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HMRC internal manual

Oil Taxation Manual

HM Revenue & Customs
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Capital gains: unitisation: dissection of adjustment payments

It has been argued that the unitisation agreement merely lays down a formula for calculating a single indivisible capital sum.

However, in Chevron Petroleum (UK) Ltd and others v BP Petroleum Development Ltd and others (57TC137), Sir Robert Megarry (V-C) saw no difficulty in dissecting the sum paid by IIPs (Increasing Interest Party) between principal and interest. In deciding that the latter was ‘interest of money’ on a pre-existing debt chargeable under Case III, he said that

“if in its nature a sum is interest of money”, I think it retains that nature even if the parties to the contract provide for it to be wrapped up with some other sum and the whole paid in the form of a single indivisible sum. The wrappings may conceal the nature of the contents but they do not alter them”.

It is also difficult to reconcile the argument that there is a single sum with the view that there is no disposal of licence interests. Such arguments are therefore resisted.