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9 1992

Finance Act, 1992

Chapter VI

Petroleum Taxation

Interpretation (Chapter VI).

75. —(1) In this Chapter—

abandonment activities”, in relation to a relevant field or any part of it, means those activities of a person, whether carried on by him or on his behalf, which comply with the requirements of a petroleum lease held by him, or, if the person is a company, held by the company or a company associated with it, in respect of—

(a) the closing down, decommissioning or abandonment of the relevant field or the part of it, as the case may be, or

(b) the dismantlement or removal of the whole or a part of any structure, plant or machinery which is not situated on dry land and which has been brought into use for the purposes of transporting as far as dry land petroleum won from the relevant field or from the part of it, as the case may be;

abandonment expenditure”, in relation to a relevant field or any part of it, means expenditure incurred on abandonment activities in relation to the field or the part of it, as the case may be;

chargeable period” means an accounting period of a company or a year of assessment;

designated area” means an area standing designated for the time being by order under section 2 of the Continental Shelf Act, 1968 ;

development expenditure” means capital expenditure incurred in connection with a relevant field on the provision for use in carrying on petroleum extraction activities of—

(a) machinery or plant,

(b) any works, buildings or structures, or

(c) any other assets which are of such a nature that, when the relevant field ceases to be worked, they are likely to be so diminished in value that their value will be little or nothing,

but does not include—

(i) expenditure on any vehicle suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles,

(ii) expenditure on any building or structure for use as a dwelling-house, shop or office or for any purpose ancillary to the purposes of a dwelling-house, shop or office,

(iii) (I) expenditure incurred on petroleum exploration activities, and

(II) payments made to the Minister for Energy on the application for, or in consideration for the granting of, a licence (other than a petroleum lease) or other payments made to him in respect of the holding of the licence,

(iv) expenditure on the acquisition of the site of a relevant field, or of the site of any works, buildings or structures or of rights in or over any such site,

(v) expenditure on the acquisition of, or of rights in or over, deposits of petroleum,

(vi) expenditure on—

(I) machinery or plant, or

(II) works, buildings or structures, provided for the processing or storing of petroleum won in the course of carrying on petroleum extraction activities, other than the initial treatment and storage of such petroleum, or

(vii) any interest payment,

and “assets representing development expenditure” shall be construed accordingly and shall include any results obtained from any search or enquiry upon which the expenditure was incurred;

dry land” means land not permanently covered by water;

exploration expenditure” means—

(a) capital expenditure incurred on petroleum exploration activities, and

(b) payments made to the Minister for Energy on the application for, or in consideration for the granting of, a licence (other than a petroleum lease) or other payments made to him in respect of the holding of the licence,

but does not include any interest payment and “assets representing exploration expenditure” shall be construed accordingly and shall include any results obtained from any search, exploration or enquiry upon which the expenditure was incurred;

initial treatment and storage”, in relation to petroleum won from a relevant field, means the doing of any of the following things—

(a) subjecting petroleum so won to any process of which the sole purpose is to enable the petroleum to be safely stored, safely loaded into a tanker or safely accepted for refining,

(b) separating petroleum so won and consisting of gas from other petroleum so won,

(c) separating petroleum so won and consisting of gas of a kind that is transported and sold in normal commercial practice from other petroleum so won and consisting of gas,

(d) liquefying petroleum so won and consisting of gas of such a kind as is mentioned in paragraph (c) for the purpose of transporting it,

(e) subjecting petroleum so won to any process so as to secure that petroleum disposed of without having been refined has the quality that is normal for petroleum so disposed of from the relevant field, or

(f) storing petroleum so won prior to its disposal or prior to its appropriation to refining or to any use except use in—

(i) winning petroleum from a relevant field, including searching in that field for, and winning access to, such petroleum, or

(ii) transporting as far as dry land petroleum that is won from a place not on dry land,

but does not include any activity carried on as part of, or in association with, the refining of petroleum;

licence” means—

(a) an exploration licence,

(b) a petroleum prospecting licence,

(c) a petroleum lease, or

(d) a reserved area licence,

granted in respect of an area in the State or a designated area under the Petroleum and Other Minerals Development Act, 1960 , and which was granted subject to—

(i) the licensing terms set out in the Notice entitled “Ireland Exclusive Offshore Licensing Terms” presented to each House of the Oireachtas on the 29th day of April, 1975, or

(ii) licensing terms presented to each House of the Oireachtas on a day or days which fall after the 29th day of April, 1975, and which may be before, or on or after, the passing of this Act, or

