Direct Tax News Page

Laval

Further to our earlier note in respect of the announcement made by the Chancellor regarding the extension of the Supplementary Charge “field allowance” to cover “remote gas fields in the West of Shetlands area”, a draft statutory instrument (“SI”) has been laid before Parliament setting out the detailed criteria in respect of this extension.

Companies with non Sterling functional currency losses generated in accounting periods beginning before July 2009 (Royal Assent of Finance Act 2009) need to review whether an election should be made to delay the application of new rules dealing with the quantification of loss offsets. For companies with a December 2009 year end, this election must be made before 30 January 2010.

We have recently prepared an update to our article on UK oil and gas taxation. Oil and gas exploration, development and production companies are subject to a number of tiers of government take in the UK; petroleum revenue tax (PRT), corporation tax (CT) and supplementary charge (SC). This article gives an outline of what this means. This is also available in *.pdf format by clicking this link.

Finance Act 2009 includes a responsibility for senior accounting officers (SAOs) of large companies for ensuring and certifying that appropriate tax accounting arrangements have been established and maintained. A number of significant changes have been made to the rules originally included in the Finance Bill.

The Government announced on 21 July 2009 that it proposes to introduce “anti avoidance” legislation in the 2010 Finance Bill to tackle schemes involving the transfer of capital allowances on plant and machinery via the sale of the shares in a company. The legislation will take effect from 21 July 2009.

After the many months of deliberation HMRC accept that the cost of cushion gas injected into a gas storage reservoir in order to maintain pressure, qualifies for plant and machinery allowances under existing law.

Budget 2009

The 2009 Budget was delivered by the Chancellor of the Exchequer on Wednesday 22 April. The more important points relating to direct tax and VAT were circulated to clients by CWE later that evening and are in the note attached.

HMRC have now published draft legislation on the changes in the set off of losses for companies with a non sterling functional currency.

HMRC have recently issued revised draft legislation in respect of the proposed worldwide interest capping rules in respect of large groups of companies.

The Government have announced that provisions are to be included within Finance Act 2009 to change the basis for valuing losses generated by companies with a non-sterling functional currency.

On 2 December, following the Pre-Budget Report, details were published of the advisory fuel rates from 1 January 2009

In the most eagerly awaited PBR for some time, there was a passing reference to North Sea Oil and Gas in the Chancellor’s speech but no details as to what was proposed. However, once the detailed documentation was released, it included a Consultative Document called “Supporting Investment: a consultation on the North Sea fiscal regime”. This new Consultative Document is a continuation of what seems to have become a serial consultation process on the fiscal regime for the North Sea, originally triggered by the surprise and unwelcome imposition of the Supplementary Charge in 2002.

HMRC published a discussion paper on July 31 2008 as a follow up to the “Platform for Change” document that was issued in November 2007.

HMRC announced on the 29^th July 2008 that, from that date, they are temporarily suspending the application of the loan relationship (late payment of interest between connected companies) provisions, pending a possible change in the law. In particular, they will not be applying paragraph 2 Schedule 9 Finance Act 1996.

There were no real surprises or the Upstream Industry in the Budget on 12 March. Although the Budget includes a number of reforms in this area these were substantially announced in the “Securing a sustainable future” Paper issued in December last year, but the documents published on 12 March do reflect some of the comments made by Industry on the December package. Changes include enhanced reliefs for CT and SCT, amendments to the PRT regime, measures on anti-avoidance, change of use, capital allowances and financial products avoidance.

After extensive discussions on the future of the North Sea fiscal regime the Government seem to have rejected the need for structural change and it would appear that PRT is here to stay, at least for the medium term.

There was very little in this year’s Pre-Budget Report with a direct impact on the energy sector, although changes were proposed to the capital gains tax regime for individuals and trusts, which could well have an impact on companies’ ability to raise funds on the Alternative Investment Market. Treasury and HMRC have, however, been consulting with industry on the future of PRT and the industry and HMRC have also been discussing the possible tax treatment if and when North Sea infrastructure is used for alternative non ring-fence activities.

