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All of the PRT the character of which is in dispute in these
cases was paid by Exxon with respect to oil production from
fields licensed to Exxon before 1975 and before PRT was enacted.
As one of respondent’s experts acknowledges, Exxon did not
receive any special benefits under its licenses, or otherwise,
for paying PRT, and Exxon in later years, as a result of paying
PRT, did not receive any special advantages in obtaining
additional North Sea licenses.
The credible and persuasive evidence strongly supports and
we conclude that all PRT paid by Exxon for the years in question
constitutes taxes, not payments for specific economic benefits.
PRT and the Net Income Test
The purpose, administration, and structure of PRT indicate
that PRT constitutes an income or excess profits tax in the U.S.
sense. The provisions of PRT include in the tax base, with
limited exceptions, income earned from North Sea-related activity
and permit allowances, reliefs, and exemptions that effectively
compensate for nondeductibility of certain oil company expenses,
particularly interest.
Although a deduction is not allowed for interest expense
related to North Sea operations, uplift, oil, safeguard, and
tariff receipts allowances provide sufficient relief to offset
for nonallowance of a deduction for interest expense. See sec.
1.901-2(b)(4)(i), Income Tax Regs. For 1975 through 1988,
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