Yearly Archives: 2019

08 Nov 2019

Oil and Gas Accounting – Deferred Tax

IAS 12 and the initial recognition of decommissioning assets and liabilities 

An exposure draft was published in the summer proposing an amendment to the application of the Initial recognition exemption (IRE) to transactions where a deferred tax asset and liability of the same amount are established on initial recognition. 

In the past we have seen a wide variation in the accounting in this area but if the proposals are implemented companies may well have to revisit this area. 

Representations are required by 14 November 2019

This potential change has been brought into focus as a result of the change to accounting for leases in IAS 16, but it is clear in the various papers published by the IFRS Foundation (and noted in the exposure draft itself) that this potential change is also applicable to the initial recognition of decommissioning liabilities (which would require a corresponding asset). 

The IRE has no application to a business combination (BC).

The IFRS Foundation have concluded that the IRE should not be applied in a case where a deferred tax asset and liability of the same amount are initially recognised on a particular transaction.   

We have seen a number of broad approaches for the treatment under IAS 12 for temporary differences on non BC decommissioning liabilities and assets but the effect of the change will be to standardize the approach going forward and require companies who have not been compliant with the new approach to amend their accounts with retrospective effect. 

The first approach we have seen in the past for accounting in this area is to simply apply the IRE to both the DT asset and liability. No DT is recognized on initial recognition or in the future. This approach will be prohibited.  

The second approach is to treat that the asset and liability as “integrally linked” such that no net temporary difference arises on initial set up, the IRE can have no application.  This essentially is the approach which we understand the new standard will adopt. 

The third approach is also an integrally linked approach where the temporary difference on the decommissioning asset and liability are “netted” in the calculation of deferred tax. Initially no amount is set up but as the asset and liability diverge a DTA is generally set up on a net number. In particular in considering whether the “asset” is recoverable some companies have taken the view that one only needs to consider this net position.  This in effect can mean that the DTL can be understated. This netting approach is not new but it increased its popularity for oil companies when the SCT rate was increased to 62% and the recoverability of tax on decommissioning was restricted to 50%. Companies were faced with the possibility of setting up an excess of 12% on the liability compared to the asset.

Although the ED addresses the narrow question of the IRE such that we are not expecting any new wording in the standard to specifically outlaw this netting approach as such, the discussion papers issued as part of the IRE review make it clear that this netting approach is inconsistent with IAS 12 and should not be adopted.  

Comparatives will have to be restated as a result of the retrospective application of this new rule (following IAS 8 principles).

A voluntary transitional relief will be available. This will allow one to apply the approach with reference to an assessment of the recoverability of the DTA at the time of the first period for which comparatives are to be restated as a result of the charge, rather than the recoverability position at inception.

A number of representations have been made to date and these have been broadly supportive of the change. This suggests that it is likely that the change will be implemented.

We do not know when this change is to be implemented but it seems unlikely changes will be made in time to be taken into account in the 2019 accounts process.  We have however already seen auditors looking at this area more carefully as a result of this development.

We would recommend that companies review their current approach to determine whether the implementation of the changes in the ED could have a material impact on their position.

If a company would like to discuss this change please contact Paul Rogerson, Andrew Lister or their normal CWE contact.

29 Oct 2019

Another new partner at CW Energy

We are pleased to announce that Andrew Lister has joined the practice as a new partner. Many of you will already know Andrew, who headed up one of the Big 4 energy tax practices for many years.

We are delighted to have attracted Andrew to join us and look forward to him providing support to the existing team and further developing the practice over many future years.

Andrew will be based at our Queen Street, London office. He can be contacted on 0207 936 8300 or by email at

17 Sep 2019

New Partner at CW Energy

We are very pleased to announce that Stephen Kitching, an indirect tax specialist with many years’ experience in the energy sector, has joined our team as a new tax partner. Steve will be based in our new Aberdeen office at 1 Marischal Square, Broad Street Aberdeen AB10 1BL, but will also be spending time in London.

This is an exciting development for CW Energy which will enable us to offer a broader range of services in the indirect tax sphere. Steve can be contacted on or mobile no. 07480 564934

04 Jul 2019

Transferable Tax History – Preparation  

For a valid TTH election to be made, the seller of the interest cannot be the holder of a Decommissioning Relief Deed with the original wording, since such Deed would expose the Exchequer to a potential double claim to relief.

In our March 27 news item, we advised Decommissioning Relief Deed holders of the Treasury’s plan to contact Deed holders to assist in implementing the changes to the Deed which are required for a valid TTH election. However, we understand this has not been implemented. Instead, the Treasury is relying on Deed holders to take the initiative to implement the changes.

The changes required are found in the ‘alternative Schedule’ which can be downloaded from

There is no downside from the amended wording.

To amend the Deed to incorporate the changes contained in this alternative schedule the company must make an election by giving notice to the Treasury (as the Government Counterparty). 

