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HMRC internal manual

Oil Taxation Manual

From
HM Revenue & Customs
Updated
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Non-residents working on the UK continental shelf: computation of profits: loan relationships - application to offshore contractors

The general guidance for taxing loan relationships following on from the major changes in Finance Act 2002 is at CFM50000.

The two most common situations that arise on the UK Continental Shelf are:

  • a non-resident company has significant borrowings on its vessel fleet, but most of the fleet have no connection with the UKCS, or
  • a non-resident company has a mortgage on a vessel which for part of the year has a UKCS activity.

In these circumstances, the treatment of the interest on the borrowings is governed by CTA2009\S441 and S442, which provides for a just and reasonable apportionment of the loan relationship debit so as to exclude that element related to an ‘unallowable purpose’ which, in this context, is regarded as the element not directly attributable to the activities of the UK permanent establishment. What is a ‘just and reasonable apportionment’ is arrived at by agreement between LB Oil & Gas and the company having regard to the facts and circumstances in each individual case.