Decommissioning Relief Deeds the Government s perspective

Transcription

1 Decommissioning Relief Deeds the Government s perspective Oil and Gas UK Breakfast Briefing, 13th February 2014 DRAFT Helen Dickinson Deputy Director, Energy and Transport Tax HM Treasury

2 The Government s fiscal objectives in the North Sea To maximise the economic recovery of the UK s oil and gas reserves; and obtain a fair share of the value for the Exchequer. Significant profits from a national resource Don t want tax to get in the way of investment Right to tax economic rent for the nation Simple taxes cannot target rent perfectly: need reliefs

3 Why certainty matters to Government s objectives for the UKCS Without certainty Vendors of assets required purchasers to provide security for decommissioning costs on a pre-tax basis, creating a barrier to asset trades With certainty Simplifies asset trades, maximising economic recovery in the basin Companies capital was tied up in securitisation arrangements for full (pre-tax) decommissioning costs and financiers assess decommissioning liabilities on a pre-tax basis Companies might choose to cease production and crystallise relief, rather than extending the life of assets, if they believed relief could be reduced or withdrawn Companies able to adopt post-tax securitisation arrangements for decommissioning costs, freeing up capital for investment Financiers able to use post-tax estimates of decommissioning costs in assessing liabilities Companies and investors understand the relief they can expect to achieve in respect of potential decommissioning liabilities, enabling longer-term planning

4 Decommissioning relief deeds developing the policy solution Budget 2012: Government commits to introducing a new contractual approach to provide certainty on decommissioning relief on the UK Continental Shelf Budget 2013: Following successful consultation, Government announces that the first contracts known as Decommissioning Relief Deeds - will be signed by the end of 2013 George Osborne speech to Offshore Europe, 3 rd September 2013: The UK government will enter into contracts with industry setting out what relief companies can expect to receive in future when decommissioning assets. And if the actual amount turns out to be less, the government will make up the short-fall. I can tell this Conference today I m unveiling the final decommissioning deed. October 2013: First decommissioning relief deeds signed and delivered to companies.

5 Current relief available on decommissioning costs A special 100% capital allowance is available for all decommissioning expenditure. The Government provides tax relief for decommissioning costs at a total rate of 75% or 50% (depending on whether the field received development consent before or after 1993) at the point that those costs are incurred. Losses incurred as a result of decommissioning may be carried back as far as 2002 and offset against previous profits. What does the Deed do? A Decommissioning Relief Deed (DRD) will be executed by the Government and companies that are or have been subject to the UK s oil and gas fiscal regime. It will define the type of expenditure on which relief can be claimed It will establish a mechanism for calculating the amount of relief the company can expect to receive in various circumstances a reference amount If this level of relief is not achieved a payment may be claimed by the counterparty Deed should function as a mechanism of last resort, and should not increase the forecast Exchequer cost of decommissioning relief

6 What does the Deed guarantee? - the reference amount When a Deed holder is meeting another party s decommissioning costs: The Deed guarantees relief at 30% in respect of RFCT and 20% in respect of SC Companies will also receive at least the same level of relief in respect of PRT that the defaulting party would have received, or greater from their own tax history. When a Deed holder is meeting its own decommissioning liability: The level of relief will be aligned to the rate of tax paid, subject to the restriction to relief for SC purposes in Finance Act If PRT were abolished, companies would still be able to access PRT relief. Decommissioning expenditure will be defined in accordance with the tax regime as at Royal Assent to Finance Act 2013

7 Eligibility for the Deed There are around 350 companies involved in the oil and gas industry on the UKCS, we expect them and their parents to qualify Government will enter into a deed with any company that has at any time carried on a ring fence trade, any company that is associated with a company carrying on a ring fence trade, any company that has at any time been associated with a company that was carrying on a ring fence trade at that time, and in the case of decommissioning expenditure incurred in connection with any plant or machinery, or any land, situated in the UK sector of a cross-boundary field, any company that is a party to a joint operating agreement or unitisation agreement in relation to that field

8 How will the Deed process work? The company requests a Deed from the Government guidance and application form available from gov.uk Company applies to HMT for Deed, including evidence of eligibility and power to execute the Deed HMT receive Deed requests and share these with HMRC to conduct eligibility checks If eligible, the Deeds will be signed off by the Treasury Lord Commissioners. The company requests a Petroleum Revenue Tax (PRT) certificate Companies require this to assess the extent of the security required in relation to PRT fields Producing this document requires access to the confidential PRT history of all those who have exploited the field. HMRC hold this data and will produce and issue the certificates If a company makes a claim under a Deed HMT and HMRC will process Deed claim, possibly alongside the corresponding tax return. HMRC will inform HMT if a claim is valid The payment will be made from HMT.

9 Implementation 49 DRDs issued to date Moves to post-tax security underway Government required to provide annual report to Parliament Ministers looking for update from industry at this autumn s Fiscal Forum Ultimately, policy success will depend on an industry-wide move to post-tax security arrangements