Consultation-Oil & Gas: Tax issues for late life assets | KPMG | UK
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Consultation - Oil & Gas: Tax issues for late life assets

Consultation-Oil & Gas: Tax issues for late life assets

A discussion paper on the tax treatment of late-life oil and gas assets has been published.


Head of Tax for Energy

KPMG in the UK


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On 20 March we saw the release of the discussion document on changes to the fiscal regime to encourage ‘maximising economic recovery’ (MER) from late life oil and gas assets. The Government is considering the introduction of a transferable tax history (TTH) and other modifications and clarifications to help mitigate tax-based obstacles to late-life asset transfers and is convening an expert panel to provide analysis. In forthcoming discussions between industry and the Government, HM Treasury (HMT) would need to be convinced of ‘a compelling case for change’ and confirm the changes meet a number of specific objectives. HMT have requested comments by 30 June 2017 and we can expect an update at the second 2017 Budget in the autumn.

The discussion paper, Tax issues for late-life oil and gas assets, 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.

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;  or
  • 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 of 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.


For further information please contact :

Claire Angell

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