(a)“company” means any body corporate; and

(b)a company which is a participator in an oil field is associated with another company in respect of an allowable loss which accrued to that other company in a chargeable period from another oil field if—

(i)throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company; or

(ii)each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself a 51 per cent. subsidiary of any company;

and in this section and Schedule 8 to this Act any reference to the winning of oil from an oil field permanently ceasing includes a reference to the permanent cessation of operations for the winning of oil from the field.

(4)For the purposes of subsection (3)(b) above—

(a)the relevant period is the period beginning with the chargeable period in which the allowable loss accrued to the other company referred to in that paragraph and ending with the end of whichever of the following period ends later, that is to say—

(i)the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and

(ii)the chargeable period in which the allowable loss accrued,

(or, if they are the same period, with the end of that period); and

(b)section [F73838] of the Taxes Act (subsidiaries) shall apply.

[F74(5)Subsections (6) to (9) below apply if—

(a)a claim is made for the allowance of an unrelievable field loss; and

(b)the person to whom the loss accrued made a claim or election for the allowance of any expenditure unrelated to that field; and

(c)that claim or election was received by the Board on or after 29th November 1994; and

(d)the whole or a part of the expenditure to which the claim or election relates is allowed and, accordingly, falls to be taken into account under section 2(8)(a) of this Act for a chargeable period (whether beginning before or after 29th November 1994).

(6)Subject to subsection (7) below, where this subsection applies, from the amount which, apart from this subsection, would be the amount of the unrelievable field loss referred to in paragraph (a) of subsection (5) above there shall be deducted an amount equal to so much of any expenditure unrelated to the field as is allowed on a claim or election as mentioned in paragraph (d) of that subsection.

(7)If—

(a)claims are made for the allowance of more than one unrelievable field loss derived from the same abandoned field, and

(b)the person to whom the loss accrued is the same in respect of each of the unrelievable field losses,

subsection (6) above shall have effect as if the deduction referred to in that subsection fell to be made from the aggregate amount of those losses.

(8)Where subsection (7) above applies, the deduction shall be set against the unrelievable field losses in the order in which the claims for the allowance of each of those losses were received by the Board.

(9)In subsections (5) and (6) above, “expenditure unrelated to the field” means—

(a)expenditure allowable under any of sections 5, 5A and 5B of this Act;

(b)expenditure allowable under this section (derived from a different abandoned field); or

(c)expenditure falling within section 65 of the M3Finance Act 1987 which is accepted by the Board as allowable in accordance with Schedule 14 to that Act;

and, in relation to expenditure falling within section 65 of the M4Finance Act 1987, “election” means an election under Part I of Schedule 14 to that Act.]

7 Relief for allowable losses. U.K.

(1)Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field, then, subject to the following provisions of this section, the assessable profit accruing to him from the field in any succeeding chargeable period shall be treated as reduced by the amount of that allowable loss, or by so much of that amount as cannot, under this subsection or on a claim (if made) under subsection (2) below, be relieved against the assessable profit accruing to him from the field in any earlier chargeable period.

(2)Where the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field, the participator may make a claim requiring that the loss be in the first instance set against any assessable profit which accrued to him from the field in any preceding chargeable period; and the assessable profit which so accrued to him in any such period shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against any assessable profit accruing to him from the field in a later chargeable period.

(3)Where—

(a)the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in a chargeable period from an oil field; and

(b)the winning of oil from that field has permanently ceased,

then so much of that allowable loss as cannot under subsection (1) or (2) above be relieved against assessable profits accruing to the participator from the field shall be relieved under this subsection by treating the assessable profit accruing to him from the field in any chargeable period as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this section against the assessable profit so accruing to him in a later chargeable period.

8 Oil allowance.U.K.

(1)Subject to the provisions of this section and paragraphs 10 and 11 of Schedule 3 to this Act, where a participator in an oil field would, apart from this section and section 9 of this Act, be chargeable to tax for any chargeable period on an amount (“the said amount”) consisting of the assessable profit accruing to him in the period from the field or that profit as reduced under section 7 of this Act by any allowable losses, then for the purpose of determining his liability, if any, to tax for that period, the said amount shall be treated as reduced or further reduced as follows, that is to say—

(a)if the said amount exceeds the cash equivalent of his share of the oil allowance for the field for that period, to an amount equal to the excess; or

(b)if the said amount does not exceed the cash equivalent of his share of that allowance, to nil.

(2)The oil allowance for an oil field is, for each chargeable period, [F75250,000 metric tonnes], and shall be divided between the participators in shares proportionate to their shares of the oil won and saved from the field during the period.

(3)For the purposes of this section the cash equivalent of a participator’s share of the oil allowance for an oil field for a chargeable period is (subject to subsection (4) below) the amount given by the formula:—

(4)If a participator in an oil field so elects by notice in writing given to the Board at the time when he makes his return under paragraph 2 of Schedule 2 to this Act for a chargeable period, then the cash equivalent of his share of the oil allowance for the field for that period shall be determined under subsection (3) above—

(a)to the extent that his share of that oil allowance does not exceed his share of the oil (other than gas) won and saved from the field in the period, as if in computing the gross profit or gross loss accruing to him in the period all amounts relating to gas fell to be disregarded; and

(b)to the extent, if any, that his share of that oil allowance exceeds his share of the oil (other than gas) so won and saved, as if in computing the gross profit or gross loss so accruing all amounts relating to oil other than gas fell to be disregarded.

(5)For the purposes of this section the amount of the oil allowance for an oil field utilised by a participator in any chargeable period is—

(a)if in his case a reduction is made for that period under subsection (1)(a) above, an amount in [F75metric tonnes] equal to his share of the oil allowance for the field for that period;

(b)if in his case a reduction is made for that period under subsection (1)(b) above, the amount in [F75metric tonnes] arrived at by multiplying his share of the oil allowance for the field for that period (in [F75metric tonnes]) by the fraction of which the numerator is the amount of that reduction and the denominator is the cash equivalent of his share of the said oil allowance;

(c)in any other case, nil.

(6)The total oil allowance for an oil field shall not exceed [F755 million metric tonnes], and accordingly—

(a)for each chargeable period there shall be determined the aggregate of the amounts of the oil allowance for the field utilised by the participators in that period; and

(b)as regards the earliest chargeable period such that the sum of the aggregate determined under paragraph (a) above for that period and the aggregates so determined for each earlier chargeable period would, apart from this subsection, exceed [F755 million metric tonnes], the necessary restriction shall be apportioned between the participators in such manner as may be notified to the Board by the responsible person or, in default of such notification, as may be determined by the Board.

In this subsection “the necessary restriction” means the restriction necessary to secure that the aggregate determined under paragraph (a) above for the chargeable period to which paragraph (b) above applies will, when added to the sum of the aggregates so determined for each earlier chargeable period, produce a total of [F755 million metric tonnes].

(7)For the purposes of this section [F751,100 cubic metres] of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one [F75metric tonne] of oil other than gas.

(8)Any reduction to be made under subsection (1) above shall be made before applying the provisions of section 9 of this Act.

[F769[F77Limit on amount of tax payable].U.K.

(1)The tax payable by a participator in an oil field for any chargeable period to which this subsection applies shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that period (as defined in this section) exceeds 15 per cent. of his accumulated capital expenditure at the end of that period (as so defined).

(1A)Subsection (1) above applies to—

(a)any chargeable period from the first chargeable period up to and including the period which is the participator’s net profit period for the field for the purposes of section 111 of the Finance Act 1981 or where section 113 of that Act applies, up to and including the earlier of the periods mentioned in subsection (2) of that section; and

(b)any subsequent chargeable period up to such number of periods as is equal to half the number of chargeable periods [F78which are included in paragraph (a) above and in which the amount of oil won and saved from the field exceeds 1,000 metric tonnes] (counting any resulting fraction of a period as a whole period)

[F79and for the purposes of paragraph (b) above 1,100 cubic metres of gas at a temperature of 15 degrees centigrade and pressure of one atmosphere shall be counted as equivalent to one metric tonne].

(2)The adjusted profit of a participator in an oil field for any chargeable period shall be determined as follows—

(a)there shall be ascertained—

(i)the assessable profit (without any reduction under section 7 or 8 of this Act) or allowable loss accruing to him in that period; and

(ii)the total amount taken into account under section 2(9)(b), (c), (d) [F80, (e) [F81(f) and (g)]] of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);

(b)if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;

(c)if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the difference is his adjusted profit for the period.

(3)The accumulated capital expenditure of a participator in an oil field at the end of any chargeable period is the total amount of expenditure taken into account under section 2(9)(b)(i) and (c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in that period and all earlier chargeable periods excluding all expenditure so taken into account which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii).

