Taxation (International and Other Provisions) Act 2010 Schedule 1

Oil activities: new Chapter 16A of Part 2 of ITTOIA 2005

Schedule 1 inserts a new Chapter 16A into the Income Tax (Trading and Other Income) Act 2005, establishing special income tax rules for oil extraction and related activities, including definitions, oil valuation rules, regional development grant adjustments, tariff receipts, abandonment guarantees, and the treatment of advance petroleum revenue tax repayment interest.

• The schedule defines key terms such as "oil extraction activities", "oil rights", "ring fence income" and "ring fence trade", and establishes that oil-related activities are treated as a separate trade for income tax purposes.
• Oil disposals must generally be valued at market value for income tax purposes — either using the petroleum revenue tax (PRT) market value where applicable, or a separately calculated market value where oil is disposed of other than at arm's length or appropriated for refining or other non-extraction use.
• Relief is available against ring fence income for the cost of abandonment guarantees, for reimbursement expenditure paid back to guarantors, and for expenditure incurred by a participator who covers another participator's defaulted decommissioning costs — with corresponding income recognition when the defaulter reimburses.
• Tariff receipts from making oil-related assets available to third parties are brought within ring fence income, regional development grants reduce allowable expenditure with a mechanism for later adjustment, and interest on repayment of advance PRT is disregarded for income tax.