The election should give notice that the company elects to adopt the enclosed Alternative Schedule for the purposes of the Decommissioning Relief Deed entered into between the Lords Commissioners of Her Majesty’s Treasury (the “Government Counterparty”) and [COMPANY] (the “Company”) dated [DATE].

This election must be made in accordance with Clause 12 (Notices) of the Deed which requires the election to be signed and sent to the address used in the Deed. In the latest online version of the Deed this is given as Director of Business and International Tax, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ , and copied to: Deputy Director Oil and Gas, HMRC, LBS Oil & Gas, 5th Floor, SW Bush House, Strand, London WC2B 4RD, although Deed holders should check the addresses used in their particular Deed.

Upon receipt by Treasury of such notice, the Deed will incorporate the alternative schedule, and the Deed holder will be in a position to be a party to a valid TTH election (as seller). 

We recommend verifying that the Treasury has received and accepted the election – the email is

27 Mar 2019

Transferable Tax History – Preparation 

Our Tax Newsletter of 21 March encouraged potential sellers of interests to ensure their Deeds were amended if they were contemplating taking advantage of the transferable tax history (TTH)  rules.

We now understand that the Treasury will contact all Deed holders to implement the changes to the Deed to make them compatible with the TTH rules. We understand this will happen within weeks and will involve the Treasury sending the revised wording to the Deed holder. Furthermore, we understand that the amendment will take effect on the agreement of the Deed holder. In other words, the process should be very simple and quick.

However, we have not seen the wording of the amendment and cannot comment further on the detail of the Treasury programme. Deed holders who are content to await the Treasury communication should satisfy themselves that the Treasury has the correct contact details and then await the communication. Deed holders who wish to ensure an earlier amendment should consider contacting the Treasury directly.

As mentioned in our earlier Tax Newsletter there should be no downside from making the changes to the Deed, with the proviso that we have not seen the amended wording.

21 Mar 2019

Transferable Tax History  – Preparation  

The transferable tax history rules are now law.

However, any seller of a licence interest who has a Decommissioning Relief Deed in place cannot make an election to transfer tax history unless the Deed contains a provision to ensure the seller cannot make a Deed claim that effectively relies upon tax history that has been transferred.

Specifically, the Deed must provide that the total transferred amount of tax history is removed from the calculation of the “reference amount”; which is the amount effectively guaranteed by the Deed.

This means that current Deed wording is incompatible with transferring tax history and must be changed. Given that elections to transfer tax history must be made within 90 days of the sale and we do not know how long Treasury officials will take to make amendments, groups should consider initiating the changes sooner rather than waiting for a potential sale.

There should be no downside from making the changes to the Deed, although we have not yet seen the final wording to be incorporated into the Deed.  The effect of the Deed change should simply remove the transferred tax history from the guaranteed relief offered by the Treasury, as would be expected since the transferee will be able to use that tax history.

19 Mar 2019

Appeal refused in Leekes loss streaming case

Supreme Court refuse taxpayer permission to appeal in the Leekes loss streaming case. 

It looks like the end of the line for the loss streaming appeal by Leekes as the Supreme Court refused the taxpayer permission to appeal because the application did not raise an arguable point of law.

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 taxpayer was successful at the FTT but has lost at both the UTT and the Court of Appeal and now the Supreme Court refused the taxpayer permission to take the issue further. Full details of the facts and previous decisions were set out in our news brief of 13 June 2018.

Where this leaves us is that streaming will apply to pre 1 April 2017 losses on a transfer of all or part of the trade. However, for losses generated post 1 April 2017 the new loss offset rules mean that this is no longer an issue for transfers of non-ring trades.

For ring fence trades the position is not so clear cut. Whilst we believe there are good arguments that streaming may not, in practice, apply, to post 1 April 2017 losses the position is far from straight forward and companies contemplating any restructuring including ring fence losses will need to look very carefully at the position.

Please contact Ian Hack, Paul Rogerson, or your normal CWE contact if you would like to discuss  

29 Jan 2019

Investment Allowance

Changes in Activation rules: Tariff receipts

Secondary legislation has now been brought into effect to allow tariff receipts to be included within relevant income for the purposes of determining the level of investment allowance or cluster allowance that can be activated.

Tariff income activates investment allowance or cluster allowance for the field or cluster to which the tariffs are ‘attributable’.  Note the rules for attribution do not follow the PRT rule concept of a chargeable field so if a qualifying asset which generates tariff income is used by the owner of a number of fields, the income should be apportioned on a just and reasonable basis between those fields.

The rules have retrospective effect and apply to accounting periods beginning on or after 16 September 2016.  Companies with a December year end who have recently submitted their 2017 returns and have a supplementary charge liability or likely to have one in the foreseeable future should review the position to determine whether this change could generate a benefit.