(iii) licensing terms, to which paragraph (i) or (ii) relates, as duly amended or varied from time to time;

licensed area” means an area in respect of which a licence is in force;

mining trade” means a trade consisting only of working a mine which is a qualifying mine or, in the case of a trade consisting partly of such an activity and partly of one or more other activities, the part of the trade consisting only of working such a mine which is treated by virtue of section 76 as a separate trade;

petroleum” means petroleum within the meaning of section 2 (1) of the Petroleum and Other Minerals Development Act, 1960 , won or capable of being won under the authority of a licence;

petroleum activities” means any one or more of the following activities, that is to say:

(a) petroleum exploration activities,

(b) petroleum extraction activities, and

(c) the acquisition, enjoyment or exploitation of petroleum rights;

petroleum exploration activities” means activities of a person carried on by him or on his behalf in searching for deposits of petroleum in a licensed area, in testing or appraising such deposits or in winning access thereto for the purposes of such searching, testing or appraising, where such activities are carried on under a licence (other than a petroleum lease) authorising the activities and held by him or, if the person is a company, held by the company or a company associated with it;

petroleum extraction activities” means activities of a person carried on by him or on his behalf under a petroleum lease authorising the activities and held by him or, if the person is a company, held by the company or a company associated with it in—

(a) winning petroleum from a relevant field, including searching in that field for, and winning access to, such petroleum,

(b) transporting as far as dry land petroleum that is so won from a place not on dry land, or

(c) effecting the initial treatment and storage of petroleum that is so won from the relevant field;

petroleum profits”, in relation to a company which is chargeable to corporation tax on its profits, means the income of the company from petroleum activities and any amount to be included in its total profits in respect of chargeable gains accruing to the company from disposals of petroleum-related assets;

petroleum-related asset” means any of the following assets or any part of such an asset, that is to say:

(a) any petroleum rights,

(b) any asset representing exploration expenditure or development expenditure,

(c) shares deriving their value or the greater part of their value, whether directly or indirectly, from petroleum activities, other than shares which are dealt in on a stock exchange;

petroleum rights” means rights to petroleum to be extracted or to interests in, or to the benefit of, petroleum, and includes an interest in a licence;

petroleum trade” means a trade consisting only of trading activities which are petroleum activities or, in the case of a trade consisting partly of such activities and partly of other activities, the part of the trade consisting only of trading activities which are petroleum activities which is treated by virtue of section 76 as a separate trade;

qualifying mine” has the meaning assigned to it in section 1 of the Finance (Taxation of Profits of Certain Mines) Act, 1974 ;

relevant field” means an area in respect of which a licence, being a petroleum lease, is in force.

(2) For the purposes of this Chapter, two companies are associated with one another if—

(a) one is a 51 per cent. subsidiary of the other,

(b) each is a 51 per cent. subsidiary of a third company, or

(c) one is owned by a consortium of which the other is a member,

and for the purposes of paragraph (c) a company is owned by a consortium if all the ordinary share capital of that company is directly and beneficially owned between them by five or fewer companies, which companies are in this Chapter referred to as “the members of the consortium”.

Separation of trading activities.

76. —(1) Where a person carries on any petroleum activities as part of a trade and those activities, apart from any other activity, would constitute a trade, then those activities shall be treated for all the purposes of the Tax Acts and the Capital Gains Tax Acts as a separate trade, distinct from all other activities carried on by him as part of the trade, and any necessary apportionment shall be made of receipts and expenses.

(2) Where a person works a qualifying mine as part of a trade, that activity shall be treated for the purposes of this Chapter as a separate trade, distinct from all other activity carried on by him as part of the trade, and any necessary apportionment shall be made of receipts and expenses.

Reduction of corporation tax.

77. —(1) In this section—

petroleum profits on which corporation tax falls finally to be borne”, in relation to a company, means the amount of the petroleum profits of the company after making all deductions and giving or allowing all reliefs that for the purposes of corporation tax are made from, or given or allowed against, or are treated as reducing—

(a) those profits, or

(b) income or chargeable gains, if any, included in those profits;

relevant petroleum lease” means a petroleum lease in respect of a relevant field, which is a field which was discovered by petroleum exploration activities carried on under a licence (other than a petroleum lease) which authorises the carrying on of those activities for a period which, apart from any extension of the period or revision or renewal of the licence—

(a) is not longer than 10 years, where the petroleum lease is granted by the Minister for Energy before the 1st day of June, 2003,

(b) is longer than 10 years and is not longer than 15 years, where the petroleum lease is granted by the Minister for Energy before the 1st day of June, 2007, or

(c) is longer than 15 years, where the petroleum lease is granted by the Minister for Energy before the 1st day of June, 2013.

