EGL53000 - Introduction to joint ventures and group companies with minority investors: attribution of chargeable amounts within the allowance to participants

Joint ventures that undertake electricity generation are liable to EGL in their own right on the same basis as other companies or groups. This means that if they undertake UK generation with an annual output above 50 Gigawatt hours, they will be subject to the levy on exceptional generation receipts above the £10 million revenue allowance.

In the case of a qualifying joint venture (JV), F(2)A23/S293 provides that the amount of a JV’s generation receipts that are not subject to the levy because they fall within the allowance are then attributed to the JV members that meet the definition of a participant which is explained at EGL51000. Of course, the generation receipts of the JV may be covered entirely by its revenue allowance.

Broadly, each participant has attributed to it a proportionate share of the amount of the generation receipts that have not been charged at the level of the JV, which the legislation refers to as the “non-chargeable amount” and defines by reference to the calculation of the JV’s exceptional generation receipts set out in F(2)A23/S293(5).

To determine the amount to be attributed to a participant it is first necessary to calculate the participant’s “proportionate interest” in the JV which is simply the proportionate share of the JV’s ordinary share capital held by the participant, treating members of the same group are treated as being the same person. Where the JV company does not have share capital then the proportionate interest is instead based instead on the participant’s entitlement to distributable profits.

F(2)A23/S293(6) the explains how to calculate the appropriate proportion for each participant in the JV at any point in time by setting out a number of steps.

• Step 1 is to allocate both generation receipts and allowable costs of the joint venture (not the non-chargeable amount) to participants based on their proportional interests in the JV at the time of generation to which they are attributed.
• Step 2 says that if step 1 results in a participant having more costs than receipts allocated to it, then the participant will not have any amount of the non-chargeable exceptional generation receipts attributed to it. There are no exceptional receipts from the JV’s generation after taking allowable costs into account.
• Step 3 operates where step 1 results in a participant having more receipts than costs meaning that at the time of generation the JV was realising exceptional receipts. In that case a proportion of the JV’s non-chargeable amount is allocated to the participant allocated to it.

The allocation under the step 3 is determined by reference to their relative interests in the JV, after taking into account the allocation to any participant with excess costs. This adjustment ensures that the overall amount attributed to the participants with net receipts is equal to the joint venture undertaking’s non-chargeable amount.

It is possible that the Corporation Tax accounting periods, and therefore the EGL qualifying periods of the JV and its participants, may not coincide. In that case the attribution of non-chargeable amounts is to be made on a fair and reasonable basis. This is because simple time apportionment may not produce a fair and reasonable result where the JV’s exceptional receipts do not arise smoothly over time.

Where this rule applies to a participant does not have any generation attributed to it, F(2)A23/S293(8) treats it as a “qualifying” generating undertaking to make clear that the participant is chargeable to EGL on the attributed amount.

Further guidance

The definition of a JV for EGL purposes and the identification of its members are explained at EGL51000.