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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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PRT: non-field expenditure - research expenditure: associated companies

Unlike OTA75\S5(1)(a) (abortive exploration) and OTA75\5A(1)(a) (exploration and appraisal (E&A)), OTA75\S5B does not include a provision enabling relief to be given for expenditure incurred by a company associated with the claimant participator company. This is because the scope of the section (subject to the various conditions) is potentially far wider than that of the other ‘non-field’ reliefs. The research subject to a claim may be conducted anywhere in the world, whereas most exploration costs will be incurred local to the allowable activity.

Since the intention of the section was to extend PRT relief to those cases where the absence of a field-specific link was the only barrier to relief, it was considered that the inclusion in S5B of such a provision might invite ill-supported attributions of global research expenditure to the UK which, because not incurred by a participator, would never become allowable for a field within the terms of OTA75\S5B(1)(e).

Payments for research by others

On the other hand, there is no requirement in OTA75\S5B that the research in question must have been undertaken directly by the claimant and LB Oil & Gas does not seek to interpret the provision in that way. The costs of research projects conducted by associated companies which are properly charged to and borne by the participator are eligible for relief (subject to the specified conditions, including the arrangements for dealing with non-arm’s length transactions, see OT13925). Payments for research carried out by some third party on behalf of the participator are likewise allowable.