Yearly Archives: 2016

23 Nov 2016

2016 Autumn Statement

The Chancellor delivered his Autumn Statement today.

There were no new fiscal measures directed at the oil industry apart from an announcement that petroleum revenue tax (PRT) administration is to be simplified with immediate effect.

The PRT administrative changes are: firstly, that the PRT opt out election process is to be simplified; and secondly for participators who choose not to opt out the returns process will be simplified.

Non-taxable field election

It has been possible to opt out of the PRT regime, and the field to become a non-taxable field, for a number of years, but only if it could be demonstrated that there was no reasonable expectation of PRT profits on the field.  The reduction in the rate of PRT to zero percent from the beginning of the year did not of itself extend the number of fields which could take benefit of the election under the current law.  Going forward there are to be no conditions attached to the making of an election, other than that the election must be in writing and will be irrevocable.

A consequence of making an election is that no loss accruing in the field can be claimed as an unrelievable field loss (UFL). This is unchanged from the previous rule.

As under the current rules, only the responsible person can make the election, and he must first have obtained the agreement of all other participators for it to be effective.

The Treasury Press Release covering this matter states that HMRC will discuss with any field owners making such an election alternatives to providing the data currently required in the PRT 1A return covering certain non-arm’s length sales of liquids. Provision of such data will however be on a voluntary basis.

The election will have effect for all chargeable periods commencing after the date the election is made.


We presume that any fields where there is a possibility of recovering PRT which has been paid in the past, or where there is a possibility that a UFL might arise in respect of the field for any partner, will not make the election. It is possible that partners in a field may have different positions which may frustrate the election being made. Indeed, it is important that companies who are contacted by the responsible person in a field should critically assess whether there are circumstances where a UFL could be created even where it appears that losses generated by decommissioning will not exceed historic field profits.  

Although the relevant legislation will not be enacted until Royal Assent of the Finance Act 2017 (typically towards the end of July next year) the amendment to the existing legislation is stated to have come into effect today, and it is understood that HMRC will accept that elections made before the end of 2016 will have effect such that PRT returns for CP1 2017 will not have to be filed (although the returns due in February 2017 for CPII 2016 will still have to be filed). 

Removal of PRT reporting requirements

For those fields which don’t take advantage of the new election (and for all taxable fields in respect of CPII 2016) the returns which have to be submitted for each field are to be simplified. This does not require legislative change.

It will no longer be necessary to calculate oil allowance, nor will it be necessary to calculate instalment payments or payments on account. In both cases this information will be of no relevance given the rate of PRT has been permanently reduced to zero for all chargeable periods, commencing 1 January 2016 and subsequent. Nor will volumetric units need to be converted into metric tonnes.

This change is made with immediate effect and will therefore apply to any returns that need to be submitted next February in respect of CPII 2016.

The Press Release issued states that the HMRC return forms will only be updated at some time in the future, but the parts of the forms relevant to these matters can simply be left blank when submitting the CPII 2016 and later returns.


These changes are welcome for companies who decide they still want to file PRT returns for particular fields, although the simplification is fairly minimal, and it is not thought that this will give rise to any significant compliance cost savings. The industry had requested a number of other changes such as annual returns, and deferral of filing deadlines. Such changes would require legislative change and it appears that the Government have taken the easy option which is unlikely to have any real benefit to industry. It is hoped that the other changes requested will be implemented by Government in due course. 

Other matters

There are a whole raft of other issues which industry has raised with Government as being important in achieving MER, such as the extension of the Investment Allowance regime for infrastructure tariffs, transferability of corporation tax capacity, and a number of technical PRT issues mainly around decommissioning.

Industry is also still awaiting the Statutory Instrument to be laid before Parliament, to give effect to the extension of the scope of the Supplementary Charge Investment Allowance relief to certain non-capital discretionary operating expenditure and to expenditure on leased assets. This measure is effective from 7 October 2015 and will be relevant to companies filing their 2015 corporation tax returns over the next 5 weeks if they have not already done so.


It is disappointing that none of the other issues raised by industry have been addressed at this time. The Press Releases do not even give an indication that any of these other matters are still under consideration, but it is hoped that progress can be made over the next year on a number of these issues with some much needed changes hopefully being introduced in Finance Act 2018. 

