TaxCorporate TaxUS oil companies face double taxation threat

US oil companies face double taxation threat

American-based offshore oil companies fear chancellor Gordon Brown's 10% levy will result in a serious risk of double taxation because of the way the provision has been drafted.

The threat emerged during Commons debates on details of the Finance Bill amidst protests against the special provision attached to the levy disallowing financing costs in computing taxable profits.

Aberdeen North Labour MP Frank Doran said Kerr MacGee, one of the offshore operators, warned Brown ‘that the supplementary charge will not be creditable against US taxes’ and called for an assurance from Treasury ministers.

And Liberal Democrat MP for Gordon, Malcolm Bruce, also warned that US-based operators ‘may effectively be caught twice’ as a result of the restriction.

Bruce protested that financing costs are ‘a legitimate part of the cost of developing the fields, and if it is not allowed it will substantially alter the profile, the rate of return and even the viability of the development.’

He said debt finance could amount to 70% of project cost ‘and simply to discount it could lead to considerable difficulties and destroy the viability of some projects’.

Economic secretary Ruth Kelly rejected his amendment allowing financing costs, claiming it would open the door to massive avoidance.

She said: ‘One need not be a tax planner to realise that financing costs have to be disallowed if the supplementary charge is to work effectively, otherwise it would clearly be in companies’ interests to arrange their affairs so that all their North Sea activities were funded by borrowing, for which they could claim relief against a 40% tax rate, while their other activities – taxed at 30% – were funded by capital.’

Related Articles

Watch out when winding up

Corporate Tax Watch out when winding up

1m Emma Rawson, ATT Technical Officer
How might Brexit affect UK tax policy?

Brexit & Economy How might Brexit affect UK tax policy?

1m Santhie Goundar
Corporation tax losses – your newly flexible friends

Corporate Tax Corporation tax losses – your newly flexible friends

3m Emma Rawson, ATT Technical Officer
HMRC large business tax enquiry duration rises to 3 years

Corporate Tax HMRC large business tax enquiry duration rises to 3 years

4m Emma Smith, Managing Editor
SMEs paying higher rate of corporation tax than big businesses

Corporate Tax SMEs paying higher rate of corporation tax than big businesses

4m Alia Shoaib, Reporter
Big names, little tax: Airbnb, Facebook, Kellogg’s, eBay

Corporate Tax Big names, little tax: Airbnb, Facebook, Kellogg’s, eBay

7m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

7m Emma Rawson, ATT Technical Officer
EU divided over radical tax reforms targeting tech giants

Corporate Tax EU divided over radical tax reforms targeting tech giants

8m Alia Shoaib, Reporter