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except interest expense, of producing taxable income relating to
North Sea petroleum resources are currently deductible. To
prevent the use of intercompany debt as a means of avoiding or
minimizing liability under the Ring Fence Tax and PRT, deductions
for interest expense are limited under the Ring Fence Tax and are
not allowed under PRT.
Initial calculations of profits under PRT are made at the
field level, with current deductions from gross revenue generally
allowed for all ordinary as well as capital expenses relating to
the field. Current deductions are allowed for, among other
things, costs of exploration and appraisal activities, start-up
activities, operations, production, storage, treatment,
transportation, administrative and overhead activities, buildings
and structures (if placed on the seabed or used in production,
measurement, transportation, or initial treatment and storage of
petroleum products), and abandonment activity relating to a
field, as well as costs of conducting arm’s-length sales of
petroleum products and of exploring and evaluating areas outside
a field that do not result in discovery of new fields.
As indicated, under PRT, current deductions are not allowed
for interest expense, and current deductions are not allowed for
costs of acquiring licenses from private parties, for payments to
private parties holding overriding royalty and similar interests
in a field, for expenses incurred in producing income exempt from
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