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Following a Consultation Document published in 2007 at the time of the
Pre-budget Report, the Government has today confirmed that it is proceeding
with a package of reforms with regard to UK North Sea taxation.
1. Relief for decommissioning costs
It has been announced that companies will be able to carry back losses
arising in respect of decommissioning expenditure to 17 April 2002.
Previously the carry back was for a maximum of 3 years.
The Government has also announced that decommissioning expenditure incurred
following cessation of a ring fence trade should attract relief until such
time as the decommissioning has been properly completed. Previously only
expenditure incurred in the 3 years following cessation attracted relief.
2. Capital allowances
The 100% First Year Allowances regime will be extended to mid-life
decommissioning and new expenditure on long life assets.
In addition, the increased rate of writing down allowances for existing long
life assets of 10% (previously 6%) will also apply to ring fence activities.
3. Petroleum Revenue Tax
The Government has announced that former licence holders that bear a
decommissioning liability as a result of default by a subsequent licence
holder have access to PRT relief.
Companies will also be able to elect for a field to come out the PRT regime
altogether where it will not become liable to PRT due to the availability of
allowances.
In addition to the above changes, the closing of the following loophole has
been announced:
North Sea management expenses
Draft legislation has been published which, with effect from today, will
prevent companies claiming a deduction for expenses of managing an
investment business against ring fence profits.
The accompanying HMRC press release notes that the draft legislation is
intended to close a ‘loophole’ in the rules governing the taxation of ring
fence activities that arose following the relaxation in 2004 of the
provisions regarding relief for expenses of management.
Our view
The announced changes, in particular the extension of relief for
decommissioning expenditure, are a positive step and will be welcomed by
the industry. These changes are helpful as they address a number of
anomalies and concerns. However the result is not the major overhaul of
the tax system significantly enhancing the future sustainability of the
UK North Sea that some would have hoped for. |
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