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New Clause 2

Volume 888: debated on Wednesday 19 March 1975

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Annual Limit On Amount Of Tax Payable By Participator

`(1) The total tax payable by a participator in an oil field for the chargeable period or periods comprised in any calendar year shall not exceed 80 per cent. of the amount (if any) by which his adjusted profit for that year (as defined in this section) exceeds 30 per cent. of his accumulated capital expenditure at the end of that year (as so defined).

(2) For a participator in an oil field, his adjusted profit (if any) for any calendar year shall be determined as follows—

( a) for each chargeable period comprised in that year there shall be ascertained—

  • (i) the assessable profit (without any reduction under section 7 or (Oil allowance) of this Act) or allowable loss accruing to him in that period ; and
  • (ii) the total amount taken into account under section 2(9)(b), (c), (d) and (e) of this Act in computing that profit or loss, excluding expenditure so taken into account under section 2(9)(b)(i) or (c)(i) which was not allowed as qualifying for supplement under section 2(9)(b)(ii) or (c)(ii);
  • ( b) in the case of each such chargeable period—

  • (i) if there is a profit under paragraph (a)(i) above, the sum of that profit and the total ascertained under paragraph (a)(ii) above is his adjusted profit for the period;
  • (ii) if there is a loss under paragraph (a)(i) above smaller than the total ascertained under paragraph (a)(ii) above, the difference is his adjusted profit for the period; and
  • (iii) if there is a loss under paragraph (a)(i) above greater than the total so ascertained, the difference is his adjusted loss for the period;
  • ( c) if the year comprises only one chargeable period, his adjusted profit (if any) for that period is his adjusted profit for the year;

    ( d) if the year comprises two chargeable periods then—

  • (i) if for each of them he has an adjusted profit, the sum of those profits is his adjusted profit for the year;
  • (ii) if for one of them he has an adjusted profit and for the other an adjusted loss smaller than that profit, the difference is his adjusted profit for the year;
  • (iii) if for one of them he has an adjusted profit and for the other neither an adjusted profit nor an adjusted loss, that profit is his adjusted profit for the year;
  • (iv) in any other case, he has no adjusted profit for the year.
  • (3) For a participator in an oil field his accumulated capital expenditure at the end of any calendar year is the total amount of expenditure taken into account under section 2(9)( b)(i) and ( c)(i) of this Act in computing the assessable profit or allowable loss accruing to him in each of the relevant chargeable periods, that is to say the chargeable period or periods comprised in that year and all earlier chargeable periods, excluding all expenditure so taken into account which was not allowed as qualifying for supplement under section 2(9)( b) (ii) or ( c)(ii):

    Provided that in the case of a participator who has made an election under paragraph 9 of Schedule 3 to this Act, his accumulated capital expenditure at the end of any calendar year shall be taken to be what it would have been if he had made no such election.

    (4) Any reduction necessitated by this section in the total tax otherwise payable by a participator in an oil field in respect of a calendar year comprising two chargeable periods shall be made as far as possible by reducing or extinguishing the tax otherwise payable by him for the later of those periods.

    (5) In the case of any oil field the preceding provisions of this section shall have effect as if the calendar year which comprises the critical half year as defined in section 1(4) of this Act comprised the whole of the first chargeable period '.— [ Mr. Dell.]

    New Clause 3

    Brought up, read the First and Second time, and added to the Bill.

    Allowance Of Unbelievable Loss From Abandoned Held

    .—(1) Subject to Schedule 8 to this Act, the following is, in the case of a participator in an oil field, an allowable unrelievable field loss, that is to say so much of any allowable loss which, in the case of any other oil field being a field from which the winning of oil has permanently ceased, has in any chargeable period accrued therefrom to the participator or, if the participator is a company, to a company associated with it in respect of that loss as cannot under the provisions of section 7 of this Act be relieved against assessable profits accruing from that other field to the participator or the company so associated with the participator.

