Chapter OT13960
| Published date | 13 March 2016 |
| Record Number | OT13960 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
In this context the term ‘field’ refers to taxable and non-taxable fields alike and for the purpose of OTA75\S5 only expenditure is deemed to be allowable in non-taxable fields, even though in reality under OTA93\S185(4)(e) it cannot be.
Criteria for applying the testThe onus is on the participator to establish that the expenditure is not or is unlikely to become allowable as field expenditure, the test being applied in relation to the circumstances prevailing at the time the claim is made. If expenditure is disallowed and that disallowance is then the subject of an appeal, settlement of the appeal should therefore proceed on the basis of the factual evidence and criteria at the date of the claim, not some later date.
The participator does however have the option of withdrawing its appeal and lodging a later claim for the same expenditure when the facts might be more supportive of its case.
The following kind of questions need to be raised in testing whether or not the claim can be allowed:
- What has been discovered? The fact that oil has been found is not in itself reason to deny relief if economic development is unlikely.
- On the basis of present day technology is there a prospect of economic development?
- Is there research afoot likely to produce the technology required for economic development?
- Having regard to the likelihood of the required technology becoming available, what oil would be necessary to make development an economic prospect?
- Has any development scheme been discussed with DECC?
A point often made by participators, particularly in relation to seismic expenditure, is that only a certain proportion of expenditure generally leads to oil discoveries and that therefore a corresponding percentage of current expenditure should be allowed immediately it is incurred. However, the question is one of fact based on the particular circumstances in which the expenditure has been incurred and which are relevant at the time the claim is made. Expenditure on a seismic survey cannot be said to be ‘abortive’ until the data has been interpreted (this may take some time), any remaining obligation wells drilled and any further relevant studies carried out.
DrillingFor a dry hole drilled in open acreage with no further wells planned in the immediate vicinity i.e. 5,000 metres there is normally no question of not giving relief provided the well report supplied by the...
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