(2) Corporation tax payable by a company for an accounting period shall be reduced by the amount, if any, determined by the formula

I ×

R − 25

_______

100

where—

I is the amount for the accounting period of the income to which this section applies, and

R is the rate per cent. of corporation tax specified in subsection (1) of section 1 of the Corporation Tax Act, 1976 , for the financial year or years in which the accounting period falls:

Provided that where part of the accounting period falls in one financial year (referred to hereafter in this proviso as the “first-mentioned financial year”) and the other part falls in the financial year succeeding the first-mentioned financial year and different rates of corporation tax are in force under subsection (1) of section 1 of the said Act for each of those years, then R shall be the rate per cent. determined by the formula

(A × C)

_______

E

+

(B × D)

_______

E

where—

A is the rate per cent. in force for the first-mentioned financial year,

B is the rate per cent. in force for the financial year succeeding the first-mentioned financial year,

C is the length of that part of the accounting period falling in the first-mentioned financial year,

D is the length of that part of the accounting period falling in the financial year succeeding the first-mentioned financial year, and

E is the length of the accounting period.

(3) The income to which this section applies shall be the income of a company for an accounting period determined by the formula

(F − G) ×

S

_

T

where—

F is the amount for the accounting period of the company's petroleum profits on which corporation tax falls finally to be borne,

G is the amount to be included in the company's profits brought into charge to corporation tax for the accounting period in respect of chargeable gains accruing to the company from disposals of petroleum-related assets,

S is the aggregate of the income of the company for the accounting period which is—

(a) trading income attributable to sales of petroleum won by it, or

(b) income, other than trading income, from the enjoyment or exploitation of petroleum rights,

under a relevant petroleum lease granted to it or a company associated with it, and

T is the aggregate of the income of the company for the accounting period from its petroleum trade or other petroleum activities.

(4) For the purposes of subsection (3), the income of a company for an accounting period which is trading income attributable to sales of petroleum won by the company under a relevant petroleum lease shall be the income, if any, determined by the formula

O ×

P

_

Q

where—

O is the income of the company for the accounting period from its petroleum trade,

P is the aggregate of money or money's worth which is receivable bythe company from sales in the accounting period of petroleum won by it under the relevant petroleum lease, and

Q is the aggregate of money or money's worth which is receivable by the company from sales of petroleum in the accounting period in the course of carrying on its petroleum trade.

Treatment of losses, etc.

78. —(1) Notwithstanding the provisions of section 307 of the Income Tax Act, 1967 , and section 16 (2) of the Corporation Tax Act, 1976

(a) as respects a loss incurred by a person in a petroleum trade, relief shall not be given—

(i) under the said section 307, against any income other than income arising from petroleum activities, or

(ii) under the said section 16 (2), against any profits other than petroleum profits,

and

(b) relief shall not be given—

(i) under the said section 307, against income arising from petroleum activities, or

(ii) under the said section 16 (2), against petroleum profits,

as respects any loss, other than a loss incurred in a petroleum or a mining trade, incurred by a person.

(2) Notwithstanding section 310 of the Income Tax Act, 1967 , and section 19 (1) of the Corporation Tax Act, 1976 , the amount of any income of a person which is within the charge to tax under Case IV of Schedule D, and which is income arising from petroleum activities, shall not be reduced by the amount of any loss which can be relieved under the said section 310 or the said section 19 (1), other than a loss incurred in petroleum activities; and the amount of any loss so incurred shall not be treated under either of those sections as reducing the amount of any income other than income arising from petroleum activities.

(3) Notwithstanding the proviso to subsection (1) of section 296 of the Income Tax Act, 1967 , and section 14 (6) of the Corporation Tax Act, 1976 , a capital allowance which is to be given by discharge or repayment of tax, or in charging income under Case V of Schedule D, shall not to any extent be given effect—

(a) under the said section 296, against income arising from petroleum activities, or

(b) under the said section 14 (6), against petroleum profits.

Restriction of group relief.

79. —(1) On a claim for group relief made by a claimant company in relation to a surrendering company, group relief shall not be allowed against any petroleum profits of the claimant company except to the extent that the claim relates to—

(a) a loss incurred by the surrendering company in a petroleum or mining trade, or

(b) charges on income paid, other than to a connected person, by the surrendering company which consist of payments made wholly and exclusively for the purposes of such a trade,

and group relief in respect of any such loss incurred by the surrendering company, or in respect of any charge on income paid by the surrendering company which is a payment made wholly and exclusively for the purposes of such a trade, shall not be allowed against any profits of the claimant company other than its petroleum profits.

(2) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of this section, and, in subsection (1), “claimant company” and “surrendering company” have the meanings assigned to them, respectively, by section 107 of that Act.

Restriction of relief for losses on certain disposals.

