Key Facts
- •HMRC appealed the FTT's decision in Perenco UK Limited v HMRC [2021] UKFTT 254 (TC), which allowed Perenco's appeal against a decision relating to petroleum revenue tax (PRT) liability for 2015.
- •The dispute concerned the allowability of expenditure incurred by Perenco on gas terminal modifications to comply with environmental regulations.
- •Perenco received reimbursements from oil field owners (Babbage, Seven Seas, Johnston fields) for a pro rata share of the modification costs, totaling £6,286,146.
- •HMRC argued these reimbursements should be treated as a "subsidy" under paragraph 8 of Schedule 3 to the Oil Taxation Act 1975 (OTA 1975), disallowing the corresponding expenditure.
- •Perenco argued the reimbursements were part of the overall consideration for services under transportation and processing agreements (TPAs) and thus not subject to paragraph 8.
Legal Principles
Petroleum Revenue Tax (PRT) is charged on a participator's assessable profit, as reduced by allowable losses (OTA 1975, s.1(2)).
Oil Taxation Act 1975
Expenditure is allowable if incurred by a participator for purposes specified in s.3 OTA 1975 or s.3 OTA 1983 (long-term assets).
Oil Taxation Act 1975 & 1983
Tariff receipts (consideration received for use of qualifying assets) are included in positive amounts for PRT calculation (OTA 1983, s.6(1)).
Oil Taxation Act 1983
Tax-exempt tariffing receipts (TETRs) are not tariff receipts; expenditure attributable to TETRs is disallowed (OTA 1983, s.6A).
Oil Taxation Act 1983
Expenditure is not allowable if met directly or indirectly by a person other than the one incurring it (OTA 1975, Schedule 3, paragraph 8).
Oil Taxation Act 1975
Outcomes
Appeal dismissed.
The Upper Tribunal (UT) found the additional amounts were tariff receipts/TETRs, not payments falling under paragraph 8 of Schedule 3 OTA 1975. The payments were part of the overall consideration for services under the TPAs, securing the continued provision of services, not subsidies or bounty.