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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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PRT: unitisations and re-determinations - purchase of licence interests - no PRT field yet determined

Where company B makes a cash payment to company A, by means of which B acquires A’s entire interest in a licence then, if there is no determined PRT field at the date of the transfer of their licence, company B cannot claim any of that expenditure under the rules of Schedule 7, irrespective of whether the sum paid by it is a reimbursement of actual costs or a lump sum. (OTA75\S3(4)(e) applied by reference to OTA75\S5(4) and OTA75\S5A(4)).

However if company A had previously been allowed its original expenditure on the licence under the abortive exploration expenditure rules, there would be a claw back under the provisions of OTA75\S5(6).

If company A had previously been allowed its original expenditure on the licence incurred after 16 March 1983 under the rules of Section 5A OTA 1975 then whether any reimbursement received after that date falls to be dealt with as a qualifying receipt, and subject to the rules in FA83\Sch8\Para11, depends on the facts of the case and the transfer agreements. Any sum identifiable as being in respect of seismic data changing hands would fall to be dealt with as a qualifying receipt. Otherwise it is likely that the sum received by A would be for the assignment of rights and hence OTA75\S5A(5)(c)(ii) will apply to exclude the operation of OTA75\S5(6) in this respect.

If a field is subsequently determined, company B will be the company which has an interest in the oil field and will thus be able to claim A’s historic field costs under the normal rules of Schedule 5. To the extent any sum paid to A is over and above historic costs, OTA75\S3(4)(e) will apply to prevent relief.

If A has been given exploration and appraisal relief under Section 5A OTA 1975 before the field was determined he is, nevertheless, by definition (OTA75\S12(1)) still a participator in the first chargeable period of the field even though he has disposed of his entire interest to B. OTA75\S3(3) will still apply to prevent double relief and the relevant restriction needs to be made to B’s share of the Schedule 5 claim(s). (See also OT04390 regarding the return on the first field PRT1 of expenditure previously claimed by a participator under Section 5A OTA 1975. In this instance A will have had no incomings and will not have been required to complete Form PRT1).