Kelly Dismisses Double Tax Fears Of US Oil Companies

by Robert Lee, Tax-News.com, London

17 May 2002

According to reports, US-based oil companies with projects in the North Sea may face double taxation as a result of the way in which Chancellor Gordon Brown's 10% budget tax hike on profits is drafted.

The Accountancy Age news service reported that during Commons debates on details of the April Finance Bill, several concerned MPs argued that disallowing financing costs in computing taxable profits could reduce the viability of North Sea projects, eventually leading to a decline in investment.

Speaking earlier this week, Aberdeen North Labour MP, Frank Doran told the Commons that Kerr MacGee, one of the US offshore operators in question had warned that: 'the supplementary charge will not be creditable against US taxes,' and called for the profit tax hike to be reconsidered.

The Member for Gordon, Lib Dem Malcom Bruce asked for a rethink on the provision which disallows financing costs, arguing that they are: 'a legitimate part of the cost of developing the fields, and if (they are) not allowed it will substantially alter the profile, the rate of return and even the viability of the development.'

However, Accountancy Age reported that the Economic Secretary to the Treasury, Ruth Kelly rejected a proposed amendment allowing financing costs to be included when computing taxable profit, arguing that to do so could lead to massive avoidance by oil companies working in the North Sea.

'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,' she explained.

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