80. —(1) Notwithstanding any provisions of the Capital Gains Tax Acts or of the Corporation Tax Acts relating to the deduction of allowable losses for the purposes of capital gains tax or of corporation tax on chargeable gains—

(a) an allowable loss accruing on a disposal of an asset other than a petroleum-related asset shall not be deducted from the amount of a chargeable gain accruing on a disposal of a petroleum-related asset, and

(b) an allowable loss accruing on a disposal of a petroleum-related asset shall not be deducted from the amount of a chargeable gain accruing on a disposal of an asset other than a petroleum-related asset.

(2) Subsection (8) of section 28 of the Capital Gains Tax Act, 1975 , shall have effect as respects the application of that section to a disposal of assets which have been used by the person disposing of them for the purposes of a petroleum trade as if each reference to a “trade” or “trades” in the said subsection were, respectively, a reference to a “petroleum trade” or “petroleum trades” within the meaning of those terms for the purposes of this Chapter.

(3) This section shall not have effect as respects any disposal made before the 24th day of April, 1992.

Interest and charges on income.

81. —(1) In computing the amount of—

(a) a person's profits or gains for the purposes of income tax, or

(b) a person's income for the purposes of corporation tax,

arising from a petroleum trade, no deduction shall be made in respect of—

(i) any interest payable by the person to a connected person to the extent that the amount of the interest exceeds, for whatever reason, the amount which, having regard to all the terms on which the money in respect of which it is payable was borrowed and the standing of the borrower, might have been expected to be payable if the lender and the borrower had been independent parties dealing at arm's length,

(ii) interest payable by the person on any money borrowed to meet expenditure incurred on petroleum exploration activities, or

(iii) interest payable by the person on any money borrowed to meet expenditure incurred in acquiring petroleum rights from a connected person.

(2) Section 84 (2) (d) (iv) of the Corporation Tax Act, 1976 , shall not apply to so much of any interest as—

(a) would, but for the said section 84 (2) (d) (iv), be deductible in computing the amount of a company's income from a petroleum trade,

(b) would not be precluded by any provision in subsection (1) from being so deducted, and

(c) is interest payable to a company which is a resident of the United States of America or of a territory with the government of which arrangements having the force of law by virtue of section 361 of the Income Tax Act, 1967 , have been made,

and, for the purposes of paragraph (c)resident of the United States of America” has the meaning assigned to it by the Convention set out in Schedule 8 to the Income Tax Act, 1967 ; and a company shall be regarded as being a resident of a territory other than the United States of America if it is so regarded under the provisions of arrangements made with the government of that territory and having the force of law by virtue of section 361 of the said Act.

(3) Notwithstanding section 10 of the Corporation Tax Act, 1976

(a) no deduction shall be allowed from that part of a company's profits which consists of petroleum profits in respect of—

(i) a charge on income paid by the company to a connected person, or

(ii) any other charge on income paid by the company unless it is a payment made wholly and exclusively for the purposes of a petroleum or mining trade carried on by the company,

and

(b) no deduction shall be allowed from that part of a company's profits which consists of profits other than petroleum profits in respect of any charge on income paid by the company which is a payment made wholly and exclusively for the purposes of a petroleum trade carried on by the company.

(4) In applying section 433 of the Income Tax Act, 1967 , to any annual payment made by a person whose profits or gains for the purposes of income tax arise wholly or partly from petroleum activities—

(a) the profits or gains arising from those activities shall not be treated as profits or gains which have been brought into charge to income tax—

(i) where the annual payment is made to a connected person, or

(ii) unless (but subject to subparagraph (i)) the payment is made wholly and exclusively for the purposes of a petroleum or mining trade carried on by the person making the payment,

and

(b) profits or gains, other than profits or gains arising from petroleum activities, shall not be treated as profits or gains which have been brought into charge to income tax where the annual payment is made wholly and exclusively for the purposes of a petroleum trade carried on by the person making the payment.

(5) Relief shall not be allowed—

(a) under section 16 (7) of the Corporation Tax Act, 1976 , in respect of a payment to which subsection (3) (a) (i) applies, or

(b) under section 316 of the Income Tax Act, 1967 , in respect of a payment to which subsection (4) (a) (i) applies,

where the payment is made wholly and exclusively for the purposes of a petroleum trade.

(6) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of this section, save that, for the purposes of determining whether a person is connected with another person whose profits or gains arising from a petroleum trade are chargeable to income tax and by whom interest to which subsection (1) (i) relates is payable, or by whom an annual payment to which subsection (4) relates is made, the provisions of section 16 (3) of the Finance (Miscellaneous Provisions) Act, 1968 , shall apply.

