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HMRC internal manual

Oil Taxation Manual

Transferable Tax History - Calculation of tracked profits

Companies are required to track the taxable ring fenced profits or losses of a TTH asset by making just and reasonable apportionments to the receipts, expenses, assets and liabilities of the company.

In some circumstances other companies associated with the purchaser that have an interest in the TTH asset will also be required to track those profits or losses. For example if Company A owns a TTH asset and contracts company B, a connected party, to carry out operational activity on the asset at a mark-up, the profit company B makes from the asset will also be included in company A’s tracked profits.

The tracked profits or losses of TTH assets are worked out using normal taxation principles. The legislation simply provides that ‘just and reasonable apportionments are to be made of receipts, expenses, assets and liabilities’.   Direct costs, such as those subject to a joint venture agreement must be apportioned in full to the TTH asset. Apportionment of indirect costs, such as finance and head office costs may in some cases be made from branch or management accounts.

Where there are no such accounts, apportionment should be made on any basis that produces a sensible result in the circumstances of the company concerned, for example this may in certain circumstances be apportionment by:

  • throughput, or
  • use

See OT60125 for particular guidance on interest and financing costs.