SolvedOT30137 | Capital gains: consideration other than cash: licence swaps - mixed consideration received - disposals made on or after 22 April 2009
From HM Revenue & Customs · Oil Taxation Manual
Where:
two companies each dispose of one or more UK licences to each other by way of a bargain at arm’s length,
at least one of the licences relates to a developed area, and
one of the disposals is part of the consideration given for the other disposal (that is, a licence(s) is swapped for a licence(s) and other consideration),
then the tax treatment of the company that receives the mixed consideration depends on whether the no gain/no loss amount (N) of that company exceeds the amount of non-licence consideration (C) (for example cash) received by that company. Such a transaction is described as a mixed-consideration swap.
Where N does exceed C
where that company acquires only one licence, the company is treated as if it had acquired the licence for a consideration of N-C,
where that company acquires two or more licences, the company is treated as if the cost of each licence acquired is that proportion of (N-C) that the value of each licence acquired bears to the total value of all the licences acquired (TCGA92\S195C).
The disposal by that company of a licence under the swap is viewed as a no gain/no loss disposal after taking account of indexation allowance. This no gain/no loss disposal is not included in the list of ‘the no gain/no loss provisions’ in TCGA92\S288(3A).
Where N does not exceed C
Where N does not exceed C for the company that receives the mixed consideration the acquisition cost of each licence acquired by that company is treated as nil, and
where that company disposes of only one licence, the company is treated as achieving a gain of C-N on the disposal,
where that company disposes of two or more licences, the company is treated as achieving a gain on each disposal of that proportion of (C-N) that the value of each licence disposed of bears to the total value of all the licences disposed of (TCGA92\S195D).
See OT30139 for the tax treatment of expenditure incurred by a company on a licence disposed of under a mixed-consideration swap and reimbursed by the company to whom the disposal is made.