When does paragraph 3 of Schedule 2 of the Oil Taxation Act 1983 apply?

Paragraph 3 applies when a participator receives consideration for the use or disposal of a qualifying asset that includes an unquantified element which is not itself a tariff receipt or disposal receipt, and the standard apportionment rules under sections 6(4) and 7(5) do not already govern that consideration.

What does 'just and reasonable basis' mean for apportioning mixed consideration under United Kingdom oil taxation law?

The just and reasonable basis is a flexible standard allowing the facts of each case to determine how consideration is split between tariff or disposal receipts and other elements. Rather than imposing a rigid formula, it requires HMRC and the participator to agree a fair allocation reflecting the economic substance of the transaction.

What are the two conditions that must be met before paragraph 3 of Schedule 2 applies?

First, the consideration must include an unquantified element that is not itself a tariff receipt or disposal receipt of the participator. Second, the consideration must not already fall to be apportioned under the standard provisions in section 6(4) for tariff receipts or section 7(5) for disposal receipts of the Act.

How is mixed consideration for a qualifying asset apportioned in practice under the Oil Taxation Act 1983?

In practice, if a lump sum covers both a tariff receipt element and unquantified non-tariff services, the participator determines what portion represents the tariff receipt on a just and reasonable basis. Comparable market rates, such as similar pipeline tariffs, may be used to establish the appropriate allocation for petroleum revenue tax purposes.

Oil Taxation Act 1983 section 3

Schedule 2 paragraph 3 — Apportioning mixed consideration for qualifying assets

Section 3 of Schedule 2 deals with how to split consideration received for the use or disposal of a qualifying asset when part of that consideration is unquantified and the normal apportionment rules do not apply.

Applies where a participator receives consideration for the use or disposal of a qualifying asset that includes an unquantified element
The unquantified element must not itself be a tariff receipt or disposal receipt of the participator
The normal apportionment rules under section 6(4) (tariff receipts) or section 7(5) (disposal receipts) must not already apply to that consideration
In such cases, the portion of the total consideration that counts as a tariff receipt or disposal receipt must be determined on a just and reasonable basis

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