(4)Where a participator has made an election under paragraph 9(1) of Schedule 3 to this Act the amount of any reduction by virtue of this section in the tax payable by him for any chargeable period shall not be greater than it would have been if he had not made any such election and for the purposes of subsection (3) above his accumulated capital expenditure at the end of any chargeable period shall be taken to be what it would have been if he had made no such election.]

10 Modification of Part I in connection with certain gas sold to British Gas Corporation.U.K.

(1)In computing under section 2 of this Act the gross profit or loss (if any) accruing to a participator in any chargeable period from an oil field—

(a)any oil consisting of gas sold to the British Gas Corporation under a contract made before the end of June 1975 shall be disregarded; and

(b)if at the end of that chargeable period the participator’s share, exclusive of oil falling within paragraph (a) above or used for production purposes, of the total amount of oil ever won and saved from the field does not exceed 5 per cent. of his share of the total amount of oil so falling which was ever so won and saved, his share of the oil won and saved from the field but not so falling shall also be disregarded;

and in the following provisions of this section any oil which falls to be disregarded under this subsection is referred to as “excluded oil”.

(2)Excluded oil shall be deemed not to be oil for the purposes of the following provisions of this Act, namely section 2(7) and (9), section 3 (except paragraphs (a) to (c) [F83(hh), (i) and (j) of subsection (1) and subsection (1D)]) and section 4 (including, in the case of any expression used in any of those provisions which is defined elsewhere, its definition so far as it has effect for the purpose of that provision); and in computing under section 2 of this Act the licence debit or credit (if any) of a participator in an oil field for any chargeable period, any royalty repaid to him in the period in respect of excluded oil shall be disregarded.

(3)If, in the case of any oil field, the oil won and saved therefrom or expected to be won and saved therefrom includes oil falling within subsection 1(a) above, then the expenditure allowable under section 3 of this Act for that field by virtue of [F84any of paragraphs (a), (b), (c), (hh), (i) and (j)] of section 3(1) of this Act shall be a proportion of what it would otherwise have been, and that proportion—

(a)in the case of expenditure which would otherwise have been allowable by virtue of the said paragraph (a), (b) or (c), is the proportion which, according to estimates submitted to the Secretary of State after the end of June 1975 and approved by him as reasonable, the field’s original reserves of oil exclusive of oil so falling bear to the field’s original reserves of oil inclusive of such oil;

(b)in the case of expenditure which would otherwise have been allowable by virtue of the said [F85paragraph (hh), (i) or (j)], is the proportion which, at the end of the claim period in which the expenditure was incurred, the total amount of oil ever won and saved from the field, exclusive of excluded oil, bears to the total amount of oil ever won and saved from the field;

and until estimates have been submitted and approved for the purpose of paragraph (a) above, the expenditure allowable for the field under section 3 of this Act by virtue of the said paragraph (a), (b) or (c) shall be deemed to be nil.

(4)A return made under paragraph 2 of Schedule 2 to this Act by a participator in an oil field need not, in the case of oil falling within subsection (1)(a) above, state the price received or receivable for the oil.

(5)For the purposes of this section [F861,100 cubic metres] of oil consisting of gas at the temperature and pressure mentioned in section 1(4) of this Act shall be counted as equivalent to one [F86metric tonne] of oil other than gas.

11 Application of Provisional Collection of Taxes Act 1968.U.K.

Section 1 of the M6Provisional Collection of Taxes Act 1968 shall apply to petroleum revenue tax ; and accordingly, in subsection (1) of that section after the words “income tax” there shall be inserted the words “ petroleum revenue tax ”.

12 Interpretation of Part I.U.K.

(1)In this Part of this Act—

• “calendar month” (where those words are used) [F87has] the meaning given by paragraph 3(2) of Schedule 3 to this Act;

• “chargeable period”, in relation to an oil field, has the meaning given by section 1(3) of this Act;

• “claim period”, in relation to an oil field, has the meaning given by paragraph 1 of Schedule 5 to this Act; “crude”, where the reference is to oil being disposed of or appropriated crude, refers to its being so dealt with without having been refined (whether or not it has previously undergone initial treatment); “determination”, in a context relating to an assessment or determination on or in relation to a participator, means a determination under Schedule 2 to this Act that a loss is allowable to him or that neither an assessable profit nor an allowable loss has accrued to him;

• “initial storage”, in relation to oil won from an oil field, means the storage F88. . . of a quantity of oil won from the field not exceeding, in the case of storage in the United Kingdom [F89or another country], a quantity equal to ten times the maximum daily production rate of oil for the field as planned or achieved (whichever is the greater), but does not include—

(a)the storing of oil as part of or in conjunction with the operation of an oil refinery; or

(b)deballasting; or

(c)conveying oil in a pipe-line;

• “initial treatment”, in relation to oil won from an oil field, means the doing, at any place F88. . ., of any of the following things, that is to say—

(a)subjecting oil won from the field to any process of which the sole purpose is to enable the oil to be safely stored, safely loaded into a tanker or safely accepted by an oil refinery; or

[F90(b)separating oil so won and consisting of gas from other oil so won; or

(c)separating oil so won and consisting of gas of a kind that is transported and sold in normal commercial practice from other oil so won and consisting of gas; or

(d)liquifying oil so won and consisting of gas of such a kind as aforesaid for the purpose of transporting it; or

(e)subjecting oil so won to any process of which the purpose is to secure that oil disposed of crude has the quality that is normal for oil so disposed of from the field,]

but does not include—

(i)the storing of oil even where this involves the doing to the oil of things within [F91any of paragraphs (a) to (e) of this definition] or

[F92(ii)any activity carried on as part of, or in association with, the refining of oil not consisting of gas or any activity the sole or main purpose of which is to achieve a chemical reaction in respect of oil consisting of gas; or]

(iii)deballasting;

• “land” includes land in the United Kingdom [F93or another country]covered with water;

• “licence” means a licence under the Petroleum (Production) Act 1934 or the M7Petroleum (Production) Act (Northern Ireland) 1964 authorising the winning of oil, and “licensed area” shall be construed accordingly;

• “licensee” means—

(a)the person entitled to the benefit of a licence or, where two or more persons are entitled to the benefit of a licence, each of those persons; and

(b)a person who has rights under an agreement which is approved by the Board and is certified by the Secretary of State to confer on that person rights which are the same as, or similar to, those conferred by a licence;

• [F94“light gases”, except in relation to an election under section 134 of the Finance Act 1982 or section 109 of the Finance Act 1986, means oil consisting of gas of which the largest component by volume over any chargeable period, measured at a temperature of 15 degrees centigrade and a pressure of one atmosphere, is methane or ethane or a combination of those gases]

• “oil” has the meaning given by section 1(1) of this Act;

• “oil field” shall be construed in accordance with Schedule 1 to this Act [F95and “taxable field” and “non-taxable field” have the same meaning as in Part III of the Finance Act 1993];

• “participator” (except in paragraph 4 of Schedule 2 to this Act) means, in relation to an oil field and any chargeable period—

(a)a person who is or was at any time in that chargeable period a licensee in respect of any licensed area then wholly or partly included in the field; and

(b)a person who is no longer a licensee in respect of any licensed area wholly or partly included in the field, but who was such a licensee at any time in either of the two chargeable periods preceding that chargeable period; and

(c)a person who is no longer a licensee in respect of any licensed area wholly or partly included in the field (and who does not fall within paragraph (b) of this definition), but who has or had at any time in that chargeable period a share of oil won (whether or not in that period) from the field, being a share with respect to any part of which either of the following conditions is or was satisfied at that time, that is to say—

(i)he has or had neither disposed of that part nor relevantly appropriated it; or

(ii)he has or had disposed of, but not delivered, that part;

• “pipe-line” means a pipe-line as defined in section 65 of the M8Pipe-lines Act 1962;

• “production purposes”, in relation to an oil field, means any of the following purposes, that is to say—

(a)carrying on drilling or production operations within the field; or

(b)in the case of oil won from the field that was so won from strata in the sea bed and subsoil of either the territorial sea of the United Kingdom or a designated area, pumping it to the place where it is first landed in the United Kingdom [F96or to the place in the United Kingdom [F97or another country]at which the seller in a sale at arm’s length could reasonably be expected to deliver it or, if there is more than one place at which he could reasonably be expected to deliver it, the one nearest to the place of extraction]; or

(c)the initial treatment of oil won from the field;

• [F98“refining”, in relation to oil, does not include subjecting it to initial treatment and “refined” and “refinery” shall be construed accordingly;];

• “relevant licence”, in relation to a participator in an oil field, means any licence held or previously held by him in respect of a licensed area wholly or partly included in the field;

• “relevantly appropriated”, in relation to oil won from an oil field, means appropriated to refining or to any use except use for production purposes [F99in relation to that or any other oil field], and “relevant appropriation” shall be construed accordingly;

• “the responsible person”, in relation to an oil field, has the meaning given by paragraph 4 of Schedule 2 to this Act;

• “royalty”, in relation to a participator in an oil field, means royalty payable (but not, it is hereby declared, oil delivered) to the Secretary of State under any relevant licence;

• “tax” or “the tax” means petroleum revenue tax.

