Income Tax (Trading and Other Income) Act 2005 section 225J

Valuation where appropriation to refining etc

Section 225J deals with how oil is valued for income tax purposes when an oil producer does not sell the oil but instead takes it into use in another of its own businesses, such as refining, and the Petroleum Revenue Tax (PRT) rules under section 225I do not apply.

• Where an oil producer appropriates oil it has extracted (or acquired through oil rights) to its own refining or other non-production use, and the PRT appropriation rules in section 225I do not apply, the oil must still be valued at market value for income tax purposes
• The producer is treated as having simultaneously sold and repurchased the oil at market value at the time of appropriation, creating a taxable event
• Market value is determined using the PRT valuation rules in Schedule 3 to the Oil Taxation Act 1975, with modifications so that the appropriation date is used as the notional delivery day
• This ensures that oil transferred internally within a business is brought into account at a fair open-market price, preventing profits from extraction activities from going untaxed

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