(7) In any case where, for an accounting period of a company, charges on income paid by the company are allowable under section 10 of the Corporation Tax Act, 1976

(a) such amount of those charges as, by virtue of subsection (3)

(i) is not allowable against a part of the company's profits, but

(ii) is allowable against the remaining part (hereafter in this subsection referred to as “other profits”) of its profits,

exceeds the other profits, and

(b) the amount of that excess is greater than the amount (if any) by which the total of the charges on income which, subject to subsection (3), are allowable to the company under the said section 10 exceeds the total of the company's profits,

then, for the purpose of enabling the company to surrender the excessreferred to in paragraph (a) by way of group relief, section 116 (6) of the Corporation Tax Act, 1976 , shall have effect as if—

(I) the reference therein to the amount paid by the surrendering company by way of charges on income were a reference to so much of that amount as, by virtue of subsection (3), is allowable only against the company's other profits, and

(II) the reference therein to the surrendering company's profits were a reference to its other profits alone.

Restriction of set-off of advance corporation tax.

82. —(1) Section 39 of the Finance Act, 1983 , shall have effect subject to the provisions of subsection (2).

(2) Where advance corporation tax is paid by a company (hereafter in this subsection referred to as “the distributing company”) in respect of a distribution made by it to an associated company which is resident in the State—

(a) that advance corporation tax shall not be set against the distributing company's liability to corporation tax on any income included in its petroleum profits, and

(b) if the benefit of any amount of that advance corporation tax is surrendered under section 45 of the Finance Act, 1983 , by the distributing company to another company, the corresponding amount of advance corporation tax which, under that section, that other company is treated for the purposes of section 39 of that Act as having paid shall not be set against that other company's liability to corporation tax on any income included in its petroleum profits.

(3) This section shall not have effect as respects any distribution made before the 24th day of April, 1992.

Development expenditure: capital allowances and charges.

83. —(1) Subject to subsection (4), the provisions of the Tax Acts regarding allowances and charges in respect of capital expenditure shall have effect in relation to a petroleum trade as if each reference therein to machinery or plant included a reference to assets, not being machinery or plant, representing development expenditure.

(2) In relation to assets representing development expenditure, subsection (1) of section 241 of the Income Tax Act, 1967 , shall, subject to subsection (3), have effect as if “to be made to him, as representing the diminished value by reason of wear and tear of that machinery or plant during the chargeable period, shall be a sum equal to the value of that machinery or plant at the commencement of the chargeable period, and such allowance shall be made in taxing the trade” were substituted for all the words from “shall be a sum equal to five-fourths of the amount” to the end of the subsection.

(3) Assets representing development expenditure shall not be treated, for the purposes of subsection (1) of section 241 of the Income Tax Act, 1967 , as being in use for the purposes of a petroleum trade at the end of any chargeable period or its basis period which ends before the commencement of production of petroleum in commercial quantities from the relevant field in connection with which the assets were provided.

(4) Parts XIV and XV, and Chapters I, III and IV of Part XVI, of the Income Tax Act, 1967 , and sections 2 and 4 of the Finance Act, 1968, shall not have effect as respects development expenditure.

(5) (a) For the purposes of this section, assets representing development expenditure shall be deemed to include assets (hereafter in this subsection referred to as “leased assets”) provided for leasing to a person carrying on a petroleum trade where such leased assets would, if they had been provided by that person, be assets representing development expenditure; and, where this paragraph applies,

(i) section 241 of the Income Tax Act, 1967 , shall have effect as if the trade for the purposes of which the leased assets are (or would, under subsection (5) of the said section 241, be regarded as being) in use were a petroleum trade carried on by the lessor, and

(ii) section 40 of the Finance Act, 1984 , shall have effect as if each reference therein to machinery or plant included a reference to assets, not being machinery or plant, representing development expenditure.

(b) For the purposes of subsection (4), capital expenditure on the provision of leased assets shall be deemed to be development expenditure.

Exploration expenditure: allowances and charges.

84. —(1) Subject to subsections (5) and (16), where a person carrying on a petroleum trade has incurred any exploration expenditure (not being expenditure which has been or is to be met directly or indirectly by any other person) there shall be made to him for the chargeable period related to the expenditure an allowance equal to the amount of the expenditure.

(2) Where a person carrying on a petroleum trade has incurred any exploration expenditure in respect of which an allowance has been made to him under subsection (1) and he disposes of assets representing any amount of that expenditure, a charge (hereafter in this section referred to as a “balancing charge”) equal to the net amount or value of the consideration in money or money's worth received by him on the disposal shall be made on him for the chargeable period related to the disposal or, if the disposal occurs after the date on which the trade is permanently discontinued, for the chargeable period related to the discontinuance:

Provided that the amount on which a balancing charge is made shall not exceed the amount of the allowance made to the person under subsection (1) in respect of the amount of exploration expenditure represented by the assets so disposed of.