(2)In this Part of this Act any reference to the use of an asset in connection with an oil field is a reference to its use in connection with that field for one or more of the purposes mentioned in section 3(1) of this Act (excluding section 3(1)(b)).

(3)In this Part of this Act any reference (however worded) to the doing of anything in a chargeable period in connection with an oil field or with oil won from an oil field shall, [F100as regards the first chargeable period for any oil field], be construed as including the doing of that thing in connection with the area of the field as subsequently determined under Schedule 1 to this Act or, as the case may be, with oil won from that area.

(4)In so far as a person is a participator in an oil field by virtue of a licence under the M9Petroleum (Production) Act (Northern Ireland) 1964, references in this Part of this Act to the Secretary of State (except references in Schedule 1) shall be construed in his case as references to the Department of Commerce for Northern Ireland.

Part IIU.K.

13–19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F101U.K.

Part IIIU.K. Miscellaneous and General

20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F102U.K.

21 Citation, interpretation and construction.U.K.

(1)This Act may be cited as the Oil Taxation Act 1975.

(2)In this Act—

• “the Board” means the Commissioners of Inland Revenue;

• “designated area” means an area designated by Order in Council under section 1(7) of the M10Continental Shelf Act 1964;

• “the Taxes Act” means the Income and Corporation Taxes Act [F1031988].

(3)Parts II and III of this Act, so far as they relate to income tax, shall be construed as one with the Income Tax Acts and, so far as they relate to corporation tax, shall be construed as one with the Corporation Tax Acts.

(4)Except so far as the context otherwise requires, any reference in this Act to any enactment shall be construed as a reference to that enactment as amended, and as including a reference to that enactment as applied, by or under any other enactment, including this Act.

(5)Without prejudice to the generality of the preceding subsection, any reference in this Act to a licence granted under the M11Petroleum (Production) Act 1934 includes a reference to a licence granted under section 2 of that Act as applied by section 1(3) of the M12Continental Shelf Act 1964.

SCHEDULES

Section 1.

SCHEDULE 1U.K. Determination of Oil Fields

1(1)For the purposes of this Part of this Act an oil field is any area which the appropriate authority may determine to be an oil field, being an area of which every part is, or is part of, a licensed area.

(2)For the purposes of this Schedule the appropriate authority, in relation to any area—

(a)is the Secretary of State if the area is such that licences can be granted for all of it under the M13Petroleum (Production) Act 1934;

(b)is the Department of Commerce for Northern Ireland if the area is such that licences can be granted for all of it under the M14Petroleum (Production) Act (Northern Ireland) 1964; and

(c)is the Secretary of State and that Department acting jointly if the area is such that licences can be granted for part of it under one and for part of it under the other of those Acts;

and any reference in this Schedule to the making of representations to the appropriate authority is, in a case falling within (c) above, a reference to the making of them to either the Secretary of State or the said Department.

2U.K.Before determining an area to be an oil field the appropriate authority—

(a)shall give notice in writing of the proposed determination to every person who is a licensee in respect of a licensed area wholly or partly included in that area and to any other licensee whose interests appear to the authority to be affected; and

(b)shall consider any representations in writing which a person to whom a notice under this paragraph has been given may make to the authority within sixty days of receiving the notice,

and the determination may be made either as proposed or with such modifications as appear to the authority to be appropriate after considering any representations made to the authority in accordance with this paragraph.

3U.K.A determination under this Schedule shall be in such form as the appropriate authority thinks fit and shall for purposes of identification assign to the field to which it relates a distinguishing number or other designation.

4U.K.The appropriate authority shall give notice of any determination made by the authority under this Schedule to each of the persons to whom notice of the proposed determination was given.

5U.K.A determination under this Schedule may from time to time be varied by a new determination thereunder made by the appropriate authority, and paragraphs 2 to 4 above shall apply to any such new determination.

Section 1.

SCHEDULE 2U.K. Management and Collection of Petroleum Revenue Tax

Management of taxU.K.

1(1)The tax shall be under the care and management of the Board; and the provisions of the M15Taxes Management Act 1970 specified in the first column of the following Table shall apply in relation to the tax as they apply in relation to a tax within the meaning of that Act, subject to any modifications specified in the second column of that Table and with the substitution, for references to Part IX of that Act or to the Taxes Acts, of references to this Part of this Act and, for references to chargeable periods within the meaning of that Act, of references to chargeable periods within the meaning of this Part of this Act.U.K.

(2)Any expression to which a meaning is given in this Part of this Act which is used in a provision of the M17Taxes Management Act 1970 applied by this paragraph shall, in that provision as so applied, have the same meaning as in this Part of this Act.

Returns by participatorsU.K.

2(1)Every participator in [F113a taxable field]shall, for each chargeable period, prepare and, within two months after the end of the period, deliver to the Board a return complying with the following provisions of this paragraph; but nothing in this sub-paragraph shall require a participator to deliver a return under this paragraph before 31st August 1975.

(2)A return under this paragraph for a chargeable period shall give the following information in relation to oil which is or was included in the participator’s share of any oil won from [F113the taxable field] (whether or not in that period), that is to say—

(a)in the case of each delivery (other than one made before 13th November 1974) in the period of oil disposed of by him crude (other than oil delivered as mentioned in (c) of this sub-paragraph), the return shall—

(i)state the quantity of oil delivered;

(ii)state the person to whom the oil was disposed of;

(iii)in the case of oil disposed of in a sale at arm’s length, state the price received or receivable for the oil or, in the case of oil disposed of otherwise than in a sale at arm’s length, state the market value of the oil [F114at the material time] in the calendar month in which the delivery was made [F115or (in the case of light gases) the market value as determined in accordance with paragraph 3A of Schedule 3 to this Act]; and

(iv)contain such other particulars of or relating to the disposal as the Board may prescribe;

(b)in the case of each relevant appropriation of crude oil (other than one made before 13th November 1974) in the period (not being oil disposed of by him), the return shall—

(i)state the quantity of oil appropriated;

(ii)state the market value of the oil [F114at the material time] in the calendar month in which the appropriation was made [F116or (in the case of light gases) the market value as determined in accordance with paragraph 3A of Schedule 3 to this Act]; and

(iii)contain such other particulars of or relating to the appropriation as the Board may prescribe;

(c)in the case of crude oil delivered to the Secretary of State in the period under the terms of a licence granted under the M18Petroleum (Production) Act 1934, the return shall state the total quantity of the oil;

(d)in the case of crude oil which, at the end of the period, has either not been disposed of and not relevantly appropriated or has been disposed of but not delivered, the return shall—

(i)state the quantity of the oil;

(ii)state the market value of the oil [F117in the last calendar month] of the period; and

(iii)contain such other particulars relating to the oil as the Board may prescribe.

[F118(2A)Every participator in [F113a taxable field] shall, in the first return under this paragraph which he makes for that field, state whether any and, if any, how much [F119expenditure to which section 5A or section 5B] of this Act applies and which relates to, or to a licence for, any part of the field has been claimed under Schedule 7 to this Act—

(a)by him, or

(b)by a company associated with him in respect of that expenditure, or

(c)if he or such a company is the new participator, within the meaning of Schedule 17 to the Finance Act 1980, by the old participator, within the meaning of that Schedule, or by a company associated with him in respect of that expenditure,

and subsection (7) of section 5 of this Act applies for the purposes of this sub-paragraph as it applies for the purposes of that section.]

(3)A return under this paragraph for a chargeable period shall state—

(a)the amount of royalty payable by the participator for that period in respect of his share of oil won from the field as shown in the return or returns made by him to the Secretary of State under the relevant licence or licences;

(b)the amount of royalty paid by the participator in that period in respect of that share;

(c)the amount of any royalty paid under any relevant licence in respect of the field which was repaid to the participator in that period; and

(d)the amount of any periodic payment made by the participator to the Secretary of State in that period under each relevant licence otherwise than by way of royalty.

