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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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PRT: CIF sales - chargeable periods ended after 31 December 1993

The taxation treatment of CIF, etc., sales of crude oil described above was regarded by the oil companies as a deterrent to the use of such deals and they lobbied for a change in the law. This was put into effect by FA94\S235 for periods after 31 December 1993. OTA75\S2(5A) now applies to oil instead of just oil consisting of gas and so the treatment of all hydrocarbons is now the same.

The revised OTA75\S(5A), like its predecessor, does not include any guidance on how the appropriate FOB price should be arrived at. In discussions with companies LB Oil & Gas has said that it will normally seek to utilise actual freight costs in a netback calculation from the CIF price. It will however compare the resulting netback prices with comparable FOB prices to ensure that, over time, the prices assessed are reasonable having regard to the market in question. In dealing with CIF sales LB Oil & Gas’s concern has always been to minimise the possibility of a transfer of value from the sale of oil to the freight element. Having agreed a method of computation however, LB Oil & Gas would not normally seek to apply changes retrospectively.

To date, there has been very limited use of the legislation and the notes below, for both third party and affiliate shipping, can not be regarded as exhaustive. Where apportionment is required, simple volume apportionment may be suitable but this is by no means assured and each case should be reviewed on its merits.