(3) Where any assets representing exploration expenditure are destroyed, they shall, for the purposes of subsection (2), be treated as if they had been disposed of immediately before their destruction, and any sale, insurance, salvage or compensation moneys received in respect of the assets by the person carrying on the petroleum trade shall be treated as if they were consideration received on that disposal.

(4) Where a person disposes of any assets representing exploration expenditure incurred by him in connection with an area which at the time of the disposal is, or which subsequently becomes, a relevant field (or part of such a field), the person who acquires the assets shall, if he carries on a petroleum trade which consists of or includes the working of the relevant field (or, as the case may be, the part of the relevant field), be deemed, for the purposes of this section, to have incurred—

(a) on the day on which he acquires the assets, or

(b) if later, on the day on which he commences to work the area connected with the assets as a relevant field (or, as the case may be, as part of the relevant field),

an amount of exploration expenditure equal to the lesser of—

(i) the amount of the exploration expenditure represented by the assets, and

(ii) the amount or value of the consideration given by him on the acquisition of the assets.

(5) Any exploration expenditure incurred by a person before he commences to carry on a petroleum trade shall be treated for the purposes of subsection (1) as if it had been incurred by that person on the first day on which he does carry it on:

Provided that no account shall be taken, for the purposes of this subsection, of expenditure incurred in connection with an area which is not a relevant field, or part of such a field, which is being worked in the course of carrying on the petroleum trade, if the expenditure was incurred more than 25 years prior to that first day.

(6) Where a person incurs exploration expenditure before he commences to carry on a petroleum trade and subsection (5) has effect as respects that expenditure and, before he commences to carry on that trade, he disposes of assets representing any amount of that expenditure, the allowance falling to be made to him under this section in respect of that expenditure shall be reduced by the net amount or value of any consideration in money or money's worth received by him on that disposal.

(7) For the purposes of this section, save for the purposes of subsection (4) and of subsection (5) (other than the proviso thereto), the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable.

(8) Any allowance or balancing charge made to or on a person under this section shall be made to or on him in taxing his petroleum trade but, subject to subsection (4), such allowance shall not be made in respect of the same expenditure in taxing more than one such trade.

(9) Section 241 (3) of the Income Tax Act, 1967 , shall apply in relation to an allowance under this section as it applies in relation to an allowance in respect of wear and tear of machinery or plant.

(10) Section 14 (2) (a) of the Corporation Tax Act, 1976 , shall apply for the purposes of this section, and paragraph 1 of the First Schedule to that Act shall have effect for the interpretation of this section.

(11) Subsections (2) and (3) of section 297 of the Income Tax Act, 1967 , shall have effect in determining the chargeable period (being a year of assessment) for which an allowance or a balancing charge falls to be made under this section.

(12) References in Parts XIII to XVI of the Income Tax Act, 1967 , and in section 22 of the Finance Act, 1971 , to capital expenditure shall be deemed not to include references to expenditure which is exploration expenditure, and exploration expenditure shall be deemed not to be expenditure on know-how for the purposes of section 2 of the Finance Act, 1968.

(13) Notwithstanding subsection (12), the following provisions of the Income Tax Act, 1967 , that is to say:

(a) section 299,

(b) section 303,

(c) the definition of “sale, insurance, salvage or compensation moneys” in subsection (1) of section 304, and

(d) subsections (4) and (5) of section 304,

shall, with any necessary modifications, apply for the purposes of this section as they apply for the purposes of Part XVI of that Act.

(14) Schedule 1 to the Capital Gains Tax Act, 1975 , shall have effect as if—

(a) in paragraph 2 (2), the reference to a balancing charge included a reference to a balancing charge under this section, and

(b) in paragraph 5, references to a capital allowance (or capital allowances) and to a balancing charge included references, respectively, to an allowance (or allowances) and a balancing charge under this section.

(15) Section 29 of the Finance Act, 1975 , shall have effect as if subsections (1) and (2) thereof included references to this section.

(16) For the purposes of this section, a person shall be deemed not to be carrying on a petroleum trade unless and until he is carrying on, in the course of that trade, trading activities which are petroleum extraction activities.

(17) Any reference in this section to assets representing any exploration expenditure shall be construed as including a reference to a part of or share in any such assets; and any reference therein to a disposal or acquisition of any such assets shall be construed as including a reference to a disposal or acquisition of a part of, or share in, any such assets.

Exploration expenditure incurred by certain companies.

85. —(1) For the purposes of section 84 , where exploration expenditure (not being expenditure which has been or is to be met directly or indirectly by any other person) is incurred by a company (hereafter in this section referred to as an “exploration company”) and—

(a) another company is a wholly-owned subsidiary of the exploration company, or

(b) the exploration company is, at the time the exploration expenditure is incurred, a wholly-owned subsidiary of another company (hereafter in this section referred to as “the parent company”), then, the expenditure, or so much of it as the exploration company specifies—

(i) in the case referred to in paragraph (a), may at the election of the exploration company be deemed to have been incurred by such other company (being a wholly-owned subsidiary of the exploration company) as the exploration company specifies, and

(ii) in the case referred to in paragraph (b), may at the election of the exploration company be deemed to have been incurred by the parent company or by such other company (being a wholly-owned subsidiary of the parent company) as the exploration company specifies.

