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HMRC internal manual

Oil Taxation Manual

From
HM Revenue & Customs
Updated
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PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - transfer of field interests

A participator (X Ltd) sells its gas from its 10% interest in a field on a depletion basis to another company (Y Ltd) at arm’s length. Subsequently the upstream affiliate of Y Ltd buys X Ltd’s interest in the field and the gas sales agreement is assigned to it. The gas sales become non-arm’s length but there is a good case for saying that the market values should be determined by the agreement, provided that the sale of the field interest was not in contemplation at the time the gas sales agreement was signed.

In these cases LB Oil & Gas will examine the circumstances of the sale of the gas and the sale of the interest. If there is no connection between the two events then the agreement will be accepted for tax purposes. If there is a connection and if the gas sales prices appear to be low, then LB Oil & Gas will seek an appropriate increase.