CW Energy LLP

23 November 2016


13 Sep 2016

EITI and The Reports on Payments to Governments Regulations 2014; a sense of déjà vu.


Qualifying Companies are under an obligation to disclose information under The Reports on Payments to Governments Regulations (“the Regs”).  Certain selected companies have also received the EITI questionnaire templates.

Whilst the EITI regime is “voluntary” the EU sponsored regime under the Regs is compulsory and requires certain companies to make a return in a prescribed form with Companies House. The first payments covered are those made in 2015 and for a company with a December year end the deadline is the end of November 2016

This newsletter sets out the obligations under each regime for this year.


Background to The Reports on Payments to Governments Regulations 

The Regs derive from an EU Directive to require greater transparency over payments to governments and government agencies and authorities. As such the Regs seek to ensure companies and groups disclose the information in a way that is then publicly available.

The Regs seek a consolidated report to be made by the top company in a group that is registered in an EU member state. This means that the Regs also seek to ensure that a company will be exempt where a parent will aggregate its data with the rest of the group. Given the Europe-wide nature of the rules it means that the rules require the top European company to make a consolidated report notwithstanding any ‘superior’ non-EU parent.

A further effect of the European wide approach is that since some European states lag a year behind in introducing the rules, UK companies can benefit from the delay in implementation in respect of their European parents where a parent would otherwise consolidate the UK company’s data but is not currently under an obligation to report this year.

The Regs; exemptions by size 

The Regs require each ‘large’ UK company to submit its report unless it is a subsidiary of an EU or UK company which itself prepares a consolidated report incorporating the payments made by the company, or would do so if the EU Directive had been transposed into local law. For these purposes ‘large’ is where the company or the group in which the company is consolidated meets at least two of the following;

(a) its balance sheet total on its balance sheet date exceeds £18 million,

(b) its net turnover on its balance sheet date exceeds £36 million,

(c) average number of employees during the financial year exceeds 250

What needs to be reported under the Regs and how

The report will contain the following for the company, or the company and its consolidated subsidiaries;

  • the government to which each payment has been made, including the country of that government;
  • the total amount of payments made to each government;
  • the total amount per type of payment made to each government; and
  • where those payments have been attributed to a specific project, the total amount per type of payment made for each such project and the total amount of payments for each such project.

A payment need not be reported if it is a single payment of an amount less than £86,000, or is part of a series of related payments within a financial year whose total amount is less than £86,000.

The reporting is done via electronic submission in a prescribed format to Companies House within 11 months of the end of the period and reports are then visible by the public.


Background to EITI 

The aim of EITI is to apply transparency to governments and industry by reconciling payments and receipts as notified by industry to the records held by government. As such an independent administrator is appointed to gather and review the data from both sources. Any country may adopt the initiative and make a report which is then published.

Although completion of reports is not compulsory under the UK scheme (in some countries legislation has been introduced) the UK EITI organisation has expressed a desire to achieve a high response rate and encourages companies to complete the questionnaires.

The reports

The EITI reporting templates are issued by the independent administrator of UK EITI to companies or groups it has identified. The templates request essentially the same information in respect of payments to the UK government as are required under the Regs above together with some information regarding the beneficial ownership of the company (or group).

The request gives a deadline for a response to enable the replies to be coordinated and summarised; for example last year the response period was approx. 4-6 weeks after issue.

Importantly, the request is accompanied by a confidentiality waiver request to permit the administrator to receive data from HMRC that would otherwise be protected by taxpayer confidentiality rules. The administrator will need the waiver to receive data to assist in reconciling the company reports and the government disclosures of receipts.

The guide to reporting last year is accessible at within which there is a link to download a step by step guide. In the absence of an update it can be assumed that there are no significant differences this year.


CW Energy can assist in the process of making the reports and assessing the implications; please get in touch if you wish to discuss any aspect with us.

If you would like to discuss the implications for your business or have any questions, please get in touch with your usual CW Energy contact.

07 Sep 2016

Finance Bill finishes third reading in the House of Commons

The Finance Bill 2016 completed its third reading in the House of Commons yesterday (6th), and has now been passed on to the House of Lords. As it is a money bill, its terms cannot be amended by the House of Lords so the committee stage, report stage and third reading there are just formalities. 

