RE: FIG Tax burden4 Jun 2025 18:55
This vexing tax question seems to go on and on and on.
The fundamental problem is that FIG called the Sea Lion farm in payments from Premier Oil a capital gain and charged capital gains tax on the cash element and a “deemed” capital gains tax on the development carry as if it were payment in kind. This latter payment of tax has been deferred under a tax settlement agreement, otherwise it would have bankrupted RKH.
In UK, limited companies don’t pay capital gains tax. Instead, they pay corporation tax on any profits made from doing business, investments, and selling assets for more than they cost. Capital Gains Tax is not paid by limited companies. Instead, companies pay Corporation Tax.
How the FIG has diverted from this rule, as a British Overseas Territory, is a mystery. It effectively kills off enthusiasm for farmout activity as being unaffordable. A deemed CGT on a say 75% farm out carry of Darwin would probably bankrupt BOR.
Also, and I suspect intentionally, it stops RKH from using accumulated corporation tax losses to offset that tax.
At some point when Navitas actually render the loan facilities to RKH which replaced the development carry, there ought to be a CGT tax loss which offsets perhaps only some or all of the due tax in that future year. If, in a moment of madness Navitas wrote off the loan, then it would become a carry and taxable again. I suspect that is why the issue hangs around as unresolved.
The very idea that a development carry becomes taxable in FI at the time of contract signing will ensure no one ever does it again, and someone in Government House needs to wake up and align with UK tax policy in this area.
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