[F120(3A)A return under this paragraph for a chargeable period shall—

(a)state the amount (if any) which, in the case of the participator, is to be brought into account for that period in accordance with section 2(5)(e) of this Act;

(b)contain such particulars as the Board may prescribe (whether before or after the passing of the Finance Act 1987) with respect to any nominated transaction under Schedule 10 to that Act—

(i)the effective volume of which forms part of the participator’s aggregate effective volume (construing those terms in accordance with that Schedule) for any calendar month comprised in that chargeable period; and

(ii)which has not led to deliveries of oil or relevant appropriations of which particulars are included in the return by virtue of sub-paragraph (2) above; and

(c)contain such other particulars as the Board may prescribe (as mentioned above) in connection with the application of section 61 of and Schedule 10 to the Finance Act 1987.]

(4)A return under this paragraph shall be in such form as the Board may prescribe and shall include a declaration that the return is correct and complete.

3(1)If a participator fails to deliver a return within the time allowed for doing so under paragraph 2(1) above he shall be liable, subject to sub-paragraph (3) below—U.K.

(a)to a penalty not exceeding, except in the case mentioned in sub-paragraph (2) below, £500; and

(b)if the failure continues after it has been declared by the court or the Commissioners before whom proceedings for the penalty have been commenced, to a further penalty not exceeding £100 for each day on which the failure so continues.

(2)If the failure continues after the end of six months from the time by which the return ought to have been delivered, the penalty under sub-paragraph (1)(a) above shall be an amount not exceeding the aggregate of £500 and the total amount of the tax with which the participator is charged for the chargeable period in question.

(3)Except in the case mentioned in sub-paragraph (2) above, the participator shall not be liable to any penalty incurred under this paragraph for failure to deliver a return if the failure is remedied before proceedings for the recovery of the penalty are commenced.

Appointment of responsible person for each oil fieldU.K.

4(1)For each oil field a body corporate or partnership shall be appointed in accordance with this paragraph as the responsible person for that field to perform, in relation to the field, any functions conferred on it as such by this Part of this Act; and the body or partnership which for the time being holds that appointment is in this Part of this Act referred to as “the responsible person”.U.K.

(2)No body corporate shall be eligible for appointment as the responsible person for [F121a taxable field] unless it is resident in the United Kingdom, and no partnership shall be so eligible unless all its members are resident there.

(3)The participators in [F121a taxable field] shall, by notice in writing to the Board within the initial period, nominate a body corporate or a partnership for appointment as the responsible person for that oil field and, if the Board approve the nomination, the Board shall appoint that body or partnership as the responsible person and give it notice that it has been so appointed.

(4)If—

(a)the participators have made no nomination within the initial period; or

(b)the Board do not appoint the body or partnership nominated under sub-paragraph (3) above,

the Board shall appoint one of the participators in [F121the taxable field] as the responsible person for the field and shall give notice to that participator that he has been so appointed.

(5)For the purposes of the preceding provisions of this paragraph, the initial period is the period of thirty days beginning with the latest date on which notice of determination of [F121the taxable field] is given to any of the participators under paragraph 4 of Schedule 1 to this Act.

(6)The Board may at any time, on the application of all the participators in [F121a taxable field], appoint a body corporate or partnership nominated by the participators as the responsible person for that field in place of the body corporate or partnership which is the responsible person at that time, and shall give the body or partnership so appointed notice that it has been so appointed.

(7)The Board may, by notice in writing to the body corporate or partnership which is for the time being the responsible person for [F121a taxable field], revoke the appointment of that body or partnership as the responsible person for that field; and where they do so the Board shall appoint one of the participators in [F121the taxable field] as the responsible person for that field and shall give notice to the participator that he has been so appointed.

(8)In this paragraph “participator”, in relation to [F121a taxable field], means a person who is a licensee in respect of any licensed area wholly or partly included in the field.

Returns by the responsible personU.K.

5(1)The responsible person for [F122a taxable field]shall, for each chargeable period, prepare and, within one month after the end of the period, deliver to the Board a return for that period complying with sub-paragraphs (2) and (3) below; but nothing in this sub-paragraph shall require the responsible person to deliver a return under this paragraph before 31st July 1975.

(2)A return under this paragraph for a chargeable period shall—

(a)state the quantity of oil won and saved from [F122the taxable field] during the period;

(b)state the respective interests of the participators in the field in that oil;

(c)state what, in accordance with those interests, is each participator’s share of that oil; and

(d)contain such other particulars of or relating to the field as the Board may require.

[F123(2A)The reference in sub-paragraph (2)(d) above to particulars of or relating to the field includes a reference to particulars required for determining the amount by which any qualifying tariff receipts, within the meaning of section 9 of the Oil Taxation Act 1983, are to be treated as reduced by virtue of that section.]

[F124(2B)If in any chargeable period oil won from [F122the taxable field] is mixed as mentioned in section 63 of the Finance Act 1987 so as to give rise to blended oil, within the meaning of that section, then, as respects that chargeable period, for paragraph (a) of sub-paragraph (2) above there shall be substituted the following paragraph—

“(a)state the total of the shares of the participators in [F122the taxable field] of the oil won from the field during the period less so much of the oil won from the field as is not saved”.]

(3)A return under this paragraph shall be in such form as the Board may prescribe and shall include a declaration that the return is correct and complete.

6(1)If the responsible person fails to deliver a return within the time allowed for doing so under paragraph 5(1) above he shall be liable—U.K.

(a)to a penalty not exceeding £500, and

(b)if the failure continues after it has been declared by the court or Commissioners before whom proceedings for the penalty have been commenced, to a further penalty not exceeding £100 for each day on which the failure so continues.

(2)The responsible person shall not be liable to any penalty incurred under sub-paragraph (1) above for failure to deliver a return if the failure is remedied before proceedings for the recovery of the penalty are commenced.

Production of accounts, books and other informationU.K.

F1257U.K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Incorrect returns, accounts, etc.U.K.

8(1)Where a participator in [F126a taxable field] fraudulently or negligently—U.K.

(a)delivers an incorrect return under paragraph 2 above; or

(b)makes any incorrect statement or declaration in connection with any claim under this Part of this Act for the allowance of any expenditure or for any relief in respect of the tax; or

(c)submits to the Board or the Special Commissioners any incorrect accounts in connection with the ascertainment of the participator’s liability to the tax,

the participator shall be liable to a penalty not exceeding the aggregate of—

(i)£50, and

(ii)the amount or, in the case of fraud, twice the amount, of the difference specified in sub-paragraph (2) below.

(2)The difference is that between—

(a)the amount of tax payable by the participator—

(i)for the chargeable period to which the return relates; or

(ii)for the next chargeable period ending after the allowance of the claim; or

(iii)for the chargeable period or periods against which the relief is claimed; or

(iv)for the chargeable period or periods for which the accounts are relevant,

as the case may be; and

(b)the amount which would have been the amount so payable if the return, statement, declaration or accounts as made or submitted by him had been correct.

(3)Where the responsible person for [F126a taxable field] fraudulently or negligently—

(a)delivers an incorrect return under paragraph 5 above; or

(b)makes any incorrect statement or declaration in connection with any claim under this Part of this Act for the allowance of any expenditure,

the responsible person shall be liable to a penalty not exceeding £2,500 or, in the case of fraud on his part, £5,000.

9(1)Where any such return, statement, declaration or accounts as are mentioned in paragraph 8 above were made or submitted by any person neither fraudulently nor negligently and it comes to his notice that they were incorrect, then, unless the error is remedied without unreasonable delay, the return, statement, declaration or accounts shall be treated as having been negligently made or submitted by the first-mentioned person.U.K.

(2)Where any such return, statement, declaration or accounts were made or submitted by the responsible person for [F127a taxable field] neither fraudulently nor negligently and it comes to the notice of any person who subsequently becomes the responsible person for that field that they were incorrect, then, unless the error is remedied without unreasonable delay, the return, statement, declaration or accounts shall be treated as having been negligently made or submitted by the responsible person to whose notice the incorrectness came.

(3)For the purposes of paragraph 8 above, any accounts submitted on behalf of any person shall be deemed to have been submitted by that person unless he proves that they were submitted without his consent or connivance.

Assessments to tax and determinations of loss, etc.U.K.

10(1)Where it appears to the Board that, in accordance with the provisions of this Part of this Act, an assessable profit has accrued to a participator in a chargeable period from [F128a taxable field], they shall make an assessment to tax on the participator and shall give him notice of the assessment.U.K.

(2)Where it appears to the Board that, in accordance with those provisions, an allowable loss has accrued to a participator in a chargeable period from [F128a taxable field], they shall make a determination that the loss is allowable to the participator and shall give him notice of the determination.