The first reading in the Lords also took place yesterday and the second reading and remaining stages are scheduled for 13th September, after which the Bill should receive Royal Assent.

Thus as of today the Bill has been “substantively enacted” for the purposes of IFRS and UK GAAP, and the rates set out in the Bill can now be applied. For ring fence companies the Bill confirms the 0% rate of PRT enacted under the Provisional Collection of Taxes Act (in section 140 of the Bill) and applies the Supplementary Charge rate of 10% with effect from 1st January 2016 (section 58 of the Bill).

For companies who do not have a December year end the profits of the accounting period straddling 1st January 2016 are apportioned on a time basis.

For companies that report their results quarterly, the quarter to 30th September will reflect the lower rate of SCT.

Our comment: 

Although the reduction in tax rates is welcome overall, for many companies this will result in a tax charge resulting from the reduction in value of their losses carried forward.


24 Aug 2016

Changes to Derivative Contract Rules

Changes to derivative contract rules – reminder of time limit for non-large companies.

  • Deadline fast approaching for small and medium sized companies to make election
  • Some companies may not be grandfathered even though fair valuing has been the policy
  • Election should be made if there is any doubt otherwise companies will be taxed on fair value movements


Readers will recall from our newsletter of April 2015 that there are strict time limits to make the election to operate the disregard rules for companies making the transition from old UK GAAP to new UK GAAP and as a result of adopting fair value for the first time (new adopters) for accounting periods commencing on or after 1 January 2015.

For large companies these limits were 6 months from the commencement of the accounting period, or if the company held no derivatives at the end of the last period 6 months from when the first derivative was entered into in order for the disregard to apply to that and subsequent derivatives.

However, the time limit for small and medium sized new adopter companies is 12 months from the end of the first accounting period to which the new accounting policy applies. Thus for those companies with a December year end the deadline is 31st December this year. Any small or medium sized companies should elect without delay as the year end is fast approaching.

Companies eligible to be grandfathered (i.e. those already within the existing regime) are treated as having made the election under the transitional provisions.

Whilst some companies may believe they are grandfathered because of previously having a policy of fair valuing derivatives, if those companies have not actually entered into any derivatives in the past they would still need to make the election before they enter into any derivative contract in order for the disregard rules to be effective for that derivative.

This could apply to for example to a group company where the group as a whole adopted IFRS but the company itself had not in fact held any derivatives, perhaps because it was new or had previously not traded.

It would therefore seem to be good practice that a company which has any doubt whether it is covered by the grandfathering provisions should make the election to apply the disregard without delay.

If you would like to discuss this subject further, please get in touch with your usual CWE contact.

22 Jul 2016

Loss streaming: Back where we started?

The Upper Tier Tribunal have overturned last year’s First Tier Tribunal decision in the Leekes V HMRC  case, and held that losses are required to be streamed even where the whole of the predecessor’s trade is transferred.

In our Newsbrief of 16 March 2015  we reported that the First Tier Tribunal decision meant that where a company succeeded to a trade carried on by a group company there was no requirement to stream.

This confirmed our view of the law at the time although there remained the uncertainty as to exactly what was needed for there to be a succession.

Details of the appeal

The taxpayer had argued that where there had been a succession in the case of the transfer of the whole of the trade, the streaming rules set out in s343(8) did not apply and there was no other requirement to stream. Essentially losses transferred were available for offset against the whole of the profits of the merged trade.  The First Tier Tribunal accepted this.

HMRC appealed and the issue was re-examined by the Upper Tier Tribunal earlier this year.  The decision has just been released and reverses the position. HMRC argued that even though the streaming rules in s343(8) were not in point as there was a transfer of the whole of the trade and a succession to that trade, the successor was only entitled to set losses transferred to it against the profits the predecessor would have earnt, absent the transfer.  The Tribunal seems to have been swayed by HMRC’s argument that the transfer of trade rules should not put the successor in a better position than the predecessor in terms of which profits could be sheltered.

It is hoped that the taxpayer will appeal.



Last year’s verdict offered groups greater freedom to utilise loss relief when transferring a company’s trade in its entirety in cases where the facts supported the contention that there had been a succession. The position in relation to the transfer of part trades was not examined in the case, and indeed CWE have always believed that the streaming rules only apply for these cases.

