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Oil Companies Exploring Potential for Legal Challenge Against Windfall Tax

On June 28, Bracewell’s London lawyers held a briefing to discuss the impact of the Energy Profits Levy and the wider state of the energy mergers and acquisitions market.

Bracewell partner Alistair Calvert said: “We’re getting queries from clients about some of the legal implications of the windfall tax, and pertinently, whether or not it might be capable of challenge.”

Unveiled in late May, the levy would see an additional 25% tax on UK oil and gas profits imposed on top of the existing 40% headline rate, taking the combined rate of tax on profits to 65%.

Meanwhile Bracewell's Alastair Young was unconvinced that tax relief offered as part of the levy would be enough of a stimulus for new investment in drilling.

“Oil companies don’t drill wells in order to obtain tax relief. Companies drill wells and conduct investment activities in order to be successful and make a significant profit margin,” Young said.

Under the proposals, oil and gas companies would receive a near-doubling of the investment allowance to 80% which, on top of other measures, would allow them to claim back 91 pence per £1 spent on new projects – a total relief rate of 91.25%.

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