    (2) In determining for the purposes of this section whether an allowable loss has accured as mentioned in subsection (1) above from an oil field from which the winning of oil permanently ceased before the total amount of oil even won and saved from it reached the amount by reference to which the critical half year is defined in section 1(4) of this Act, the first chargeable period for that field shall be taken to have been the period ending at the end of the half year in which the winning of oil from the field so ceased (including an unlimited time prior to the beginning of that half year).

    In this subsection "half year" has the same meaning as in section 1 of this Act.

    (3) For the purposes of this section—

  • (a) "company" means any body Corporate ; and
  • (b) a company which is a participator in an oil field is associated with another company in respect of an allowable loss which accrued to that other company in a chargeable period from another oil field if—
  • (i) throughout that part of the relevant period in which both were in existence one was a 51 per cent. subsidiary of the other and the other was not a 51 per cent. subsidiary of any company ; or
  • (ii) each of them was, throughout that part of the relevant period in which it was in existence, a 51 per cent. subsidiary of a third company which was not itself a 51 per cent. subsidiary of any company ; and in this section and Schedule 8 to this Act any reference to the winning of oil from an oil field permanently ceasing includes a reference to the permanent cessation of operations for the winning of oil from the field.
  • (4) For the purposes of subsection (3)( b) above—

    ( a) the relevant period is the period beginning with the chargeable period in which the allowable loss accrued to the other company referred to in that paragraph and ending with the end of whichever of the following periods ends later, that is to say—

  • (i) the earliest chargeable period in which the company which is a participator in the oil field in question was a participator in that field; and
  • (ii) the chargeable period in which the allowable loss accrued;
  • (or, if they are the same period, with the end of that period) ; and

    ( b) section 532 of the Taxes Act (subsidiaries) shall apply '.—[ Mr. Dell.]

    Brought up, and read the First time.

    6.30 p.m.

    With this it will be convenient to take Government Amendments Nos. 145, 172 to 174, 146, 147 to 152 and Amendment No. 68, in Clause 7, page 14, line 43, at end insert:

    '(4) Where—

  • (a) the Board have determined under Schedule 2 to this Act that an allowable loss has accrued to a participator in the chargeable period from an oil field; and
  • (b) the winning of oil from that field has permanently ceased; and
  • (c) that allowable loss cannot under the preceding provisions of this section be relieved against assessable profits accruing to the participator from the field then so much of the allowable loss as cannot be so relieved shall be relieved under this subsection by treating the assessable profits accruing to him from any field in any chargeable period as reduced by the amount of the loss '.
  • The clause meets a commitment which I made in my decision announced in Committee on 16th January. It replaces the present Clause 6—which is repealed by Amendment No. 146—which would have allowed relief against any field for expenditure on a field in the same ownership which is abandoned before production reaches 1,000 long tons. The new provision allows the relief in respect of an overall loss on the abandoned field at whatever stage of production it is abandoned. It therefore meets most, though not all, of the points raised by Opposition Amendment No. 68 to Clause 7.

    The Opposition amendment would have much the same effect as the new clause, although it would not extend, as does the clause, to losses in associated companies. On the other hand, it would go wider by allowing a loss on an abandoned field to be allowed against profits from the other field in any period, in other words, past as well as future periods. I do not know whether, in the light of the new clause, the Opposition intend to press the amendment, but if they do I shall have to reject it. It appears to me wrong that the net loss of an abandoned field should be allowed against past profits on another field.

    Amendment No. 145 paves the way for the introduction of new Clause 3. Amendment No. 146 deletes Clause 6, which becomes unnecessary. Amendments Nos. 147 to 152 adapt existing procedure rules for claims in respect of abortive development expenditure to take account of the replacement of that relief by the new allowance for unrelievable field losses, as provided by new Clause 3.

    Amendments Nos. 172 and 173 modify the rules under which two companies are to be treated as associated, so as to enable abortive exploration expenditure incurred by one to be set off, for PRT, against the profits of the other. Amendment No. 174 alters the definition of "relevant period" for the purposes of the rule for determining whether two companies are associated so that abortive exploration expenditure incurred by one can be allowed against profits of the other for PRT.