(3)Where it appears to the Board that, in accordance with those provisions, neither an assessable profit nor an allowable loss has accrued to a participator in a chargeable period, they shall make a determination to that effect and shall give him notice of the determination.

(4)A notice of assessment for a chargeable period shall state the amount of any allowable losses which, in accordance with those provisions, have been set against the assessable profit for that period.

(5)A notice of assessment or determination shall state that the participator may appeal against the assessment or determination in accordance with paragraph 14 below.

(6)After the service of the notice of assessment or the notice of determination the assessment or determination, as the case may be, shall not be altered except in accordance with the express provisions of this Part of this Act (including the provisions applied by paragraph 1 above).

11(1)Where a participator has under paragraph 2 above delivered to the Board a return for a chargeable period and the Board are satisfied that the information given in the return is correct in so far as it is material for the purpose of computing his assessable profit or allowable loss (if any) for that period, the Board shall (in so far as the computation falls to be made by reference to the matters dealt with in the return) make the assessment or determination under paragraph 10 above in accordance with the return.U.K.

(2)Where the Board are not so satisfied in relation to a participator’s return or a participator fails to deliver to the Board a return for a chargeable period as required by paragraph 2 above, the Board shall, in so far as the computation of his assessable profit or allowable loss (if any) for that period falls to be made by reference to the matters which were dealt with in the return or, as the case may be, ought to have been dealt with in a return, make the assessment or determination under paragraph 10 above to the best of their judgment.

(3)Nothing in sub-paragraph (2) above or in paragraph 5 above shall be taken, in a case where the participator has delivered a return as to which the Board are not satisfied as mentioned in sub-paragraph (1) above, to prevent the Board from basing their assessment or determination on the participator’s having had an interest in oil won and saved from the field different from that on which he based his return.

12(1)Where it appears to the Board—U.K.

(a)that the assessable profit charged to tax by or stated in an assessment ought to be or to have been larger or smaller; or

(b)that the allowable loss stated in an assessment or a determination of loss ought to be or to have been larger or smaller; or

(c)that, where they made a determination that neither an assessable profit nor an allowable loss accrued in a chargeable period, they ought to have made an assessment to tax or a determination of loss for that period, [F129or]

[F130(d)that for any chargeable period they ought to have made an assessment to tax instead of a determination of loss or a determination of loss instead of an assessment to tax];

the Board may make such assessments or determinations or such amendments of assessments or determinations as may be necessary; and where the Board exercise any of their powers under this paragraph in relation to a chargeable period, they may make such [F131assessments or determinations or amendments of assessments or determinations] for other chargeable periods as may be necessary in consequence of the exercise of those powers[F132and “taxable field” and “non-taxable field” have the same meaning as in Part III of the Finance Act 1993].

(2)Where under sub-paragraph (1) above it appears to the Board that the assessable profit for a chargeable period ought to have been larger and that the deficiency resulted from an excessive allowable loss accruing in a subsequent period having been set against the profit for that period, the Board may (notwithstanding anything in section 34 of the M19Taxes Management Act 1970 (ordinary time limit for assessments)) make a further assessment by virtue of sub-paragraph (1) above at any time not later than six years after the end of the chargeable period in which the allowable loss accrued.

[F133(3)Where under this paragraph the Board make an assessment or determination or amend an assessment or determination they shall give notice thereof to the participator concerned; and sub-paragraphs (4), (5) and (6) of paragraph 10 above shall apply in relation to any such assessment, determination or amendment as they apply in relation to an assessment or determination under that paragraph.]

Payment of taxU.K.

13U.K.Subject to paragraph 14 below, the tax charged in an assessment made on a participator for any chargeable period [F135and payable shall be due within six months] after the end of that chargeable period or, if later, thirty days after the date of issue of the notice of assessment; but no tax shall be payable by virtue of this paragraph before 30th April 1976.

AppealsU.K.

14(1)A participator may appeal to the Special Commissioners against an assessment or determination [F136or an amendment of an assessment or determination] made on or in relation to him by notice of appeal in writing given to the Board within thirty days after the date of issue of the notice of assessment or determination [F136or of the notice of the amendment].U.K.

(2)The notice of appeal shall specify the grounds of appeal, but on the hearing of the appeal the Commissioners may allow the appellant to put forward any ground not specified in the notice, and may take it into consideration if satisfied that the omission was not wilful or unreasonable.

(3)A participator who has given notice of appeal under sub-paragraph (1) above against an assessment charging him with any tax for a chargeable period may, if he delivered a return for that period as required by paragraph 2 above, withhold, until the determination or abandonment of the appeal, so much of the tax charged in the assessment as is the smaller of—

(a)the amount of the tax so charged; and

(b)tax on the difference between—

(i)the aggregate of the consideration received or receivable for oil as stated in the participator’s return in pursuance of sub-paragraph (2) of that paragraph and, subject to sub-paragraph (4) below, the market value of oil as so stated; and

(ii)the aggregate of the corresponding consideration and value as included in the assessment.

(4)Subject to sub-paragraph (5) below, where the market value of all the oil for which a market value is stated in the participator’s return is, as stated in that return, less than the value which is produced for that oil by applying to it the average price mentioned in sub-paragraph (6) below, sub-paragraph (3) above shall have effect as if, for the reference to the market value of oil as so stated, there were substituted a reference to the value which is so produced for that oil.

(5)The comparison of values and the substitution required by sub-paragraph (4) above shall, in the case of an appeal by a participator whose return relates both to gas and to other oil, be made separately for the gas and for the other oil.

(6)The average price referred to in sub-paragraph (4) above is the average price at which all oil included in the relevant returns as oil delivered in the period covered by the returns and disposed of in sales at arm’s length was so disposed of.

(7)The relevant returns for the purposes of sub-paragraph (6) above are all the returns of all the participators in all oil fields which—

(a)were made for the chargeable period preceding that to which the appeal relates; and

(b)were delivered before the end of the chargeable period to which the appeal relates.

(8)The participator may at any time, if the Board do not object to his doing so, abandon an appeal instituted by him; and for this purpose he shall notify his desire to do so to the Board who may, within thirty days after being so notified, object by notice in writing to the participator.

(9)Where, at any time between—

(a)the giving of a notice of appeal against the assessment [F137determination or amendment] or from a decision of the Board on a claim under section 33 of the M20Taxes Management Act 1970 as applied by paragraph 1 above, and

(b)the determination of the appeal by the Special Commissioners,

the Board and the participator agree [F137on how the assessment, determination, amendment or decision should be varied or on what assessment or determination should be substituted in relation to the chargeable period in question, the same consequences shall ensue as if the Commissioners had determined the appeal to that effect].

[F138(10)If, on the appeal, it appears to a majority of the Commissioners present at the hearing that the assessment, determination or amendment is wrong—

(a)because no, or a smaller, assessable profit or a, or a larger, allowable loss has accrued for the chargeable period in question; or

(b)because a, or a larger, assessable profit or no, or a smaller, allowable loss has accrued for that period,

the Commissioners shall vary the assessment, determination or amendment in such manner, or substitute such assessment or determination, as may be required; and it shall be for the participator to satisfy the Commissioners as to any matter within paragraph (a) above.]

(11)Save as otherwise provided by this Schedule (including the provisions applied by paragraph 1 above), [F139the determination by the Special Commissioners of any appeal] under this Part of this Act shall be final and conclusive.

Interest on taxU.K.

15(1)Subject to sub-paragraph (2) below, tax charged in an assessment for a chargeable period shall carry interest at the [F140rate applicable under section 178 of the Finance Act 1989] from [F141two months] after the end of the period until payment.U.K.

(2)Nothing in sub-paragraph (1) above shall authorise or require interest to be charged from any time before 30th April 1976.

(3)Where, under paragraph 14(3) above, tax may be withheld until the determination or abandonment of an appeal, the interest on that tax may also be withheld until the determination or abandonment of the appeal.

16U.K.[F142Subject to paragraph 17 below] where any amount of tax charged by an assessment to tax [F143or paid on account of tax so charged] becomes repayable under any provision of this Part of this Act that amount shall carry interest at the [F144rate applicable under section 178 of the Finance Act 1989][F145from—

(a)two months after the end of the chargeable period for which the assessment was made; or

(b)the date on which it was paid,

whichever is the later, until [F146the order for repayment is issued]].

[F14717(1)This paragraph applies where—U.K.