As the end of the current PRT return season approaches, it is timely to reflect on the current discussions between industry and the Treasury on the future of PRT and the representations companies may wish to make.

A number of UK companies are being asked to complete questionnaires to help their parent companies complete their evaluation of their tax exposures as required by Financial Interpretation 48 (FIN 48) relating to FASB109. There must now be a concern that HMRC might ask for access to these documents and any working papers, which would immediately draw their attention to the contentious areas in the return.

Only companies with shares or debt admitted to trading on a regulated EU market were required to apply IAS from 1^st January 2005 for their consolidated accounts. However, a number of groups have considered whether they should seek to apply IFRS on a voluntary basis. Before deciding whether to do so, one of the considerations a company should look at is the possible tax implications.

The Government has published the long awaited consultation document on the taxation of foreign profits of companies.

As part of the 2007 Budget Report there was an announcement that HMRC intended to expedite the procedure for giving relief from UK withholding tax on loan interest to non residents, and also to extend the circumstances in which UK residents can enter into thin capitalisation agreements.

The deadline of 31^st March 2007, for electing under paragraph 6(3A), for an alternative treatment for profits or losses on derivative contracts under the Disregard Regulations, is fast approaching. An important decision may need to be taken regarding an alternative treatment for profits or losses on derivative contracts.

Gordon Brown presented his eleventh and possibly final Budget with a flourish but with little of substance for the upstream industry. With his focus on spending it remains to be seen where the money is going to come from to pay for his measures, particularly as he declared that the Budget would be revenue neutral. For the principal measures which affect the upstream industry and our comments, follow this link.

HMRC have recently issued draft guidance on their interpretation of the impact of the Indofood decision on UK withholding taxes on outbound interest and in particular on the application of lower rates of withholding under double taxation treaties.

For his tenth and possibly final Pre Budget Report, Gordon Brown delivered a speech heavy with statistics but containing little of substance. A review of the detailed provisions confirms this is the case, with measures previously announced or trailed, and more tinkering with the anti-avoidance rules as a result of the disclosure regime for tax schemes.

ECJ “outlaws” the UK Controlled Foreign Company Regime

The ECJ decision last month in the Cadbury’s Schweppes case has confirmed that EU law prevents HMRC from bringing the profits of EEA companies within the charge to UK tax under the UK Controlled Foreign Company (CFC) rules, except where the arrangement is wholly artificial.

PRT exemption for redeveloped fields

The Treasury wrote to the various Industry bodies at the end of last week to canvass views on whether the law should be changed to enable fields decommissioned since 16^th March 1993 and subsequently redeveloped, to be excluded from the scope of PRT.

There were few surprises in this year’s Budget with many of the detailed changes having been fully outlined in the December Pre Budget Report.

As expected the Chancellor has looked to the UK Upstream Industry to make a significant additional contribution to his Budget shortfall.

Interest Payments to Treaty-based lenders

We thought it would be helpful to remind readers that HMRC’s practice has recently been updated with regard to granting consent under an appropriate double taxation treaty to pay interest gross, or at a reduced rate of withholding tax.

CT Relief for Employee Shares and Share Option Schemes

Groups with ring-fence operating companies are potentially disadvantaged by the Finance Act 2003 rules, which provide for a specific, deemed, cost deductions in respect of shares awarded to employees under employee share or share options schemes in place of a deduction for any actual cost borne by the group.

Surrender of excess tax payments and Group Payment arrangements

We generally advise clients with a number of UK taxpayers in a group to enter into a Group Payment Arrangement for Corporation Tax purposes. There is, however, some flexibility in the system for groups which are outside a Group Payment Arrangement in that, under Section 102 Finance Act 1989, an election can be made by a company, which has overpaid tax, to surrender the excess tax to a group company, which has underpaid (subject to various detailed conditions).

Construction Industry Scheme (CIS)

The CIS scheme was due to change from April 6^th next year, but it has been recently announced that these changes will be deferred until 2007. Once introduced they may require oil companies to make monthly returns, even if no payments covered by the scheme have been made in the month.

