Perenco UK Limited (Upper Tribunal decision) v HMRC

This appeal involves HMRC challenging a decision by the First-tier Tribunal (FTT) in the case of Perenco UK Limited v HMRC regarding Perenco’s liability to petroleum revenue tax (PRT) for 2015. The key issue is whether certain expenditure incurred by Perenco during this period should be allowable in calculating its assessable profit for PRT. Specifically, the dispute centres on whether the expenditure was offset by third-party contributions, which HMRC claims should reduce the allowable expenditure.

Perenco’s acquired assets from BP in November 2012, including fields in which Perenco had partial interests. Perenco incurred significant costs replacing a cooling plant, as required by environmental regulations. During 2013, Perenco reviewed its transportation and processing agreements and determined that three of them entitled it to additional contributions from other field owners toward these replacement works.

HMRC argued that these additional contributions should be treated as a “subsidy” under the Oil Taxation Act 1975 (OTA), which would result in a disallowance of Perenco’s expenditure. Perenco, on the other hand, contended that these payments did not qualify as subsidies and should not reduce the allowable expenditure. The FTT sided with Perenco, and HMRC took the case to the Upper Tribunal to appeal the decision.

Specifically, the dispute concerns the application of section 8 of Schedule 3 to the OTA 1975, which prohibits deductions for expenditures that are directly or indirectly met by third parties, including government or public authorities. HMRC’s position is that the payments received by Perenco fall within this provision and should therefore reduce the allowable expenditure, while Perenco argues they do not.