(a)an assessment made on a participator for a chargeable period or an amendment of such an assessment (in this paragraph referred to as “the relevant assessment or amendment”) gives effect to relief under subsection (2) of subsection (3) of section 7 of this Act for one or more allowable losses accruing in a later chargeable period (in this paragraph referred to, in relation to the relevant assessment or amendment, as “the relief for losses carried back”); and

(b)the later chargeable period referred to in paragraph (a) above ends after 30th June 1991; and

(c)an amount of tax becomes repayable to the participator by virtue of the relevant assessment or amendment (whether wholly or partly by reason of giving effect to the relief for losses carried back).

(2)In the following provisions of this paragraph, so much of the repayment of tax referred to in sub-paragraph (1)(c) above as is attributable to giving effect to the relief for losses carried back is referred to as “the appropriate repayment”[F148 and, in relation to the appropriate repayment, the chargeable period for which the relevant assessment or amendment is made is referred to as “the repayment period”].

(3)For the purpose of determining the amount of the appropriate repayment in a case where the relevant assessment or amendment not only gives effect to the relief for losses carried back but also takes account of any other matter (whether a relief or not) which goes to reduce the assessable profit of the period in question or otherwise to reduce the tax payable for that period, the amount of the repayment which is attributable to the relief for losses carried back is the difference between)—

(a)the total amount of tax repayable by virtue of the relevant assessment or amendment; and

(b)the amount of tax (if any) which would have been so repayable if no account had been taken of the relief for losses carried back.

(4)[F149Subject to sub-paragraph (6) below]Where this paragraph applies, the amount of interest which, by virtue of paragraph 16 above [F150which is treated as reducing the assessable profit of the repayment period], is carried by the appropriate repayment shall not exceed the difference between—

(a)[F151the relevant percentage of the amount] of the allowable loss or losses referred to in sub-paragraph (1)(a) above; and

(b)the amount of the appropriate repayment.]

[F152(5)For the purposes of sub-paragraph (4)(a) above—

(a)where the repayment period ends on or before 30th June 1993, the relevant percentage, in relation to the amount of the loss or losses which is treated as reducing the assessable profit accruing to the participator for that period is 85 per cent.; and

(b)in relation to the amount of the loss or losses which is treated as reducing the assessable profit accruing to the participator for any later repayment period, the relevant percentage is 60 per cent.

(6)If, in order to give effect to the relief for losses carried back, a repayment of APRT falls, or will on the making of a claim fall, to be made with respect to a chargeable period which is the repayment period in relation to the appropriate repayment, the reference in sub-paragraph (4)(b) above to the appropriate repayment shall be construed as a reference to the aggregate of that repayment and the repayment of APRT.

(7)In sub-paragraph (6) above “APRT” means advance petroleum revenue tax paid under Chapter II of Part VI of the M21Finance Act 1982.]

Section 1.

SCHEDULE 3U.K. Petroleum Revenue Tax: Miscellaneous Provisions

Definition of sale of oil at arm’s lengthU.K.

1(1)For the purposes of this Part of this Act a sale of any oil is a sale at arm’s length if, but only if, the following conditions are satisfied with respect to the contract of sale, that is to say—U.K.

(a)the contract price is the sole consideration for the sale;

(b)the terms of the sale are not affected by any commercial relationship (other than that created by the contract itself) between the seller or any person connected with the seller and the buyer or any person connected with the buyer; and

(c)neither the seller nor any person connected with him has, directly or indirectly, any interest in the subsequent resale or disposal of the oil or any product derived therefrom.

(2)Section [F153839] of the Taxes Act (connected persons) shall apply for the purposes of the preceding sub-paragraph.

Definition of market value of oilU.K.

2[F154(1)[F155Except in the case of light gases] the market value of any oil in any calendar month shall be determined for the purposes of this Part of this Act in accordance with this paragraph [and, accordingly, references in the following provisions of this paragraph to oil do not apply to light gases].U.K.

(2)Subject to the following provisions of this paragraph, the market value of any oil in a calendar month (in this paragraph referred to as “the relevant month” is the price at which oil of that kind might reasonably have been expected to be sold under a contract of sale satisfying the following conditions—

(a)the contract is for the sale of the oil at arm’s length to a willing buyer;

(b)the contract is for the delivery of the oil at a time in the relevant month;

(c)the contract is entered into within the period beginning at the beginning of the month preceding the relevant month and ending on the middle day of the relevant month or, if the Treasury by order so direct, within such other period as may be specified in the order;

(d)the contract requires the oil to have been subjected to appropriate initial treatment before delivery;

(e)the contract requires the oil to be delivered]—

[F157(f)]in the case of oil whose market value falls to be ascertained [F158as in a particular month] for the purposes of paragraph (b) of section 2(4) or paragraph (d) of section 2(5) of this Act or, subject to sub-paragraph (3) below, under paragraph 3 below for the purposes of paragraph (b) or (c) of the said section 2(5), the contract is for the sale of the whole quantity of oil whose market value falls to be ascertained [F158as in that month] for the purposes of the paragraph in question, and of no other oil.

[F159and, for the avoidance of doubt, it is hereby declared that the terms as to payment which are to be implied in the contract shall be those which are customarily contained in contracts for the sale at arm’s length of oil of the kind in question][F160and, for the purposes of paragraph (c) above, the middle day of a month containing an even number of days shall be taken to be the last day of the first half of the month, and the power to make an order under that paragraph shall be exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament].

[F161(2A)For the purpose of sub-paragraph (2) above, the price of any oil in a calendar month shall be determined, subject to sub-paragraphs (2B) and (2C) below, by taking the average of the prices under actual contracts for the sale of oil of that kind—

(a)which are contracts for the sale of oil by a participator in an oil field or by a company which, for the purposes of section 115(2) of the Finance Act 1984, is associated with such a participator; and

(b)which, subject to sub-paragraph (2B) below, satisfy the conditions in paragraphs (a) to (e) of sub-paragraph (2) above;and

(c)which do not contain terms as to payment which differ from those customarily contained in contracts for the sale at arm’s length of oil of the kind in question.

(2B)For the purposes of sub-paragraph (2A)(b) above, a contract shall be treated as fulfilling the condition in paragraph (c) of sub-paragraph (2) above if it contains provisions under which the price for oil to be delivered in the relevant month either is determined or subject to review in the period relevant for the purposes of that paragraph or is determined by reference to other prices which are themselves determined in that period, being prices for oil to be delivered in the relevant month.

(2C)The average referred to in sub-paragraph (2A) above shall be determined—

(a)by establishing an average price for oil of the kind in question for each business day within the period relevant for the purposes of sub-paragraph (2)(c) above; and

(b)by taking the arithmetic mean of the average prices so established;

and in this sub-paragraph “business day” has the same meaning as in the Bills of Exchange Act 1882.

(2D)If or in so far as the Board are satisfied that it is impracticable or inappropriate to determine for the purposes of sub-paragraph (2) above the price of any oil in a calendar month as mentioned in sub-paragraph (2A) above (whether by virtue of an insufficiency of contracts satisfying the conditions or of information relating to such contracts or by virtue of the nature of the market for oil of the kind in question or for any other reason), that price shall be determined,—

(a)so far as it is practicable and appropriate to do so by reference to such other contracts (whether or not relating to oil of the same kind) and in accordance with the principles in sub-paragraph (2C) above; and

(b)so far as it is not practicable or appropriate to determine it as mentioned in paragraph (a) above, in such other manner as appears to the Board to be appropriate in the circumstances.]

(3)If oil whose market value falls to be ascertained [F158as in a particular month] under paragraph 3 below for the purposes of paragraph (b) of the said section 2(5) was not all disposed of to the same person, then the market value [F162at that time] of so much of that oil as was disposed of [F163in that month] to any one person shall be ascertained in accordance with sub-paragraphs (1) [F158to (2D)] above as if that were the only oil whose market value fell to be ascertained [F158as in that month] for those purposes (with sub-paragraph [F164(2)(f)] above applying accordingly).

[F165(3A)Where all or any of the oil whose market value falls to be ascertained in accordance with sub-paragraphs (1) and (2) above has been subjected to initial treatment before being disposed of or relevantly appropriated, the appropriate initial treatment referred to in sub-paragraph (2)(a) above shall, as respects that oil, include the whole of that treatment.]

(4)The provisions of sub-paragraphs (2) and (3) above shall apply for the ascertainment of the market value of oil in any case mentioned in paragraph 2(2) of Schedule 2 to this Act as they apply in relation to the corresponding case mentioned in those provisions.

[F1662A(1)Paragraph 2 above shall have effect in accordance with this paragraph where the oil whose market value falls to be ascertained at any time in accordance with sub-paragraphs [F167(1) to (2D)] of that paragraph, or in accordance with those sub-paragraphs as modified by sub-paragraph (3) of that paragraph, consists of or includes gas.U.K.