However, with the present decision, the streaming requirement has been re-stated, and indeed appears to have been extended to cover even those cases where it is clear that there has been a succession.

The facts in the Leekes case were straightforward and the court in coming to its decision was not swayed by the possibility of practical difficulties of apportioning profits.

In practice, if streaming is to be applied there could be significant practical difficulties, for example, how does one treat subsequent acquisitions or sales of assets?

The grounds for the decision could also throw into question whether there could be a restriction of loss offset where assets are transferred into a company without an existing business if that company subsequently acquired further assets.

In the past where there was a concern that streaming applied companies would ensure if at all possible that the loss-making company was used as the successor company and this will continue to be the default strategy. Of course this may not always work particularly where the group has a number of loss-making companies.

Intra-group transfers will require, in the first instance, judgement as to whether a transfer constitutes simply a transfer of assets, a part trade or a trade; the calculation of any losses that will accompany the transfer of a trade or part-trade; and the identification of the profits against which such losses may be used.

Readers should also be aware of the relevant liabilities rules which seek to restrict losses transferred.

These issues are likely to be particularly complicated in the case of oil and gas trades. Therefore companies looking at acquisitions or reorganisations should carefully review the implications of the decision.

CW Energy can assist in all these areas.

19 Jul 2016

Enactment of Finance Bill 2016-17 expected early September

The progress of the Finance Bill 2016 was interrupted by the EU referendum. The Committee stage was completed on the 28th June, but this left insufficient time to progress to the report stage/third reading, and Royal Assent, before Parliament rises for the summer recess on 21st July.

Our newsletter of 25th May explains.

  • Completion of the House of Commons report stage and third reading of the Finance Bill is the point at which changes can be accepted as substantively enacted
  • The effect of the new tax rates announced in the March Budget cannot be reflected in the accounts until the rate has been substantively enacted

There was a concern that recognition of the SCT rate reduction would be delayed to the December quarter results. As the report stage is now scheduled for 5th September, for accounting purposes the uncertainty is largely removed, and the new rates should apply in September quarter reporting.

The reduction in the PRT rate to 0% was enacted under the Provisional Collection of Taxes Act shortly after the Budget.

Please contact us if you would like to discuss how this could affect your business or have any questions.


22 Jun 2016

Potential Adjustments to Transfer Pricing Legislation

The government is looking at the possible introduction of a secondary adjustment rule into the UK’s domestic transfer pricing legislation. The consultation document was published on 26 May 2016 seeking views on whether such a feature should be introduced and if so its design.


Under the transfer pricing rules taxable profits are calculated based on an arm’s length price. The UK has adopted the arm’s length principle based on the OECD Model Tax Convention. Where the price is not arm’s length and a potential UK tax advantage is obtained the UK’s rules require a “primary adjustment” to be made to the original price as a tax only adjustment in calculating the taxable profits. No further consequences as regards the “overpayment” currently arise. However, the other entity will have received funds in excess of those it would have done so in an arm’s length situation.

With a view to encouraging companies to adopt arm’s length principles in their commercial arrangements, and following the approach taken in a number of other jurisdictions such as the US, Canada and France, the government believes that additional, “secondary” adjustments should be made in arriving at taxable profits to reflect the fact that the company’s resources have been depleted as compared to an arm’s length transaction.



The government proposes to address this by introducing a deemed secondary adjustment imposing a further tax charge in respect of this depletion of resources.

The OECD’s transfer pricing guidelines provide that secondary adjustments may take the form of constructive dividend, constructive equity contributions, or constructive loans.

As neither dividends nor equity injections have any immediate effect for UK tax purposes the government proposes that a constructive loan regime would achieve the policy aims. The quantum of the “primary” transfer pricing adjustment would be treated as a deemed loan from the potentially advantaged company. The loan would then bear an imputed interest which would then be treated as taxable income in the UK company until such time that an actual payment was received to negate the original transfer pricing adjustment amount.

De-minimis level

The government proposes that secondary adjustments would only have to be made where the primary adjustment was in excess of £1m.

 Potential issues

The government recognises that secondary adjustments could create a number of issues.

