Late life assets in the Oil & Gas sector | KPMG | UK
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Late life assets in the Oil & Gas sector

Late life assets in the Oil & Gas sector

The government released its discussion paper on tax issues in late life assets in the oil and gas sector on 20 March. This article summarises the key changes outlined in the paper.


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Following the Chancellor’s announcement last week we have seen the release of the much anticipated discussion document on changes to the fiscal regime to encourage 'maximising economic recovery' (MER) from late life assets. 

The welcome news is that the government is to consider the introduction of 'transferable tax history' (TTH) and is convening an expert panel to provide analysis. Industry will need to meet the challenge of providing 'a compelling case for change' over the coming months by engaging with government and the expert panel.

We summarise below the content of the 'Tax issues for late-life oil and gas assets' published on Monday 20th March. 


The government has published its discussion paper focuses on three areas: 

  • the development of TTH such that buyers could access the tax history of vendors to obtain effective tax relief for decommissioning;
  • changing the Petroleum Revenue Tax ('PRT') treatment for sellers retaining decommissioning liabilities; and
  • the application of the 'major change in the nature or conduct of trade' rules.


The impact of any changes to the tax regime will be evaluated by HM Treasury ('HMT') against the following objectives:

  • providing sufficient and proportionate benefit for the UK taxpayer, as well as encouraging innovation and MER;
  • mitigate tax obstacles to late-life assets transferring to new owners as far as practical;
  • prevent gaming or commodification of tax history or other tax attributes;
  • not impose administrative complexity for industry or Government; and
  • not affect decommissioning obligations under existing legislation and treaties.

HMT have requested comments by 30 June 2017 and we can expect an update at the second 2017 Budget in the Autumn.

The issues for discussion

Transferable Tax History

HMT are considering a TTH in which a seller transfers a portion of its ring fence corporation tax payment history to a buyer, alongside an asset. The buyer could then carry back any decommissioning losses against the TTH, allowing it to receive a tax refund that may otherwise not have been available.

Given this would represent a significant change to the current regime, HMT have raised a number of questions:

  • What methodology could be used to determine the appropriate amount of TTH to transfer to a buyer with an asset?
  • What restrictions, if any, could be imposed on the expenditure against which tax relief from TTH could be claimed?
  • If profits are generated by a new owner from a transferred asset, how could the ring-fence decommissioning loss carry-back rules interact with a TTH?
  • How could such a scheme be administered? What systems would industry have to put in place in order to verify and track TTH?
  • Would buyers be restricted in subsequent transfers of acquired TTH, if the field is sold again?
  • What could be the tax treatment of the sale of TTH in the hands of the vendor, especially where a premium may be payable? 

Retained decommissioning and PRT

HMT have outlined two options to enable effective PRT relief where the seller retains the decommissioning liability:

  • The licence is deemed to be transferred back to a seller on commencement of decommissioning such that the seller claims PRT relief; 
  • The seller funds decommissioning with the costs being treated as being incurred by the buyer, amending the current anti-subsidy rule.

Treatment of losses on transfer of trade

Industry has expressed concern over the application the 'major change in the nature or conduct of trade' rules which can extinguish losses and prevent the carry back of decommissioning losses.

The test is subjective and there is limited guidance in the context of oil and gas activities, and what might be considered 'major' in this context is often unclear.

HMT have sought views on what actions could provide certainty, while meeting the aim of preventing tax avoidance.

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