[F168(1A)Sub-paragraphs (2) and (3) below also apply where the market value of any light gases falls to be ascertained under paragraph 3A below.]

(2)Sub-paragraph [F167(2)(d)] of paragraph 2 above [F169or, as the case may require, sub-paragraph (2)(b) of paragraph 3A below] shall not apply to so much of the oil as consists of gas unless—

(a)it has been subjected to initial treatment before being disposed of or relevantly appropriated; or

(b)it has, after being disposed of or relevantly appropriated, been subjected to initial treatment by or on behalf of the participator in question or by or on behalf of a person who is connected with him within the meaning of section [F170839] of the Taxes Act;

and where oil consisting of gas has, whether before or after being disposed of or relevantly appropriated, been subjected to initial treatment by or on behalf of the participator in question or by or on behalf of a person who is connected with him as aforesaid the appropriate initial treatment referred to in sub-paragraph [F167(2)(d)] of paragraph 2 above [F169or, as the case may require, sub-paragraph (2)(b) of paragraph 3A below]shall include the treatment to which it has been so subjected.

(3)Where the initial treatment mentioned in sub-paragraph (2) above includes treatment in order to separate gas of one or more kinds which are transported and sold in normal commercial practice, the market value of the gas of each such kind which is separated shall be ascertained in accordance with sub-paragraphs [F167(1) to (2D)] of paragraph 2 [F171or, as the case may require, in accordance with paragraph 3A below] as if that were the only oil whose market value fell to be ascertained at the time in question (with sub-paragraph [F172(2)(f)]of paragraph 2 applying accordingly).

F173(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Aggregate market value of oil for purposes of section 2(5)U.K.

3(1)For the purposes of subsection (5) of section 2 of this Act the aggregate market value of any oil falling within paragraph (b) or (c) of that subsection shall be arrived at by ascertaining, for each calendar month in the chargeable period in question, the market value [F174at the material time] of so much, if any, of that oil as was—U.K.

(a)in the case of oil falling within the said paragraph (b), delivered as there mentioned in that month; or

(b)in the case of oil falling within the said paragraph (c), appropriated as there mentioned in that month,

and, in either case, aggregating the market values so ascertained.

(2)In this paragraph and elsewhere in this Part of this Act “calendar month” (where those words are used) means a month of the calendar year, [F174and “the material time”, in relation to a calendar month, means noon on the relevant day, that is to say—

(a)for a month containing an odd number of days, the middle day of the month;

(b)for a month containing an even number of days, the last day of the first half of the month].

[F175 Definition of market value of light gases]U.K.

[F1763A(1)The market value of any light gases for the purposes of this Part of this Act is the price at which, having regard to all the circumstances relevant to the disposal or appropriation in question, light gases of that kind might reasonably have been expected to be sold under a contract of sale satisfying the conditions specified in sub-paragraph (2) below.

(2)The conditions referred to in sub-paragraph (1) above are that—

(a)the contract is for the sale of the gases at arm’s length to a willing buyer;

(b)the contract requires the gases to have been subjected to appropriate initial treatment before delivery; and

(c)the contract requires the gases to be delivered—

(i)in the case of gases extracted in the United Kingdom, at the place of extraction; or

(ii)in the case of gases extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom or another country at which the seller could reasonably be expected to deliver the gases or, if there is more than one such place, the one nearest to the place of extraction.

(3)If the circumstances referred to in sub-paragraph (1) above are such that the price referred to in that sub-paragraph might reasonably be expected to include—

(a)any such payments as are referred to in subsection (2) of section 114 of the Finance Act 1984 (treatment of certain payments relating to gas sales), or

(b)any capacity payments, as defined in subsection (5) of that section,

section 114 of the Finance Act 1984 shall apply accordingly in relation to the notional contract specified in sub-paragraph (1) above as it applies in relation to an actual contract.

(4)This paragraph has effect subject to sub-paragraphs (2) and (3) of paragraph 2A above.]

Oil delivered in place of royalties to be disregarded for certain purposesU.K.

4Oil delivered to the Secretary of State under the terms of a licence granted under the M22Petroleum (Production) Act 1934 shall be disregarded for the purposes of section 2(5) of this Act and for the purposes of the references in section 8(3) and (4) of this Act to a participator’s share of the oil won and saved from an oil field in a chargeable period.

Effect of transfer to an associated company of participator’s rights etc. in connection with an oil field or relevant licenceU.K.

5(1)This paragraph applies to any agreement or other arrangement between a participator in an oil field and a company associated with the participator whereby—U.K.

(a)ownership of all or any of the participator’s share of the oil won and saved from the field is transferred to the company; and

(b)the company obtains or assumes all or any of the participator’s other rights, interests and obligations in connection with the field or any relevant licence.

(2)As regards any chargeable period in which a participator in an oil field is a party to an arrangement to which this paragraph applies, the other party to the arrangement shall be treated for all purposes of this Part of this Act (except this paragraph) and for the purposes of [F177section 500 of the Taxes Act] as having been a participator in the field at all times when the actual participator was such a participator (including times before the arrangement was made), and shall be assessable and chargeable to tax and entitled to make any claim under this Part of this Act, and any deduction or claim under [F177section 500 of the Taxes Act], accordingly.

(3)Where a participator in an oil field is or has been a party to an arrangement to which this paragraph applies then for all purposes of this Part of this Act—

(a)anything done by or in relation to the participator in connection with the field or any relevant licence shall be treated as being or having been done by or, as the case may be, in relation to the other party to the arrangement; and

(b)all rights, interests or obligations of the participator in connection with the field or any relevant licence shall be treated as being or having been rights, interests or obligations of the other party.

(4)Where a participator in an oil field is or has been a party to an arrangement to which this paragraph applies, then, if any tax or interest payable under this Part of this Act by the other party to the arrangement is not paid within thirty days after the date on which it becomes payable, the Board may by notice in writing require the participator to pay that tax or interest; and where such a notice is served on the participator, the tax or interest in question shall be payable by him forthwith, but without prejudice to the Board’s right to recover it from the other party.

(5)For the purposes of this paragraph “company” means any body corporate, and a participator in an oil field and another company are associated with one another if—

(a)the participator has control over or is under the control of the other company; or

(b)the participator and the other company are both under the control of the same person or persons;

and in this sub-paragraph “control” has the meaning given by section [F178840] of the Taxes Act.

Oil owned by a person other than a participator in the oil field from which it was wonU.K.

6(1)Where a proportion of a participator’s share in the oil won and saved from an oil field (as distinct from a specific quantity of oil comprised in that share) is owned by [F179a person (in this paragraph referred to as “the owner”) who is not a participator and] who acquired it (whether directly or indirectly) under an agreement to which paragraph 5 above does not apply, the following provisions of this paragraph shall have effect.U.K.

(2)For the purposes of this Part of this Act the oil acquired by the owner under the agreement shall be treated in every case as having been disposed of to him by the participator otherwise than in a sale at arm’s length.

(3)Where any oil which the owner owns in right of the agreement is in pursuance of the agreement—

(a)delivered to the owner by the participator; or

(b)delivered to a third person by the participator acting on behalf of the owner,

the delivery shall for the purposes of this Part of this Act be regarded as a delivery by the participator although he does not own the oil.

(4)This sub-paragraph applies to all such oil (if any) as, being owned by the owner in right of the agreement, is in any chargeable period delivered by the participator as mentioned in the preceding sub-paragraph and would accordingly, apart from the following sub-paragraph, fall to be brought into account under section 2(5)(b) of this Act in computing the assessable profit or allowable loss accruing to the participator in that period (in the following sub-paragraph referred to as “the relevant period”).

(5)If on a claim made by the participator within two months after the end of the relevant period—

(a)it is shown that some or all of the oil to which sub-paragraph (4) above applies has been disposed of by or on behalf of the owner crude in sales at arm’s length; and

(b)the Board are satisfied that the oil with respect to which it is so shown includes the whole of so much of the oil to which that sub-paragraph applies as has been so disposed of,

then, in computing the assessable profit or allowable loss accruing to the participator in the relevant period, the oil with respect to which it is so shown shall be brought into account by reference to the price received or receivable for it by the owner instead of by reference to its market value.

[F180 Effect of certain transactions between participatorsU.K.

