How far is too far? The case of the UK Corporation Tax in the UK Oil and Gas Industry

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The Author argues in her paper that the undue distortion in the UK Corporation Tax rules in order to pave the way for the enhancement of revenue for the ailing UK economy is not conducive to the future health and wealth of the UKCS Hydrocarbon industry. It seems that increased hydrocarbon revenue has become a priority for the UK government over the more important end of encouraging industry investment. Truly the UKCS oil and gas industry has often been dubbed as the “Cash Cow” of the British economy, heavily milked for revenue by the HM treasury for almost three decades since North Sea Struck gold in the seventies and has played a phenomenal role in addressing Britain’s balance of payment deficits year after year since then. However the getting “fair return for the tax payer” mantra of the UK government seems like a rhetoric now that the CT and RFCT (Ring Fenced Corporation Tax) system of UKCS does not reflect effectiveness in balancing the goal of encouraging production with that of securing adequate revenue. While distortions created by such taxes can be tolerable to the extent of preventing environmental externalities through carbon emissions, it is time to rethink such policies when they start damaging a jurisdiction’s credibility for having a stable fiscal framework and a reliable legal regime to support it. Furthermore the author argues that while the UK government could afford to be oblivious to these goals in 1973 when the North Sea was oozing with production potential, it is time to rethink the CT incentives for new entrants and current business entities, in order to prevent the UKCS from becoming one of the most expensive, least productive and thus least competitive, global hydrocarbon reserves of the future. While the 2009 Finance Act shows a softening of this approach, the already reluctant current industry players might not be convinced to keep playing the field in the UKCS for too long.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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