Oil Taxation Act 1975

PART I — PETROLEUM REVENUE TAX

Petroleum revenue tax

1

• (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 Part I of the Petroleum Act 1998 or the Petroleum (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 which is a taxable field the tax shall, in the case of each participator, be charged at the rate of 0 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 metric tonnes (counting 1,100 cubic metres of gas at a temperature of 15 degrees centigrade and pressure of one atmosphere as equivalent to one metric 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.

Assessable profits and allowable losses

2

• (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) For 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, on the last business day of the preceding chargeable period, of so much of his share of oil won from the field as he had at 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) Subject to subsections (5A) and (5B) 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 (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 (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

• (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, on the last business day of the period, of so much of his share of oil so won as he had at the end of that period either—

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

• (ii) disposed of but not delivered and

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

• (5A) In any case where oil 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 oil from a place on land in the United Kingdom or another country, or from its place of extraction (where that is in the territorial sea of the United Kingdom or a designated area), 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 oil shall be deemed to be that for which it would have been sold, and

• (b) the oil shall be deemed to be delivered at the time it would have been delivered,

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

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

• (ii) in the case of oil 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, in the case of oil first landed in another country, at the place in that or any other countryat 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.

• (5B) The Board may by regulations make provision for the purposes of subsection (5)(a) to (c) for determining to which fields and in what proportions blended oil to which subsection (5C) applies is attributable.

• (5C) This subsection applies to blended oil within the meaning of section 63(1A) of the Finance Act 1987 (other than light gases) which—

• (a) is not gaseous at a temperature of 15 degrees Centigrade and a pressure of one atmosphere, and

• (b) is not normally disposed of crude by deliveries in quantities of 25,000 metric tonnes or less.

• (5D) Regulations under subsection (5B)—

• (a) may apply generally or only to specified cases or circumstances,

• (b) may make different provision for different cases or circumstances,

• (c) may make incidental, consequential, or transitional provision,

• (d) shall be made by statutory instrument, and

• (e) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

• (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 OGA 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 sum of the amounts mentioned in subsection (9) below.

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

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (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 35 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 35 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 ; and

• (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; and

• (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.

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• (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance of expenditure (other than expenditure on long-term assets and abortive exploration expenditure)

3

• (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 subject 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 OGA 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

• (i) to the place where it is first landed in the United Kingdom or

• (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;

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

• (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.

• (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) any expenditure incurred by a participator in a taxable field would, apart from this subsection, be allowable for the field under subsection (1)(i) or (j) above, and

• (b) the qualifying asset that is relevant to the incurring of that expenditure has at some time been used otherwise than for a qualifying purpose,

only the relevant portion of the expenditure is allowable for the field under subsection (1)(i) or (j) above.

• (1D) In subsection (1C) above “the relevant portion” of the expenditure is the portion of the expenditure that it is just and reasonable to apportion to use of the asset that is use for a qualifying purpose.

• (1DA) In subsections (1C) and (1D) a reference to use for a qualifying purpose is a reference to—

• (a) use in connection with the taxable field mentioned in subsection (1C), and

• (b) other use in—

• (i) the United Kingdom,

• (ii) the territorial sea of the United Kingdom, or

• (iii) a designated area,

except use wholly or partly for an ineligible oil purpose.

• (1DB) In subsection (1DA)(b) the reference to use for an ineligible oil purpose is a reference to—

• (a) use in connection with an oil field other than the taxable field mentioned in subsection (1C), and

• (b) use for any other purpose (apart from a purpose falling within section 3(1)(b)) of a separate trade consisting of activities falling within the definition of “oil-related activities” in section 274 of CTA 2010.

• (1DC) In subsections (1DA) and (1DB) a reference to use in connection with a taxable field or other oil field includes use giving rise to receipts which, for the purposes of the Oil Taxation Act 1983, are tariff receipts.

• (1E) Subsections (1C) and (1D) above have effect subject to the transitional provisions in section 102(5) to (11) of the Finance Act 2001.