Oil Taxation Act 1983 section 5

Schedule 2 paragraph 5 — Non-arm's length disposals of qualifying assets

Section 5 deals with how tariff receipts and disposal receipts are treated when a participator disposes of a qualifying asset in a transaction that is not at arm's length, providing rules to limit or substitute the amounts brought into account.

• Where a qualifying asset is disposed of in a non-arm's length transaction to another participator who will use it wholly for their own taxable field, the resulting tariff or disposal receipts are only recognised to the extent they do not exceed the relevant expenditure originally incurred on the asset.
• Relevant expenditure means the cost of acquiring, creating, or improving the asset (excluding financing costs such as interest), measured by reference to the last transaction that was conducted at arm's length.
• Where a non-arm's length disposal does not qualify for the receipts cap described above — for example, because the buyer is not a participator or the asset will not be used wholly for that buyer's own field — the disposal is instead treated as generating receipts equal to the open market value, and any actual receipts are disregarded.
• For these purposes, "disposal" includes hiring or any similar arrangement that gives rise, or could reasonably be expected to give rise, to income or capital receipts; and "open market consideration" means the price that could reasonably have been obtained in an arm's length transaction.