(2) Where, under subsection (1), exploration expenditure incurred by an exploration company is deemed to have been incurred by another company (hereafter in this subsection referred to as “the other company”)—

(a) the expenditure shall be deemed to have been incurred by the other company at the time at which it was actually incurred by the exploration company,

(b) in a case where the expenditure was incurred at a time prior to the incorporation of the other company, that company shall be deemed to have been in existence at the time the expenditure was incurred, and

(c) in the application of section 84 to a petroleum trade carried on by the other company, the expenditure shall be deemed—

(i) to have been incurred by the other company for the purposes of that trade, and

(ii) not to have been met directly or indirectly by the exploration company.

(3) The same expenditure shall not be taken into account in relation to more than one trade by virtue of this section.

(4) A deduction or allowance shall not be made in respect of the same expenditure both by virtue of this section and under some other provision of the Tax Acts.

(5) A company shall, for the purposes of subsection (1), be deemed to be a wholly-owned subsidiary of another company if and so long as all of its ordinary share capital is owned by that other company, whether directly or through another company or other companies, or partly directly and partly through another company or other companies, and paragraph 6 of the Fifth Schedule to the Finance Act, 1973 , shall have effect for the purposes of supplementing this subsection as if the references therein to section 39 of, and the said Schedule to, that Act were a reference to this subsection.

Abandonment expenditure: allowances and loss relief.

86. —(1) In this section “abandonment losses” means so much of a loss in a petroleum trade incurred by a person in a chargeable period as does not exceed the total amount of allowances which—

(a) fall to be made to him for that chargeable period under this section, and (b) have been brought into account in determining the amount of the said loss in the petroleum trade.

(2) Subject to subsections (5) to (9), where in a chargeable period a person, who is or has been carrying on, in relation to a relevant field or a part of it, petroleum extraction activities other than effecting the initial treatment and storage of petroleum that is won from the relevant field, incurs abandonment expenditure (not being expenditure which has been or is to be met directly or indirectly by any other person) in relation to the field or the part of it, as the case may be, there shall be made to him for the chargeable period an allowance equal to the amount of the expenditure.

(3) As respects so much of a loss in a petroleum trade incurred by a person in a chargeable period as is an abandonment loss—

(a) the person shall be entitled, on making a claim in that behalf, to such repayment of income tax as is necessary to secure that the aggregate amount of income tax for the chargeable period and the three chargeable periods last preceding it will not exceed the amount which would have been borne by him if his income arising from petroleum activities for each of those chargeable periods had been reduced by the lesser of—

(i) the abandonment loss, or

(ii) so much of the abandonment loss as could not, on that claim, be treated as reducing such income of a later chargeable period:

Provided that relief under this paragraph in respect of a loss shall be deemed for all the purposes of the Tax Acts to be relief given under subsection (1) of section 307 of the Income Tax Act, 1967 , such that—

(I) no further relief shall be given under subsection (1) of the said section 307 in respect of so much of an abandonment loss as is an amount in respect of which relief has been given under this paragraph, and

(II) subsections (2) to (6) of section 307 , and section 318 , of the Income Tax Act, 1967 , shall apply to relief under this paragraph as they apply to relief under the said section 307,

and

(b) subsections (2) and (3) of section 16 of the Corporation Tax Act, 1976 , shall have effect as if the time specified in the said subsection (3) were a period of three years ending immediately before the chargeable period in which the loss is incurred.

(4) So much of the abandonment losses, if any, incurred by a person on or before the day on which he permanently discontinues to carry on a petroleum trade (hereafter in this subsection referred to as “the first-mentioned trade”) as would not, apart from this subsection, be allowed against, or treated as reducing, his or any other person's income or profits, shall be treated as incurred by him in the first chargeable period of the first petroleum trade (hereafter in this section referred to as “the new trade”) to be carried on by him after the permanent discontinuance of the first-mentioned trade as a trading expense of the new trade.

(5) Where a petroleum trade carried on by a person has been permanently discontinued, then any abandonment expenditure incurred by the person after the discontinuance shall be treated for the purposes of subsection (2) as if it had been incurred by him on the last day on which he carries on the petroleum trade.

(6) For the purposes of this section, save for the purposes of subsections (4) and (5), the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable.

(7) Any allowance made to a person under this section shall be made to him in taxing his petroleum trade but such allowance shall not be made in respect of the same expenditure in taxing more than one trade.

