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HMRC internal manual

Oil Taxation Manual

Non-Residents Working on the UK Continental Shelf: Scope of Exploration or Exploitation Activities - Inter-affiliate leasing

Inter-affiliate leasing is not covered by the Statement of Practice SP6\84 . The HMRC general approach for such cases is outlined in OT43100.

In cases where a leasing contract is made abroad it may be argued that the non-resident carried on no activities in the UK or UK Continental Shelf and that any profits are outside the scope of CTA09\S1313. Asking “where is an activity carried on” is in some respects similar to asking “where is trading carried on”. The latter question was considered in Firestone Tyre & Rubber Co Ltd v Llewellin 37TC111. Lord Radcliffe (at page 142 et seq.) quoted with approval the words of Atkins L.J. in F L Smidth & Co v Greenwood, 8TC193 at pages 203-4

“The contracts in this case were made abroad. But I am not prepared to hold that this test is conclusive. I can imagine cases where the contract of re-sale is made abroad and yet the manufacture of the goods, some negotiation of the terms, and the complete execution of the contract takes place here under such circumstances that the trade was in truth exercised here. I think that the question is, where do the operations take place from which the profits in substance arise? “.

This test may usefully be considered in determining whether activities are carried on in the UK in cases of inter-affiliate leasing of assets on a long term basis. It might be appropriate to argue that the profit making operation is the provision of the equipment in the UK Continental Shelf on a day to day basis rather than the making of the contract outside the UK.

In cases of doubt regarding the place of performance of activities it will usually be necessary to review the contracts in detail to see what information they provide about the relevant activities and where and by whom they are to be performed. The actual working arrangements adopted should also be examined to see whether they correspond to the contractual apportionment of responsibilities.