Ring fence taxation case on ‘oil extraction activities’

The case considered the tax treatment of income arising to a UK company (ServiceCo) on the provision of services to a group company with ring fence activities (OilCo). Specifically, the First-tier Tribunal (FTT) considered whether the nature of the services provided were ‘oil extraction activities’ as defined in s272 CTA 2010. Income arising from ‘oil extraction activities’ is subject to the ring fence per s277 and s279 CTA 2010, and as a result subject to higher rates of corporation tax as well as the supplementary charge to corporation tax and the energy profits levy.

ServiceCo and OilCo had entered into a services agreement in respect of all of the services and works required to undertake OilCo’s production operations. The services were provided at cost plus 15 percent. 

Broadly, the FTT agreed with HMRC’s position that the fact that the services involved the company’s employees physically extracting oil (even though it was not the beneficial owner of the oil extracted) and that the two companies were associated (s271 CTA 2010) was sufficient to mean that the services company was subject to ring fence taxation.