6AU.K.Where the whole or part of the share of a participator (“the transferor”) of oil won from an oil field became the share, or part of the share, of another participator (“the transferee”) in pursuance of an agreement between them under which the transferor undertook to remain responsible for carrying out the transferee’s obligations in connection with the field so far as they relate to the transferred share or part, then, for the purposes of this Part of this Act—

(a)the shares of the transferor and the transferee of oil won from the field shall be taken to be the same as they would have been if the transfer had not occurred, and

(b)any oil comprised in the transferred share or part and taken up by or on the authority of the transferee in pursuance of the agreement shall be regarded as being disposed of and delivered to him by the transferor at the time when it is taken up.]

Exclusion from section 2(4)(b) and (5)(d) of offshore oil in transit to place of first landing F181. . .U.K.

7U.K.In computing the assessable profit or allowable loss accruing to a participator in a chargeable period from an oil field, the market value of any oil won as mentioned in section 3(1)(f) of this Act—

(a)shall not be taken into account under section 2(4)(b) of this Act if and to the extent that at the end of the preceding chargeable period the oil was in the course of being transported to the place where it was first landed in the United Kingdom [F182or to the place referred to in section 3(1)(f)(ii) of this Act]; and

(b)shall not be taken into account under section 2(5)(d) of this Act if and to the extent that at the end of the first-mentioned chargeable period the oil was in the course of being so transported.

Certain subsidised expenditure to be disregardedU.K.

8(1)Expenditure shall not be regarded for any of the purposes of this Part of this Act as having been incurred by any person in so far as it has been or is to be met directly or indirectly by the Crown or by any government or public or local authority, whether in the United Kingdom or elsewhere, or by any person other than the first-mentioned person, [F183unless it is so met by a grant made under Part I of the M23Industry Act 1972 or a grant made under an enactment of the Parliament of Northern Ireland or Measure of the Northern Ireland Assembly and declared by order of the Treasury under section 84 of the M24Capital Allowances Act 1968 to correspond to a grant made under the said Part I].U.K.

(2)In considering, for the purposes of this paragraph, how far any expenditure has been or is to be met directly or indirectly by the Crown or by any authority or person other than the person incurring the expenditure, there shall be left out of account any insurance or compensation payable in respect of the loss or destruction of any asset.

Election to have amounts mentioned in section 2(9)(b) and (c) spreadU.K.

[F1849(1)A participator in an oil field may by notice in writing to the Board elect—U.K.

(a)that the relief for supplemented expenditure to be taken into account in computing the assessable profit or allowable loss accruing to him from the field in the chargeable period specified in the notice shall not exceed such amount as is so specified; and

(b)that any excess shall be dealt with in accordance with the following provisions of this paragraph.

(2)Subject to sub-paragraphs (3) and (4) below, one-twentieth of any excess of the relief over the amount specified for the chargeable period in question shall be taken into account in computing the assessable profit or allowable loss accruing to the participator from the field in each of the next twenty chargeable periods.

(3)A participator may, in the first notice given by him under sub-paragraph (1) above in respect of a field, elect that sub-paragraph (2) above shall have effect in relation to that and any subsequent notice given by him in respect of that field with the substitution for the denominator of the fraction and the number of chargeable periods of such number, being three, five, ten or fifteen, as is specified in the election.

(4)A participator may by a notice in writing given to the Board and applying to any of the chargeable periods referred to in sub-paragraph (2) above before the last elect that so much of the excess as has not been taken into account in a previous chargeable period shall be taken into account in the period specified in the notice instead of partly in that period and partly in the subsequent periods.

(5)Any notice under this paragraph shall be in such form as the Board may prescribe and shall be given within three months after the end of the chargeable period to which it relates or, if later, twenty-seven months after the end of the first chargeable period of the field.

(6)Any tax charged or repayable in respect of the first four chargeable periods of an oil field in consequence of an election under this paragraph shall not carry interest under paragraph 15 or 16 of Schedule 2 to this Act in respect of any period before the date of the election.

(7)In this paragraph “relief for supplemented expenditure” means the amount attributable to expenditure qualifying for supplement under paragraph (b)(ii) or (c)(ii) of section 2(9) of this Act which would, apart from any election under this paragraph, fall to be taken into account under paragraph (b) or (c) of section 2(9) in computing the assessable profit or allowable loss accruing to the participator from the field in the chargeable period in question; and the reference in this sub-paragraph to the amount attributable to expenditure qualifying for supplement as aforesaid includes the amount attributable to the expenditure itself as well as to the amount calculated by reference to it under the said paragraph (b)(ii) or (c)(ii).]

[F18510U.K.Where a participator has made an election under paragraph 9(1) above the reduction to be made in his case under section 8(1) of this Act for any chargeable period (whether or not that to which the election relates) shall not be greater than it would have been if he had made no such election.]

Restriction of amount of reduction under section 8(1)U.K.

11U.K.Where—

(a)a claim under Schedule 5 or 6 to this Act is made after the relevant time; and

(b)the reduction which would, apart from this paragraph, fall to be made under subsection (1) of section 8 of this Act for any chargeable period is greater than it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time,

then, if the Board so direct, the reduction made under that subsection for that chargeable period shall be only what it would have been if the expenditure and other amounts allowed on the claim had been claimed before and allowed at the relevant time.

In this paragraph “the relevant time” means the end of twelve months from the end of the claim period to which the claim mentioned in sub-paragraph (a) above relates.

Sections 3 and 4.

SCHEDULE 4U.K. Provisions Supplementary to Sections 3 and 4

Restrictions on expenditure allowable under section 3 or 4U.K.

1(1)Expenditure incurred by any person in the acquisition of an asset is not allowable under section 3 or 4 of this Act for an oil field if expenditure previously incurred by another person in acquiring, bringing into existence, or enhancing the value of that asset is allowable under that section for that field.U.K.

Section 4(13) of this Act applies to the preceding provisions of this sub-paragraph.

(2)Sub-paragraph (1) above shall, with any necessary modifications, have effect in relation to expenditure incurred by a person—

(a)in renting or hiring an asset or any interest in an asset; or

(b)for the provision of services or other business facilities of whatever kind; or

(c)for the grant or transfer to him of any right, licence or interest (other than an interest in an asset),

as it has effect in relation to expenditure incurred in the acquisition of, or of an interest in, an asset.

2[F186(1)Where, in a transaction to which this paragraph applies, a person has incurred expenditure in acquiring, bringing into existence or enhancing the value of an asset, he shall at any time be treated for the purposes of—U.K.

(a)sections 3 and 4 of this Act, and

(b)sections 3 and 4 of and Schedule 1 to the M25Oil Taxation Act 1983,

as having incurred that expenditure only to the extent that it does not exceed expenditure (other than loan expenditure) incurred up to that time in a transaction to which this paragraph does not apply (or, if there has been more than one such transaction, the later or latest of them) in acquiring, bringing into existence or enhancing the value of, that asset.

(1A)Subsections (1) to (3) of section 191 of the Finance Act 1993 apply to determine for the purposes of this paragraph what expenditure has at any time been incurred under a transaction to which this paragraph does not apply, as they apply in relation to expenditure for the allowance of which a claim is received by the Board after 16th March 1993.

(1B)In sub-paragraph (1) above “loan expenditure” means expenditure in respect of interest or any other pecuniary obligation incurred in obtaining a loan or any other form of credit.]

(2)This paragraph applies to any transaction between connected persons and to any transaction made otherwise than at arm’s length; and for the purposes of this paragraph a person is connected with another person if [F187they are connected within the meaning of section [F188839] of the Taxes Act].

[F189(3)The preceding provisions of this section shall, with any necessary modification, apply in relation to expenditure incurred by any person in acquiring an interest in an asset or in bringing into existence an asset in which he is to have an interest, or in enhancing the value of an asset in which he has an interest, as those provisions apply in relation to expenditure incurred by a person in acquiring, bringing into existence, or enhancing the value of an asset, as the case may be.

(4)The provisions of sub-paragraphs (1) to (2) above shall, with any necessary modification, apply in relation to expenditure incurred by any person in respect of—

(a)the use of an asset (including expenditure on renting or hiring), or

(b)the provision of services or other business facilities of whatever kind in connection with the use, otherwise than by that person, of an asset,

as they have effect in relation to expenditure incurred in the acquisition of, or of an interest in, an asset.]

3(1)This paragraph applies in the case of any oil field from which oil began to be won in commercial quantities before 13th November 1974.U.K.

(2)Expenditure incurred before that date which, apart from this paragraph, would be allowable under section 3 or 4 of this Act for an oil field shall be so allowable only to the extent that it was incurred—

(a)in connection with that field for one or more of the purposes mentioned in paragraphs (a) to (c) of section 3(1) of this Act; or

(b)in acquiring, bringing into existence, or enhancing the value of an asset used on or after that date in connection with the field.