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Edited version of your written advice

Authorisation Number: 1012766598287

Ruling

Subject: Availability of alternative valuation method

Question 1

Does Company Z satisfy the requirements of paragraph 8(1)(c) of Schedule 2 to the Petroleum Resource Rent Tax Assessment Act 1987 for the relevant petroleum project interests?

Answer

Yes

This ruling applies for the following periods:

Year of tax commencing on 1 July 2012

Year of tax commencing on 1 July 2013

Year of tax commencing on 1 July 2014

Year of tax commencing on 1 July 2015

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

Relevant legislative provisions

Petroleum Resource Rent Tax Assessment Act 1987 clause 8 of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subclause 8(1) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 paragraph 8(1)(c) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subparagraph 8(1)(c)(i) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subparagraph 8(1)(c)(ii) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subclause 8(7) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subclause 18(7) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subclause 18(8) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subparagraph 18(8)(b)(i) of Schedule 2

Petroleum Resource Rent Tax Assessment Act 1987 subparagraph 18(8)(b)(ii) of Schedule 2

Reasons for decision

Schedule 2 to the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA) concerns the starting base for onshore petroleum projects and the North West Shelf project. Clause 8 of Schedule 2 to the PRRTAA concerns the alternative valuation method for coal seam gas ('CSG') projects.

Subclause 8(1) of Schedule 2 to the PRRTAA sets out requirements which need to be satisfied before a holder of an interest in a petroleum project may choose to apply the alternative valuation method for a coal seam gas project to work out the starting base amount relating to that interest. In particular, subclause 8(1)(c) of Schedule 2 to the PRRTAA states:

Subparagraph 8(1)(c)(i) of Schedule 2 to the PRRTAA contemplates a direct acquisition of a relevant project interest, whereas subparagraph 8(1)(c)(ii) contemplates an indirect acquisition of a relevant project interest through the acquisition of a company that held a relevant project interest. In the current circumstances, the acquisition being examined is the acquisition of Acquired Company, a company which held the relevant petroleum project interests in question, by Acquiring Company. Therefore, only subparagraph 8(1)(c)(ii) is relevant.

Company Z will meet the requirements of subparagraph 8(1)(c)(ii) of Schedule 2 to the PRRTAA if Acquired Company was acquired by any person between 1 July 2007 and 2 May 2010.

'any person'

The words 'any person' in subparagraph 8(1)(c)(ii) of Schedule 2 to the PRRTAA means that so long as a company that held an interest in the project is acquired by any person in the period between 1 July 2007 and 2 May 2010 then it is open to any entity that is an interest holder in the project on 30 June 2013 to choose to use the alternative valuation method to determine their starting base amount for their CSG project interest. This is supported by example 5.8 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 which states:

Therefore, if Acquired Company was acquired by Acquiring Company in the period between 1 July 2007 and 2 May 2010, it is open to Company Z or any other entity that held an interest in the petroleum project on 30 June 20XX to choose to use the alternative valuation method to determine their starting base amount for their CSG project interest.

A company that held the interest, or another interest in the project, was acquired between 1 July 2007 and 2 May 2010

The meaning of acquired for the purposes of paragraph 8(1)(c) is informed by subclause 8(7) of Schedule 2 to the PRRTAA which provides that:

By virtue of subclause 8(7), subclauses 18(7) and 18(8) of Schedule 2 to the PRRTAA inform when an interest in a petroleum project or a company is acquired for the purposes of paragraph 8(1)(c) of Schedule 2 to the PRRTAA. Subclauses 18(7) and 18(8) state:

Subclause 18(7) of Schedule 2 to the PRRTAA concerns situations where an interest in a petroleum project is acquired directly. Subclause 18(8) concerns situations where an interest in a petroleum project is acquired indirectly through the acquisition of a company which holds the interest.

Subclause 18(8) of Schedule 2 to the PRRTAA is the relevant clause to consider in this case as the relevant transaction is the acquisition of all the issued share capital in Acquired Company by Acquiring Company.

The transaction that, when complete, had the effect of Acquired Company becoming a subsidiary of Acquiring Company was entered into when the sales agreement was signed/executed. Applying subparagraph 18(8)(b)(i) of Schedule 2 to the PRRTAA, the acquisition of Acquired Company by Acquiring Company is taken to have occurred between 1 July 2007 and 2 May 2010. The signing of the sales agreement bound the parties to the transaction which led to Acquired Company becoming a subsidiary of Acquiring Company.

Subparagraph 18(8)(b)(ii) of Schedule 2 to the PRRTAA extends the time to include agreements entered into preliminary to the actual acquisition transaction. In the current circumstances it would apply if an agreement existed to enter into the transaction that would have resulted in Acquired Company becoming a subsidiary of Acquiring Company.

The HOA signed prior to 1 July 2007 is not an agreement to which subparagraph 18(8)(b)(ii) of Schedule 2 to the PRRTAA applies. The terms of the HOA demonstrate that the HOA was for the purchase of Acquired Company's interests in the relevant petroleum project interests (and certain other assets). That is, the HOA concerned a direct acquisition of Acquired Company's interests in the relevant petroleum project interests. Such a transaction if completed would not have resulted in Acquired Company becoming a subsidiary of Acquiring Company. As the HOA concerned a direct purchase of Acquired Company's interest in the relevant petroleum projects and not the acquisition of Acquired Company itself, subparagraph 18(8)(b)(ii) will have no application.

Therefore, the acquisition date of the relevant petroleum project interests is determined under subparagraph 18(8)(b)(i) of Schedule 2 to the PRRTAA. This is between 1 July 2007 and 2 May 2010, the date that the sales agreement for the purchase of Acquired Company was entered into.

Conclusion

As a company which held an interest in the relevant petroleum project interests was acquired between 1 July 2007 and 2 May 2010, Company Z satisfies the requirements of subparagraph 8(1)(c) of Schedule 2 to the PRRTAA for those interests.


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