New tax measures geared toward making it extra engaging for North Sea oil and gasoline property to alter fingers have been welcomed by trade.
In his Budget assertion made within the UK Parliament yesterday (22 November), the Chancellor of the Exchequer Philip Hammond, introduced a tax measure that may allow the tax losses on an asset to be transferred to a brand new proprietor when it's offered.
The change might be launched in November 2018. Currently, new entrants solely obtain decommissioning tax aid on future earnings – it is a manner of off setting decommissioning prices in opposition to taxes paid on earnings. The new guidelines will enable them to say extra decommissioning tax aid primarily based on the tax historical past of earlier homeowners, not simply their very own.
Fiona Legate, a senior analyst with Wood Mackenzie's North Sea upstream workforce, says: “The UK is the primary nation to herald such a measure and it’s possible different international locations with mature hydrocarbon performs might be watching this laws and its success carefully.” However, she provides: The mechanics of transferring tax historical past are but to be introduced, however we count on the calculations might be complicated.
The transfer has been welcomed by trade, not least Oil & Gas UK, which has been working with HM Treasury on measures to assist additional unlock asset buying and selling within the UK North Sea.
Deirdre Michie, Chief Executive of Oil & Gas UK (pictured), stated: “This is an important step that may herald new funding to extend restoration from current fields and fund recent funding. It may also assist prolong the lives of many mature fields and postpone decommissioning.
“While there have been quite a lot of deal bulletins within the basin over the past yr, these have largely been for much less mature property, have been extraordinarily difficult and brought a really very long time to barter. This tax measure ought to assist full offers extra shortly and in a extra environment friendly manner.”
Independent operators have additionally welcomed the transfer. Amjad Bseisu, CEO of EnQuest, stated: “It is smart for such tax losses to be transferable with the property because it will increase the effectivity with which property can change fingers within the North Sea – it’s one other software within the deal toolkit, ought to corporations want to use it. EnQuest has demonstrated the dramatic and optimistic impression on manufacturing, manufacturing effectivity and discipline life which could be achieved when property transfer into the correct fingers. If drafted in the correct manner, these measures might be one other optimistic step by Government in rising the investability of the UKCS.”
Andrew Benitz, Chief Executive Officer of Jersey Oil and Gas, stated: “Decommissioning is a big issue when deciding whether or not to spend money on the North Sea and the power to switch tax historical past for oil and gasoline fields is a welcome first step to assist to deal with this concern. There is loads of life left within the North Sea but.”
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The UK Treasury has additionally introduced a technical session on petroleum income tax deductions for decommissioning and, moreover, are offering clarification on how tariff revenue is handled inside the ring-fenced company tax regime. The commerce physique will work carefully with its members and Treasury to make sure that these measures will assist maximise financial restoration from…