2024 Jan 11
Section 356LA of the of the Corporation Tax Act 2010 provides: “(1) In this Part ‘relevant asset’ means an asset within subsection (2) in respect of which conditions A and B are met. (2) An asset is within this subsection if it is a structure that— (a) can be moved from place to place (whether or not under its own power) without major dismantling or modification, and (b) can be used to— (i) drill for the purposes of searching for, or extracting, oil, or (ii) provide accommodation for individuals who work on or from another structure used in a relevant offshore area for, or in connection with, exploration or exploitation activities (‘offshore workers’). (3) But an asset is not within subsection (2)(b)(ii) if it is reasonable to suppose that its use to provide accommodation for offshore workers is unlikely to be more than incidental to another use, or other uses, to which the asset is likely to be put.”
The taxpayer company, a contractor operating in the offshore oil industry, provided the operator of an offshore oil drilling platform with operational support services, which included the provision of a tender support vessel (“TSV”), which the taxpayer had leased from another associated company. Among other services, the TSV was used to provide sleeping accommodation for workers on the oil platform. The taxpayer filed its corporation tax return on the basis that for the relevant accounting period it was entitled to bring into account in the calculation of its profits the entirety of the hire payments it made under the lease of the TSV. On review, the revenue determined that section 356N of the Corporation Tax Act 2010, which imposed a hire cap on the amount of hire payments made by a contractor operating in the offshore oil industry under a lease of a “relevant asset” from an associated company, that the contractor could bring into account for the purposes of calculating it’s profits, applied to the taxpayers lease of the TSV, because it was a “relevant asset” within the meaning of section 356LA of the 2010 Act, and that a higher amount of corporation tax was therefore payable. On appeal, the First-tier tribunal, allowed the taxpayer’s appeal on the grounds that section 356LA applied, and the asset did not fall within subsection (2)(b)(ii) because it was reasonable to suppose that its use to provide accommodation for offshore workers was unlikely to be more than incidental to other uses, to which the asset was likely to be put. The Upper Tribunal upheld that decision.
On the revenue’s appeal—
Held, appeal allowed. Applying the ordinary use of language to the provisions, it could be said that use A was incidental to use B if it arose out of use B, something that was done because of use B, or in connection with use B, or as a by-product of use B. Therefore the relevant considerations in deciding whether the use of the asset to accommodate those working on the oil platform was incidental to its other uses were whether its use as such accommodation was an independent end in itself (of some significance), unconnected with its other uses, or whether it was something that arose out of its other uses. The First-tier tribunal had not addressed that question. The use of the asset for accommodation was not simply something that arose out of its use as a TSV supplying services. It was an independent end in itself, of some significance and it could not therefore be said to be no more than incidental to the other uses of the asset. It was not only used to provide services to the oil platform, it was also used as an accommodation vessel for the oil platform. That may have been a “secondary” use, but it was a significant and independent use and not incidental to its other uses. It followed that section 356LA(3) did not apply, with the consequence that the asset was a “relevant asset” as defined in section 356LA, so that the hire cap applied (paras 44, 45, 50–55, 63, 65, 66, 67).
Per curiam. The statutory question was not whether the use of an asset to provide accommodation for offshore workers was in fact incidental to another use of the asset, but whether it was “reasonable to suppose” that its use to provide such accommodation was “unlikely to be more than incidental” to another use or other uses to which the asset was “likely to be put”. As the wording of that provision required an objective assessment of the likelihood of something being the case, it was more natural to read that as referring to an assessment being made at the outset of an accounting period of the likelihood that something would be the case in the future, rather than an assessment being made at the end of an accounting period of the likelihood that something was the case in the past (paras 60, 66, 67).
David Ewart KC and Quinlan Windle (instructed by Solicitor, Revenue and Customs) for the revenue.
Nicola Shaw KC (instructed by Ernst & Young LLP)for the taxpayer.