Clause 182 - Supplementary charge

Part of Finance Bill – in a Public Bill Committee at 5:00 pm on 19 June 2012.

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

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.