EXPLANATORY NOTE

1. This measure allows companies to defer making petroleum revenue tax (PRT) returns, subject to agreement with the Inland Revenue. The clause also extends the time limits for the assessing of PRT and the making of PRT expenditure claims where deferral has been agreed. Deferrals will be permitted only where they are expected to have no impact on the flow of tax or royalty receipts. The options for deferral will be available to companies for returns for chargeable periods ending on or after 30 June 1999. The measure will reduce industry’s PRT compliance costs by cutting out unnecessary form filling and allowing companies to plan their workloads more efficiently.

2. There are about 150 oil and gas fields liable to PRT. Most of these fields are not expected ever to pay PRT because of available allowances and reliefs, and some of the fields which are expected eventually to pay PRT will not pay the tax for some time.

3. However, at present returns of the amount of oil and gas produced by each field within the scope of PRT - PRT2 returns - have to be made within one month of the end of each six-monthly chargeable period. These returns are made by the company that has been nominated by the Inland Revenue to undertake certain statutory duties in relation to the oil field. This company is the normally the operator of a field, and is known as the ‘responsible person’.

4. In addition, a company that has an interest in any field within the scope of PRT (a ‘participator’) must make a PRT1 return, within two months of the end of each chargeable period, of the value of oil and gas produced - over 500 returns of this sort are made every six months. Thus, at present, making PRT returns involves companies compiling a large amount of information in a short time, and much of this information may never be used by the Inland Revenue.

25. Under this measure, companies will, subject to agreement with the Inland Revenue, be able to:

apply to defer indefinitely PRT returns where the field is never expected to pay PRT;, or

to defer delivery of PRT returns for a specified period, provided no PRT is expected to be payable in that period.

3. Companies will also be able to defer returns of the amount of oil and gas produced by any field by up to one month, unless a longer period of deferral has been agreed.

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4. Subsection (1) amends Paragraph 2 of Schedule 2 to the Oil Taxation Act 1975. Paragraph 2 of Schedule 2 currently requires returns of the value of oil and gas produced by each participator in each by participators in oil field s - PRT1 returns - to be made within two months of the end of a chargeable period. Subsection (1) allows the Inland Revenue to permit thesePRT1 returns to be deferred beyond this two month period. The subsection allows the Inland Revenue to permit a deferral for any length of time, including an indefinite deferral, and. Subsection (1) also allows the Inland Revenue to revoke a deferral at any time.

5. Subsection (2) amends Paragraph 5 of Schedule 2 to the Oil Taxation Act 1975. Paragraph 5 of Schedule 2 currently requires returns of the amount of oil and gas produced by each field by the responsible person - PRT2 returns - to be made by the Responsible Person (who represents all participators in the field) within one month of the end of a chargeable period. Subsection (2) allows the Inland Revenue to permit thesePRT2 returns to be deferred beyond this one month period. The subsection allows the Inland Revenue to permit a deferral may be for any length of time, including an indefinite deferral. Subsection (2) also allows the Inland Revenue to revoke a deferral at any time.

6. Subsection (3) provides for the inserts ion of a new Paragraph 12A after Paragraph 12 of Schedule 2 to the Oil Taxation Act 1975. The new Paragraph 12A ensures that, covers cases where the Inland Revenue has agreed to the deferral of a participator’sPRT1 return, the existing six year time limit on making a PRT assessment will not prevent an assessment from being made for that period, if this proves necessary. It does this by extending the Paragraph 12A sets the time-limits for assessments for chargeable periods where the agreed deferral ends more than a year after the end of the chargeable period, and no return is in fact made within the year after the end of the chargeable period. In these cases, the Inland Revenue will be able to make assessments for the relevant chargeable period up to five years after the earlier of the making of the return or the end of the deferral.

7. Subsection (4) provides for the inserts ion of new sub-paragraphs in Paragraph 2 of Schedule 5 to the Oil Taxation Act 1975. Paragraph 2 provides that any expenditure claims made by the Rresponsible Pperson must be made within six years after the end of the claimchargeable period in which the expenditure was incurred. . The new sub-paragraphs ensure that this six year time limit will not prevent expenditure claims from being made by a Responsible Person in the unlikely event that, following the deferral of a participator’s return for more than four years, expenditure claims have to be made for the corresponding claim period. In these circumstances, introduce a new time limit for the claiming of expenditure claims will be accepted if made within two years of incurred in chargeable periods covered by a deferral of a PRT2 return. Where a deferral ends more than four years after the end of a chargeable period, it will be possible to make a claim for expenditure incurred in that chargeable period at any time within two years after the earlier of the end of the deferral or the making of the return.