(8) References in Parts XIII to XVI of the Income Tax Act, 1967 , and in section 22 of the Finance Act, 1971 , to capital expenditure shall be deemed not to include references to expenditure which is abandonment expenditure:

Provided that section 303 and subsection (5) of section 304 of the Income Tax Act, 1967 , shall, with any necessary modifications, apply for the purposes of this section as they apply for the purposes of Part XVI of that Act.

(9) Subsections (9), (10), (11) and (15) of section 84 shall apply for the purposes of this section as they apply for the purposes of that section.

Valuation of petroleum in certain circumstances.

87. —(1) Where a person disposes, otherwise than by way of a sale at arm's length, of petroleum acquired by him by virtue of petroleum activities carried on by him, then, for all the purposes of the Tax Acts, the disposal of the petroleum and its acquisition by the person to whom the disposal was made shall be treated as having been for a consideration equal to the market value of the petroleum at the time the disposal was made.

(2) (a) Where a person who carries on, in the course of a trade, petroleum activities and other activities, makes a relevant appropriation of any petroleum won or otherwise acquired by him in the course of the petroleum activities without disposing of the petroleum, then, for all the purposes of the Tax Acts, he shall be treated as having, at the time of the appropriation—

(i) sold the petroleum in the course of the petroleum trade carried on by him, and

(ii) bought it in the course of a separate trade consisting of the activities other than the petroleum activities,

and as having so sold and bought it at a price equal to its market value at the time the petroleum was relevantly appropriated.

(b) In this subsection “relevant appropriation”, in relation to any petroleum won or otherwise acquired in the course of the carrying on by a person of petroleum activities, means the appropriation of that petroleum to refining or to any use except use for petroleum extraction activities carried on by him, and “relevantly appropriated” shall be construed accordingly.

(3) For the purposes of this section, the market value at any time of any petroleum shall be the price which that petroleum might reasonably be expected to fetch on a sale thereof at that time if the parties to the transaction were independent parties dealing at arm's length.

Treatment of certain disposals.

88. —(1) This section shall have effect where, on or after the 14th day of January, 1985, a person, with the consent of the Minister for Energy, makes a disposal of an interest in a licensed area (including the part disposal of such an interest or the exchange of an interest owned by him in one licensed area for an interest in another licensed area) and the disposal is shown to the satisfaction of the said Minister to have been made for the sole purpose of ensuring the proper exploration, delineation or development of any licensed area.

(2) Where this section has effect as respects a disposal by a person (neither being nor including such an exchange as is referred to in subsection (1)) and the consideration received by him is, in the relevant period, wholly and exclusively applied (whether by him, or on his behalf by the person acquiring the asset disposed of) for the purposes of either or both of the following, that is to say:

(a) petroleum exploration activities, and

(b) searching for or winning access to petroleum in a relevant field,

then, for the purposes of the Capital Gains Tax Acts, if the person making the disposal makes a claim in that behalf, the disposal shall not be treated as involving any disposal of an asset but the consideration shall not, as respects any subsequent disposal of any asset acquired or brought into being or enhanced in value by the application of that consideration, be deductible from the consideration for that subsequent disposal in the computation of the chargeable gain accruing on that disposal.

(3) Where this section has effect as respects such an exchange as is referred to in subsection (1), then, for the purposes of the Capital Gains Tax Acts, if a person making such an exchange makes a claim in that behalf, the exchange shall not be treated as involving any disposal or acquisition by him of an asset but the asset given by him and the asset acquired by him in the exchange shall be treated as the same asset acquired as the asset given by him was acquired:

Provided that—

(a) if the person receives for the exchange any consideration in addition to the interest in the other licensed area, this subsection shall not have effect as respects the claim made by him unless the additional consideration is applied in the relevant period in the manner referred to in subsection (2) but, where that additional consideration is so applied and the person makes a claim that this subsection should have effect, it shall so have effect as if the asset given by him in exchange were such portion only of that asset as is equal in value to the interest in the other licensed area taken by him in the exchange and subsection (2) shall have effect as if the remaining portion of the asset so given by him were disposed of by him for that additional consideration, and

(b) if the person gives for the exchange any consideration in addition to the interest in a licensed area given by him in the exchange, this subsection shall have effect as respects the claim made by him as if the interest in the other licensed area taken by him in the exchange were such portion only of that interest as is equal in value to the interest in the licensed area given by him in the exchange.

(4) In this section “relevant period”, as respects a disposal, means the period beginning 12 months before and ending 3 years after the disposal, or such longer period as the Minister for Energy may, on the application of the person making the disposal, certify to be, in his opinion, reasonable having regard to the proper exploration, delineation or development of any licensed area.