One issue is the creation of non-relievable double taxation. Under the arm’s length principle an upward adjustment is made in the country from which profits have been diverted and many treaties provide for a corresponding downward adjustment in the country in which the other party is located in respect of a primary adjustment. Similar corresponding adjustments for secondary adjustments are however not dealt with in the OECD Tax Model Convention and consequently not in most treaties, and double taxation could arise.

The government is also seeking views on whether such a proposal would create any accounting issues; how the interest rate to be applied to the deemed loans should be arrived at; how any receipts, if the transfer pricing benefit is repatriated, should be treated; whether any anti-avoidance provisions would be needed; and whether secondary adjustments would create any particular problems with advance pricing agreements (APAs).


Such a rule would create significant added complexity, for example presumably there could be secondary adjustments on not just primary adjustments but also the secondary adjustment itself. Where UK to UK adjustments are required there may be mismatches created; for example, imputed interest income might be taxable but with no deduction available for the charge. 

This might be a particular concern for ring fence companies.  

The prospect of such complexity and the potential for mismatches may therefore be effective in achieving the government’s objective of pushing groups to transact on an arm’s length basis rather than just accept that transfer pricing adjustments can be made in their tax returns. 

The £1 million de-minimus is however welcome.

The consultation closes on 18 August 2016 and the government expects responses in a form of answers to a number of questions addressed in the consultation document.

14 Jun 2016

Diverted Profits Tax – deadline approaches

The extended notification period for Diverted Profits Tax (DPT) for the first affected accounting periods (those ending on or before 31 March 2016) permits notification up to 6 months after the end of the period instead of the normal 3 month deadline. For further background, see below.

Diverted Profits Tax key points:

  • Notification deadline is looming
  • Assessing whether to notify is not straightforward
  • Not notifying may lead to greater uncertainty, and potentially penalties
  • For oil and gas sector companies we understand that HMRC is primarily focusing on payments to captive insurance companies.




The Diverted Profits Tax (DPT) rules were introduced in Finance Act 2015 as a key part of the Government’s response to criticisms that corporate taxpayers were not bearing a proper share of the tax burden. It is thought that the scheme has been given a high priority within HMRC, with a dedicated resource (the ‘Task Force’) and an expectation that DPT will change behaviours.

The HMRC forecast was that the introduction of DPT would bring in £270m in 2016/17, which at rates of 25% and 55% represents over £1 billion of ‘diverted profits’. Some of this expected increase may however come from income subject to normal CT rates as a result of groups revising their commercial arrangements.

The initial focus was on the ‘Avoided PE’ arrangements, where sales to UK customers were arranged without creating a taxable permanent establishment in the UK, notwithstanding the presence of ‘sales’ personnel and/or large warehouses. This is not thought to have much, if any, application to the upstream sector.

However, the other “Lack of Economic Substance” test may apply as a result of the difference in tax rates between ring fence and non-ring fence activities.

For ring fence trades, where deductions are claimed in respect of services provided by an affiliate, the potential liability to DPT comes where there is insufficient economic substance to the provision and the parties meet the particular participation test used in the transfer pricing rules. This test goes beyond a straightforward control test.

The taxable diverted profits are then established by identifying transfer pricing adjustments not already assessed, and potentially on top of that any profits chargeable to UK CT that would have arisen if the arrangements in place were not tax motivated.

In other words, the taxable diverted profits rely on judgements around market prices and what the situation would have been absent any tax considerations.


In the absence of a notification HMRC have an extended period of time in which to issue a preliminary notice, the precursor to any charging notice, in relation to particular arrangements; whereas the normal time limit is 24 months after the end of the accounting period, where no notification has been made the time limit runs to 4 years after the end of the accounting period.

When it is unclear whether notification is required companies should be aware that not notifying will extend the period of uncertainty for a company.

Assessing whether to notify or not is complicated by the fact that for both types of potential charge companies effectively need to notify if there is uncertainty over whether some of the tests are “failed”. The tests in question are set out in the rules and are broadly those that require most judgement to be applied.

However, no notification is required where it is reasonable for a company to conclude that no charge to DPT arises, ignoring the possibility of transfer pricing adjustments that could, if made, eliminate the DPT charge.

Where a DPT liability is established after a failure to notify there are provisions for a tax geared penalty, calculated by reference to the potential lost revenue, whether it is a domestic or offshore ‘matter’ and the circumstances surrounding the failure.

