The government is to publish a formal discussion paper on the case for allowing transfers of tax history between buyers and sellers and to determine the best approach, which will be released on 20 March 2017. It will also establish a new advisory panel of industry experts to ensure appropriate scrutiny of the options. The review will report at Autumn Budget 2017.

Derek Leith, EY partner and head of oil and gas, said: ‘Tax relief for decommissioning expenditure is a critical issue for the oil and gas industry, and HM Treasury’s announcement that a panel is to be set up to consider specific aspects of the relief mechanism will be welcomed.

‘It is often said that the right assets need to be in the right hands to maximise economic recovery late in the life of the North Sea. Any hindrance to new investors being able to obtain effective tax relief for decommissioning costs may create a barrier to entry for those who want to invest in the future of the basin.  Changes that remove such barriers can only be positive for the industry and the associated supply chain.’ 

Alan McCrae, PwC’s UK head of energy tax, pointed out that unquantified decommissioning liabilities, along with lack of clarity over forward oil prices, have had a major impact on deal flows across the North Sea in recent years.

‘Against this backdrop, we welcome the Chancellor’s focus on late-life assets and the potential for buyers of assets to access decommissioning tax refunds which would otherwise not be accessed on an asset deal,’ McCrae said.

Mark Andrews, UK head of oil & gas with KPMG, said: ‘Government, the Oil & Gas Authority and industry recognise there is a potential issue with the inability to transfer tax history. Today's confirmation that there is potential for changes to the fiscal regime to overcome this is very welcome.

‘Recent Budgets have seen a number of positive moves by the Treasury to support the competitiveness of the UK Continental Shelf (UKCS). The willingness to address this latest issue within a short timescale is a positive signal to the industry, which could ultimately unlock asset transfers and stimulate M&A interest in the basin.’

Retrospective legislation

Budget 2017 also confirmed two earlier changes for the sector. As announced at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to simplify the process for opting fields out of the petroleum revenue tax (PRT) regime. It will also simplify certain reporting requirements for those participators who remain in the PRT regime by removing some elements which are no longer relevant.

Following consultation, the legislation has been revised to make two consequential amendments to other PRT legislation. The legislation will have retrospective effect from 23 November 2016.

As announced at Summer Budget 2015 and consulted on in 2016, the government is to introduce the ‘Investment Allowance and Cluster Area Allowance (Investment Expenditure) Regulations 2017’ before the House of Commons. These will deliver government’s commitment to extend the scope of the allowances to include some operating and leasing expenditure. The legislation will have retrospective effect for qualifying expenditure incurred on or after 8 October 2015.