    I have commented on all the Government amendments and also on Opposition Amendment No. 68. I hope in the light of my comments that the Opposition will not press their amendment.

    I do not know whether it is a compliment or a penalty to be asked to speak from the Front Bench on the Report stage of a Bill on which one has not served in Committee. I have read many of the Committee proceedings and I am glad that my right hon. and hon. Friends made such progress in the arguments that they presented to the Government. I welcome the clause, which allows for unrelievable loss for an abandoned field. It goes some distance towards meeting the arguments put by my hon. Friends, but it does not go quite far enough.

    As the Bill is drafted, it could result in North Sea expenditures never being relieved for PRT purposes, even though a participator has profits on which he has paid PRT. Our Amendment No. 68 seeks to correct that defect on the principle that losses should not go unrelieved to the extent that a participator has North Sea profits, whether in the past, the present or the future. Our Amendments Nos. 64 to 66 have now been substantially met by Government Amendments Nos. 161 to 163, and we are grateful for that.

    We want the Government to allow current losses from one field to be set against current profits from another. That would, in effect, introduce a measure of aggregation, but in doing so it would not upset the field-by-field structure of PRT. Our aim is to remedy the injustice of a system which, contrary to normal tax law, requires a taxpayer to pay tax on one area of his operations without regard to losses in another. Even if this measure of setting current losses against current profits is not as beneficial as full aggregation on a company basis, nevertheless it is a valuable incentive.

    As the Bill stands, no offset is allowed. Losses incurred in a field are allowable only against future income or past income from that field or ultimately, and only on abandonment of the field, against income from others. Normal corporation tax rules do not apply.

    Let us suppose that a company decides to expand in the normal course of business. Let us suppose that it is a public works company and it decides to extend into property, licensed premises and haulage. If one of those ventures is not successful, the company is allowed to offset losses in one area against profits in another. This would appear to be normal practice, and it seems wrong that it is not being extended to this area of activity.

    Let us take the case of small British companies—of which there are a great number—which would not wish to put all their eggs in one basket and to have all their investment in one exploration. The most likely result is that they will have a share in a number of different explorations. Let us assume that the area in which they have their biggest investment meets industrial trouble and that industrial difficulties cause a hold up in the delivery of an oil platform. The work might be held up for months, with the result that that investment could be seriously jeopardised. Is it not reasonable that such a loss should be offset against possibly more profitable ventures elsewhere?

    I shall not dwell on this matter at length, since the Minister was brief. I shall try to reciprocate. However, it would be a pity if the question of offsetting profits were to be completely ignored.

    I congratulate the hon. Member for Ross and Cromarty (Mr. Gray) on appearing for the first time at the Opposition Dispatch Box during the proceedings on this Bill.

    The point the hon. Gentleman mentioned was dealt with in Committee and the Government have now introduced this clause to meet a point which was made strongly to us by the industry. It is connected in thought with Amendment No. 163 and others to Clause 7, in that within a single field we are proposing to allow an indefinite carry-back on losses. That concession is almost unique. We have had many discussions with the industry and have accepted a considerable number of the points that were made to us.

    Having been persuaded to make this concession by the arguments in Committee, we have introduced the present provisions. But immediately we make a concession, we are told, "You must now go on to make a further concession on something else on which previously you have stood firm ". I do not regard it as appropriate within the field basis, which is part of the Bill, to make a further concession in response to the hon. Gentleman's request. There are a number of derogations from this field basis which I regard as right. But in this case we should limit ourselves to what the new clause sets out to do —namely, to allow offset against subsequent profits rather than past profits. I do not think that this is an occasion for reopening past accounts and for allowing indefinite carry-back of losses in other cases. I believe that we have dealt adequately with the point made by the industry, and I hope the House will accept what we have done.

    Question put and agreed to.

    Clause read a Second time, and added to the Bill.