Section GB 20 — Income Tax Act 2007: Arrangements involving petroleum mining

GB 20 Arrangements involving petroleum mining When this section applies (1) This section applies if the requirements of both of the following paragraphs are met: (a) an arrangement includes— (i) a disposal of a petroleum mining asset; or (ii) the incurring of petroleum exploration expenditure; or (iii) a farm-out arrangement: (b) the arrangement has a purpose or effect of tax avoidance. Applying section GA 1 (2) The Commissioner may apply section GA 1 (Commissioner’s power to adjust) to adjust the taxable income of a person affected by the arrangement so as to counteract a tax advantage obtained by the person. Examples (3) Without limiting the generality of subsection (1), arrangements having the effect of tax avoidance include the arrangements described in subsections (4) to (8). Person acquiring asset relieved or compensated (4) An arrangement has the effect of tax avoidance if it involves the disposal of a petroleum mining asset and it is probable that, at the time the arrangement is entered into, the person acquiring the petroleum mining asset— (a) will, through a related arrangement, not have to suffer some or all of the expenditure of acquiring the petroleum mining asset; or (b) will be effectively compensated in some way for some or all of the expenditure. Person incurring expenditure relieved or compensated (5) An arrangement has the effect of tax avoidance if it involves the incurring of petroleum exploration expenditure and it is probable that, at the time the arrangement is entered into, the person who is to incur the petroleum exploration expenditure— (a) will, through a related arrangement, not have to suffer some or all of the petroleum exploration expenditure; or (b) will be effectively compensated in some way for some or all of the petroleum exploration expenditure. Farm-in party relieved or compensated (6) An arrangement has the effect of tax avoidance if it involves a farm-out arrangement and it is probable that, at the time the arrangement is entered into,— (a) the farm-in party will, through a related arrangement, not have to suffer some or all of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or (b) the farm-in party or an associated person will be effectively compensated in some way for some or all of the farm-in expenditure. Disposal of asset to associated person for over-value (7) An arrangement has the effect of tax avoidance if it involves a petroleum miner disposing of a petroleum mining asset to an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the asset had been disposed of for its market value. Farm-out arrangement with associated person for overvalue (8) An arrangement has the effect of tax avoidance if it involves a petroleum miner entering into a farm-out arrangement with an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person who is not associated. Miners operating offshore (9) This section applies, with the necessary modifications, to a petroleum miner who undertakes petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or CFC; and (b) substantially the same as the petroleum mining activities governed by this Act. Treatment of partners (10) For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership. Disposal of part of asset (11) For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset. Defined in this Act: arrangement , associated person , CFC , deduction , dispose , farm-in expenditure , farm-out arrangement , New Zealand , petroleum exploration expenditure , petroleum miner , petroleum mining asset , petroleum permit , tax avoidance , taxable income , Compare: 2004 No 35 s GC 12