One of the measures contained in the final version of this year’s Finance Act is a provision which effectively re-introduces the controversial rules which applied to the purchase of a debt at a discount by a connected company.

On 7^th April, the Advocate General gave his Opinion in the Marks & Spencer group relief case. This appears to suggest that UK group relief rules, which prevent a UK parent from claiming relief for losses of an EU resident subsidiary, are inconsistent with the Treaty of Rome.

Where a trading company suffers foreign taxes, UK law provides relief as a credit to be offset against UK taxes payable on the foreign income or, by election, as a trading deduction. Relief applies under a treaty or unilaterally where no treaty applies.

Information Powers

As one of the consequences of the merger of Customs and the Inland Revenue it has been decided that the use of the Revenue’s information power should be applied more consistently across all taxpayers.

Finance Act 2005

The Finance Act 2005 received Royal Assent on 7^th April.

Budget 2005

The majority of this year’s Budget proposals are anti-avoidance measures aimed at specific “schemes”, many of which have come to the Government’s attention as a result of the disclosure regime introduced in last year’s Finance Act.

We will be reviewing the detailed proposals in the next few days and hope to produce a more detailed note on the issues arising for our clients, but these are our initial observations.

Legislation was introduced in 1999 to enable certain fields to defer making PRT returns. The main criterion for deferral was an ability to be able to demonstrate that the particular field would not be PRT paying in the future.

The recent High Court decision in the case of Camas plc v Atkinson provided an interesting summary of the tax treatment of both unsuccessful and successful acquisition costs.

The case of Strand Options & Futures Ltd v Vojak has now been heard in the High Court and the Court of Appeal.

Marks and Spencer are challenging the basis on which claims for group relief can be made in the UK. The case has been referred to the European Court.

The full transcript of an interesting recent Special Commissions’ decision which was given earlier this year has now been published

The recent Court of Appeal decision in Barclays Mercantile Business Finance Ltd v Mawson, appears to represent a further development in the Ramsay law anti-avoidance "doctrine".

In November, the Revenue announced a Consultation on possible changes to the Construction Industry Scheme.

The paper on the taxation of oil and gas exploration, development and production companies has just been updated. A copy is available in *.pdf format by clicking on the hyperlink in the heading to this note or via our Publications Page. Anyone who does not have a copy of Adobe Acrobat Reader can obtain one free of charge by following the link on that Page.

The Inland Revenue have now decided that they will accept claims made by UK branches of EU or EEA companies for periods up to April 1^st 2000 to accept or surrender group relief.

Amendments have been made in August to the Regulations dealing with the Construction Industry Scheme.

The recent Special Commissioners case of ABC v M was concerned with a sale and leaseback arrangement of a pipeline.

Gas storage

CWE have recently been looking at various tax issues associated with gas storage

Budget 2009

There were few surprises in this year’s Budget with many of the detailed changes having been fully outlined in the December Pre Budget Report.

Interest Payments to Treaty-based lenders

CT Relief for Employee Shares and Share Option Schemes

Surrender of excess tax payments and Group Payment arrangements

Construction Industry Scheme (CIS)

Information Powers

Finance Act 2005

The Finance Act 2005 received Royal Assent on 7^th April.

Budget 2005

Gas storage

Capital Gains

In a decision given on 13^th June, the High Court held that the proceeds of sale of a right to receive income in the future was a capital, rather than an income, receipt.

There were few surprises in this year’s Budget with many of the detailed changes having been fully outlined in the December Pre Budget Report.

The Finance Act 2005 received Royal Assent on 7th April.

In a decision given on 13th June, the High Court held that the proceeds of sale of a right to receive income in the future was a capital, rather than an income, receipt.

The Finance Act 2005 received Royal Assent on 7^th April.

In a decision given on 13^th June, the High Court held that the proceeds of sale of a right to receive income in the future was a capital, rather than an income, receipt.