8. Subsection (5) inserts entries in the table in Paragraph 2 of Schedule 6 to the Oil Taxation Act 1975. Schedule 6 covers expenditure claims that, generally for reasons of commercial confidentiality, are made by a participator rather than by the Rresponsible Pperson. The changes made by this subsection extend the time limit for Schedule 6 claims in the same way as subsection (4) extends the time limit for Schedule 5 claims. The table in Paragraph 2 indicates which provisions of Schedule 5 apply to claims made under Schedule 6, and whether they apply with any modification. The entries inserted by subsection (5) extend the time limit within which a participator can make claims for expenditure incurred in chargeable periods covered by a deferral of its PRT1 returns. The extension mirrors that provided in subsection (4) for expenditure claims made by the responsible person where the PRT2 has been deferred.

9. Subsection (6) amends subsection (4) of section 62 of the Finance Act 1987, which provides for a company that is a participator in any field to make a return showing all sales of oil (but not gas) made in a chargeable period - a PRT1A return -within two months of the end of that chargeable period. The amendment makes it clear that the requirement to deliver thesePRT1A additional returns continues in all cases, including those where a participator has been given permission to defer hisPRT1 returns of oil and gas delivered from any field under subsection (1) of this clause. This requirement is retained because complete details of all relevant sales are needed by the Inland Revenue in order to compute the monthly statutory market values for disposals of oil made otherwise than at arm’s length. Each company need only complete a single return of this kind, even if it is a participator in more than one field.

10. Subsection (7) amends subsection (6)(b) of section 62 of the Finance Act 1987 to cater for situations where the participator’sPRT1 return for a chargeable period is deferred under subsection (1) of this clause. The amendment ensures that all sales of oil or gas (other than ethane or methane) for delivery in a specific chargeable period must be included in the additional PRT1A return under section 62 unless a participator’s PRT1return for that period is made at the same time or has been already been made.

11. Subsection (8) provides for the clause to apply to chargeable periods ending on or after 30 June 1999.

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12. PRT is a field-based tax and is charged on the profits arising from individual oil fields: it is not charged on the aggregate profit arising on profits from all oil fields owned by each company. The nature of PRT and the way in which the oil industry undertakes the development of North Sea fields, with one company generally operating the oil field on behalf of the other participators, means that a number of separate procedures are required to ensure that operators and participators can make the returns and claims relevant to the field’s liability. These procedures can be burdensome for the smaller or more marginal fields which are likely never to pay tax or will not pay tax for some time.

13. There are about 150 oil and gas fields liable to PRT. Most of these fields are not expected ever to pay PRT because of available allowances and reliefs, and some of the fields which are expected eventually to pay PRT will not pay the tax for some time.

14. However, at present returns of the amount of oil and gas produced by each field within the scope of PRT - PRT2 returns - have to be made within one month of the end of each six-monthly chargeable period. These returns are made by the company that has been appointed by the Inland Revenue to undertake certain statutory duties in relation to the oil field. This company is the normally the operator of a field, and is known as the ‘Responsible Person’.

15. In addition, a company that has an interest in any field within the scope of PRT (a ‘participator’) must make a PRT1 return, within two months of the end of each chargeable period, of the value of oil and gas produced - over 500 returns of this sort are made every six months. Thus, at present, making PRT returns involves companies compiling a large amount of information in a short time, and much of this information either may never be used by the Inland Revenue or is not immediately relevant.

16. The Inland Revenue and oil industry representatives have considered how the current requirements might be relaxed without affecting the flow of tax receipts, and this measure reflects the outcome of these discussions. It ensures that the Inland Revenue will continue to receive the information necessary to carry out its statutory duties, while significantly easing the requirements placed on some smaller or less profitable fields. When allowing a deferral, the Inland Revenue will need to be convinced that no tax will be put at risk by the deferral. Deferrals, whether indefinite or for specific periods, will only be allowed where the Inland Revenue is sure that the company concerned has a record-keeping system which will allow it to deliver returns for any period covered by the deferral if a notice is served on it in the future. An agreement for the deferral of returns will normally be reviewed every five years. It will be up to each participator to decide whether to defer his return and, where any participator in a field does not opt to defer his PRT1 return, the Responsible Person will not be able to defer making the PRT2 return by more than one month.