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HMRC internal manual

Oil Taxation Manual

PRT: CIF sales - chargeable periods ended before 1 January 1994

Crude Oil

Under OTA75 relief for PRT purposes for the cost of transportation is allowed only as far as the nearest reasonable place of delivery or to the place at which the seller could reasonably be expected to deliver the oil or, if there is more than one such place, the one nearest to the place of extraction (OTA75\S3(1)(f)). For pipeline crudes this point is the terminal and so no relief is available for costs incurred under sales from terminals using the CIF etc., contract terms described above.

For incomings purposes, the price received or receivable for arm’s length sales to be included in the computation of gross profit is the full contract price (OTA75\S2(5)(a)). The effect of these provisions was to tax the added value of a CIF etc sale but deny a deduction for the additional costs incurred.

Relief was originally only allowed for transport to the UK but where oil was directly exported from a field by tanker, ESCI2 allowed the costs of transport to a foreign port up to the amount that would have been allowed if the oil had been landed in the UK. This ESC was withdrawn after F2A92\S74 extended OTA75\S3(1)(f) to allow for the costs of direct export. The detailed application of OTA75\S3 and ESCI2 are dealt with at OT09175.


For periods up to and including 31 December 1981 the regime was the same as that for crude oil described above. For subsequent periods the calculation of gross profit under OTA75\S2(5) was modified by OTA75\S2(5A) in respect of certain arm’s length sales of oil consisting of gas. The section thus applied to LPGs but excluded crude oil and condensates.

OTA75\S2(5A) was introduced by FA82\S133 and states that where the terms of an arm’s length sale require the seller to deliver the gas outside the UK or to meet some or all of the costs associated therewith, the price received or receivable for the gas and the delivery point of the gas will be deemed to be what they would have been if the contract did not require such delivery or payment of costs and, instead, required delivery at the reasonable delivery point.

OTA75\S2(5A) gives no guidance on how this deemed FOB price is to be arrived at. In practice the price is usually calculated by the use of actual costs in a simple netback computation as this is felt to give a fair result. A comparison of the dates and terms of the CIF sales with similar sales on a FOB basis would offer an alternative.