Economic Report 2018


The UKCS Fiscal Regime Ring Fence Corporation Tax (RFCT) – a tax on company profits similar to normal Corporation Tax (CT), but with different rules for the treatment of losses and 100 per cent first year allowances. RFCT is set at a higher rate of 30 per cent on all profits and is not benefitting from the progressive decrease of CT to 17 per cent by 2020. Companies also pay normal CT on non-ring fence activities like refining, and all other normal taxes like employment taxes, duties, VAT, etc. Supplementary Charge (SC) - an additional layer of CT on a company’s ring fence profits excluding finance costs. The rate is currently 10 per cent. A company investing in the basin may be able to reduce its SC bill with the Investment and Cluster Area Allowances , both generated at 62.5 per cent of qualifying capital expenditure incurred, but only available to a company once activated by production income from the relevant field or cluster. Petroleum Revenue Tax (PRT) – a field-based tax on profits from individual oil fields, which applies to fields given development consent prior to 16 March 1993. With effect from 1 January 2016, PRT was permanently zero-rated. PRT is an allowable deduction to RFCT and SC purposes, and any refund of PRT is a taxable receipt for RFCT and SC purposes. The marginal tax rate currently is 40 per cent. This rate previously varied across the UKCS, and in time, and prior to 1 January 2016 was 50-70 per cent. The Ring Fence Expenditure Supplement (RFES) aims to improve investment and assists companies that have no yet taxable income. RFES uplifts losses carried forward 10 per cent per year for up to 10 years. Transferable Tax History (TTH) - As announced in the 2017 Autumn Budget, the Government will introduce TTH for UKCS asset deals approved by the OGA on or after 1 November 2018. TTH will provide an additional tool in the deal toolkit to move late-life assets into the hands of those that are best suited to prolong the life of the field. Key features of TTH once enacted: - Optional joint election between a buyer and a seller. - Seller can transfer some of its historic profit chargeable to RFCT/SC (profits on which actual cash tax was paid in past). - TTH amount is subject to commercial negotiation, capped at the cost to decommission per the Decommissioning Security Agreement (DSA). - Buyer to track the profits of the acquired field as a shadow calculation to the annual tax return. - TTH needs to be activated before it becomes part of a buyer’s tax history. This requires the field to cease production, and for the buyer to incur a net loss after decommissioning. Decommissioning Relief Deeds (DRD) - The DRD is a contract between the Government and companies operating in the UKCS. It provides companies with certainty as to their entitlement to tax relief on future decommissioning costs. The DRDs provide this certainty if: - Decommissioning tax relief available is reduced in the future compared to the 2013 position due to a change in tax law (not a change in tax rates). - A company has to pick up another company’s decommissioning liabilities, as it defaulted on its own liabilities. DRDs encourage investment in the UKCS by reducing the amount of capital tied up under the DSAs. The DRDs have unlocked £5.7 billion of investment capital since 2013, as companies can provide security on their decommissioning liabilities on a post-tax basis. S e l l e r

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