The Commissioners for HMRC v Perenco UK Limited

Payments made under an arm’s-length commercial contract for the continued provision of goods or services are ordinarily consideration for those goods or services, rather than expenditure met by another person under paragraph 8 of Schedule 3 to the Oil Taxation Act 1975. This remains so where the payment is calculated by reference to the supplier’s costs.

The statutory concept of tariff receipts and tax-exempt tariffing receipts must be considered alongside paragraph 8. Contractual payment mechanisms and labels such as reimbursement do not determine the issue. The court must construe the agreement as a whole and identify the substance and character of the payment.

Perenco owned and operated a gas terminal and related offshore infrastructure. Under transportation and processing agreements, owners of fields using the infrastructure paid additional amounts towards the cost of modifications required by environmental regulations.

Perenco treated the amounts as tariff receipts or tax-exempt tariffing receipts and claimed the related expenditure for petroleum revenue tax purposes, subject to the applicable apportionment. HMRC contended that the amounts were contributions meeting Perenco’s expenditure under paragraph 8 of Schedule 3 to the Oil Taxation Act 1975.

The First-tier Tribunal allowed Perenco’s appeal: Perenco UK Limited v HMRC [2021] UKFTT 254 (TC). HMRC appealed, raising the interaction between sections 6(2) and 6A of the Oil Taxation Act 1983 and paragraph 8.

1. Appeal dismissed. The First-tier Tribunal had not erred in law in concluding that the additional payments were tariff receipts or tax-exempt tariffing receipts and did not fall within paragraph 8 of Schedule 3 to the Oil Taxation Act 1975.
2. The statutory provisions had to be read together and in the context of the legislation as a whole, applying the approach in R (Quintavalle) v Secretary of State for Health [2003] UKHL 13. The court first considered the payments under sections 6(2) and 6A of the Oil Taxation Act 1983, and then considered paragraph 8 in isolation.
3. The transportation agreement comprised a package of negotiated obligations. The additional payments secured the continuation of the contracted services. Their character was therefore consideration for the provision of those services, notwithstanding that they were paid through a separate mechanism and calculated by reference to modification costs. The court applied the contractual analysis described in A1 Lofts v HMRC [2009] EWHC 2694 (Ch).
4. Paragraph 8 was directed to payments by way of, or akin to, grants or subsidies by public bodies. It did not encompass payment made under an arm’s-length commercial contract in return for goods or services, even where the payment reflected the supplier’s expenditure. The court approved the relevant reasoning in Stokes v Costain Property Investments Ltd [1983] STC 405, while noting that the reasoning there was obiter, and regarded the approach in Quinn (London) Limited v HMRC [2021] UKFTT 437 (TC) as similar.
5. The court did not need to decide whether a payment could simultaneously be a tariff receipt or tax-exempt tariffing receipt and fall within paragraph 8. Nor did it need to determine the precise operation of the different agreement used for Johnston, since the representative Babbage agreement was sufficient.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal from the First-tier Tribunal was dismissed.
• First-tier Tribunal (Tax Chamber): Perenco’s appeal was allowed in Perenco UK Limited v HMRC [2021] UKFTT 254 (TC).