Clause 182 - Supplementary charge

Finance Bill – in a Public Bill Committee at 4:45 pm on 19th June 2012.

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Question proposed, That the clause stand part of the Bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

We seem to be making good progress, and I hope to continue that. I mentioned earlier that 7.45 was a key moment for many people in the Committee.  I have to say that 4 August will be a key moment for Kilmarnock football club, which has on that day drawn “club 12” in the opening home game of the season. Those who are familiar with the current disputes involving certain football clubs and taxation issues—there is an element here—will, I have no doubt, understand the meaning of “club 12”.

To return to the issues of oil and gas, clause 182 clarifies the definition of the scope of the supplementary charge set out in section 330 of the Corporation Tax Act 2010. The clause provides that that supplementary charge be charged by reference to a company’s ring-fence profits. As the Minister has indicated, the clause has effect from 6 December 2011.

The supplementary charge is chargeable on a company’s adjusted ring-fence profits as if it were an amount of corporation tax chargeable on the company. The company’s adjusted ring-fence profits for an accounting period are currently defined in section 330(2) of the Corporation Tax Act as the profits of the company’s ring-fence trade chargeable to corporation tax, on the assumption in subsection (3) that financing costs are left out of account.

It was the Government’s intention when the legislation was first introduced in 2002 that a company’s adjusted ring-fence profits should include all profits that could arise to a company carrying on a ring-fence trade from ring-fence activities. In other words, the intention was that the scope of the supplementary charge should match the scope of ring-fence corporation tax. This includes chargeable gains, which can arise on the disposal of an interest in an oil licence.

I am sure the Minister can confirm whether this is the case, but as I understand it, it remains the Government’s view that under the existing law the scope of the supplementary charge matches the scope of the ring-fence corporation tax. However, the Government are aware that some people in the industry take a different view, believing that chargeable gains fall outside the scope of the supplementary charge. For that reason, as I understand it, this technical clause clarifies the scope of the supplementary charge by ensuring that it matches that on the ring-fence corporation tax, in accordance with the Government’s intention when the legislation was first enacted in 2002.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 5:00 pm, 19th June 2012

Again, I shall be brief. [ Interruption. ] May I pay tribute to the cheerleaders? Clearly, they are cheerleaders not for the Finance Bill but for England tonight in our match against Ukraine.

Hon. Members:

Hear, hear!

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Returning to the scintillating matters before us in the Finance Bill, as the hon. Member for Kilmarnock and Loudoun noted, the clause confirms that the scope of the supplementary charge matches the scope of the ring-fence corporation tax. Both taxes apply to the profits from upstream oil and gas production. The clause complements clause 181, which we have just discussed, on the clarification of revenue. Before I set out the changes made by the clause, I shall put in a little background, some of which the hon. Lady pre-empted, so I thank her for that.

When the supplementary charge was introduced in 2002, it was the intention that a company’s adjusted ring-fence profits, on which SC is chargeable, should include all the profits that could arise from ring-fence activities. In other words, the intention was that the scope of the SC should match that of the RFCT. That includes chargeable gains, which can arise on the disposal of an interest in an oil licence.

The Government’s firm view is that the law as currently worded achieves the intention of matching the scope of the two taxes, but the Government are aware that some in the industry consider that the matter is not free from doubt. There are those who consider that chargeable gains fall outside the scope of the supplementary charge. The clause therefore confirms that the scope of the supplementary charge matches that of ring-fence corporation tax, providing certainty on the point. It will not change the treatment of any company operating in the oil and gas industry, but it confirms the current position by way of a simple clarification.

The Government do not accept the suggestion made by some in the industry that the measure amounts to a change in the law, and nor do we accept the argument of a small number of companies that the clarification should not apply to chargeable gains that were held over before 6 December and will crystallise after that date. The Government’s view is that all ring-fence chargeable gains that arose or crystallised before 6 December were subject to the supplementary charge. The clause also confirms what would also have been the position under the law as it is currently worded: that gains arising or crystallising on or after 6 December are likewise subject to the supplementary charge.

In conclusion, the Government have always been absolutely clear that the UK fiscal regime for oil and gas seeks to encourage investment and innovation in the UK continental shelf, while ensuring a fair return for taxpayers and clarity through the relevant tax code. Together with clause 181, the clause supports the Government objective to promote fairness in the tax system while also providing clarity and certainty for companies.

Question put and agreed to.

Clause 182 accordingly ordered to stand part of the Bill.