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Ring Fence Tax and PRT
As indicated, during the Arab oil embargo world crude oil
prices increased approximately 5-fold. As a result, in 1975, out
of concern that the U.K. corporation income tax might fail
effectively to tax anticipated extraordinary profits to be
realized by oil and gas companies, the U.K. Government enacted a
new tax regime on income earned from oil and gas recovery
activities in the North Sea. The new tax regime consisted of the
ring fence provisions of the U.K. corporation income tax (Ring
Fence Tax) and PRT. The Ring Fence Tax and PRT replaced the U.K.
corporation income tax as it otherwise would have applied to
activities of oil and gas companies in the North Sea.
The purpose and objective of the United Kingdom in enacting
the Ring Fence Tax and PRT were to accelerate tax revenues
relating to development of North Sea petroleum resources and to
tax extraordinary profits of oil and gas companies relating to
the North Sea.
To make it more difficult for oil and gas companies to
offset profits derived from the North Sea with losses and
expenses from unrelated activities, the Ring Fence Tax was
enacted as a modified or customized version of the U.K.
corporation income tax and was made applicable to activity of oil
and gas companies in the North Sea in lieu of the general
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