Areas of risk

HMRC has undertaken discussions with some groups on particular issues and more generally has indicated areas of concern to the oil and gas industry. Payments to captive insurance companies are one key area of concern to HMRC but, as recognised in the HMRC guidance notes, the application of the rules to payments to captive insurance companies requires an interpretation of the particular facts which can give different results in terms of DPT exposure.

Of course, whilst HMRC’s current focus for the oil industry would appear to be captive insurance arrangements, there may be other areas where the DPT rules need to be considered, for example payments to overseas affiliates for services.

Any payments across the ring fence will meet the tax mismatch condition embedded in the DPT provisions as one of the triggers, so the potential application of the DPT rules requires analysis of the other elements, many of which are open to interpretation. Whilst the correct transfer pricing, coupled with an absence of any design to avoid UK chargeable income or boost ring fence deductions should offer protection from a DPT charge, some judgement is required in assessing any risk.

CW Energy can assist in making the decisions about notification and assessing the risks; please get in touch if you wish to discuss DPT with us.

09 Jun 2016

Deferral of PRT returns


  • Companies need to think about preparing the PRT returns for CP I 2016, the first period for which the zero % rate is to apply.
  • Ongoing discussions between industry and HMRC may shape the form of future returns or indeed the extent to which companies feel it necessary to make returns.
  • Now is a good time to revisit the options available to companies.

If you wish to discuss your companies’  PRT returns with one of our team please get in touch. 


Following the introduction of the PRT zero rate companies are looking at ways of reducing their PRT administration.

As a reminder under current law companies have four options available to them:

  • Deferral of returns for a specific period
  • Indefinite deferral
  • Full opt out
  • Prepare full returns

The first option has been sparingly used as ultimately there is a requirement to submit returns. The second as been adopted by some fields but requires a simplified annual return and again has not been that widely used.

The third option is clearly the preferred option for fields which are not expected to pay, have never paid in the past and where there is no prospect of a UFL being generated.

The reduction in the rate of PRT to zero % potentially increases the number of fields that could now benefit from a Never Payer election.

Unfortunately, to qualify as a Never Payer, current law requires the company to demonstrate there are no future assessable profits (after oil allowance and other reliefs) rather than no future tax, and the burden of proof has often proved too onerous even for fields that may previously have qualified.


Industry have been in discussions with HMRC about relaxing the PRT Never Payer election. The next opportunity to amend the law to relax the conditions for opt out would be in the 2017 Finance Bill.

It is anticipated that that the Never Payer election will be made available to any field group that so elects, as it appears there would be no risk to the HMG tax take although this would require government to be comfortable that the rate of PRT will never be raised.

Companies should carefully review their position to determine whether a field could fall into the Never Payer election. If there have been PRT payments in the past either by the current holder or a previous interest holder it is unlikely that such an election would be beneficial unless there was certainty that losses generated in the future would not under any circumstance be carried back. Companies will need to review not just the expected outcome but also worse case scenarios, including taking into account unexpected events, for example the possibility of early abandonment.

A good example is the Hutton field where damage to a pipeline caused the field to be shut in and as a result abandoned prematurely.

At the other end of the spectrum an opt out should be avoided if there was any possibility of a UFL being generated.

See our April newsletter where the Never Payer (opt out) election is considered.

Meanwhile returns will still be required for the next two, or possibly three, chargeable periods.

If one came to the conclusion that a Never Payer election was to be of benefit, one approach would be to elect to defer returns for, say, two years and then, assuming a change of law in the conditions required for a Never payer field i.e. no tax liabilities, submit a Never Payer election.

HMRC require 28 days to consider a deferral application, but you would want a decision before the PRT compliance timetable starts, i.e. by mid to late July for the chargeable period ending 30 June 2016, so it is advisable to make your elections in the next couple of weeks.

One might also consider again the deferral option if there is only a low probability of a PRT refund arising through loss carry back or UFL claims. In this case you could apply for indefinite deferral of returns. Should the field underperform such that a PRT refund becomes available you would then have the option to recreate all the deferred returns.

Discussions on other compliance saving measures will continue.

If you would like to discuss the issues raised in this note, please call your normal CWE contact.