8.    Fiscal stability

(1)

(a)     The Minister may enter into a binding agreement with any oil and gas company in respect of an oil and gas right held by that company, and that agreement so entered into must guarantee that the provisions of this Schedule (as at the date on which the agreement was concluded) apply in respect of that right as long as the right is held by the oil and gas company.

(b)     Notwithstanding subparagraph (a), the Minister may enter into a binding agreement with any company in anticipation of an oil and gas right to be acquired by that company, and that agreement must guarantee that the provisions of this Schedule (as at the date on which the oil and gas right is granted) apply in respect of that right as long as that right is held by the oil and gas company: Provided that this binding agreement has no force and effect if the oil and gas right is not granted within one year after the agreement is concluded.

(c)     If an oil and gas company jointly holds with another oil and gas company an exploration right, as defined in section 1 of the Mineral and Petroleum Resources Development Act, and any one of those oil and gas companies has concluded an agreement as contemplated in subparagraph (1) in respect of that right, all of the fiscal stability rights in terms of that agreement relating to that exploration right apply in respect of both of those companies.

[Item (c) added by section 93(1) of Act 43 of 2014 and substituted by section 124(1) of Act 25 of 2015 deemed effective on 1 April, 2015]

(2)

(a)     In the case of a disposal of an exploration right, as defined in section 1 of the Mineral and Petroleum Resources Development Act, an oil and gas company that has concluded an agreement as contemplated in subparagraph (1) in respect of that right may, as part of that disposal, assign all of its fiscal stability rights in terms of that agreement relating to the exploration right disposed of to any other oil and gas company.

(b)     In the case of a disposal of a production right, as defined in section 1 of the Mineral and Petroleum Resources Development Act, an oil and gas company that has concluded an agreement as contemplated in subparagraph (1) in respect of that right disposed of may, as part of that disposal, assign all its fiscal stability rights in terms of that agreement relating to the production right disposed of to another company if that other company is a company within the same group of companies as the oil and gas company transferring the fiscal stability rights at the time the agreement is concluded.

(3)     If an oil and gas company holding a participating interest in an oil and gas right has concluded an agreement contemplated in subparagraph (1), the terms and conditions of that agreement will apply to all participating interests subsequently held by that company in that oil and gas right.

(4)     An oil and gas company that has concluded an agreement contemplated in subparagraph (1) in respect of an oil and gas right may at any time unilaterally terminate the agreement in respect of that oil and gas right so held with effect from the commencement of the year of assessment immediately following the notification date of the termination.

(5)     The portion of taxable income and profits of an oil and gas company derived from all the oil and gas rights governed by the version of the Schedule applicable to an oil and gas right covered by a binding agreement referred to in subparagraph (1), must be determined in terms of that version of the Schedule.

(6)     If the State fails to comply with the terms of the agreement contemplated in subparagraph (1) and that failure has a material adverse economic impact on the taxation of income or profits of the oil and gas company that is party to that agreement, that oil and gas company is entitled to compensation for the loss of market value caused by that failure (and interest at the prescribed rate calculated on the compensation from the date of non-compliance) or to an alternative remedy that otherwise eliminates the full impact of that failure.

(7)     For purposes of this paragraph –

(a)     an “oil and gas right” means any-

(i)      exploration right or production right as defined in section 1 of the Mineral and Petroleum Resources Development Act or any right or interest therein;

(ii)     exploration right acquired by virtue of a conversion contemplated in item 4 of Schedule II to the Mineral and Petroleum Resources Development Act or any interest therein; or

(iii)    production right acquired by virtue of a conversion contemplated in item 5 of Schedule II to the Mineral and Petroleum Resources Development Act or any interest therein; and

(b)     an exploration right, a renewal of that exploration right and an initial production right converted from any exploration right or renewal thereof held by a company will all be deemed to be one and the same oil and gas right in the hands of that company to the extent that those rights relate to the same geographical area.

7.    Disposal of oil and gas right

(1)     If an oil and gas company disposes of any oil and gas right to another company, that oil and gas company and that other company may (instead of any other provision of this Act) agree in writing that rollover treatment as contemplated in subparagraph (2) or participation treatment as contemplated in subparagraph (3) applies in respect of that right.

(2)     If an oil and gas company disposes of any oil and gas right to another company pursuant to an agreement that rollover treatment as contemplated in subparagraph (1) applies, and the market value of that oil and gas right is equal to or exceeds-

(a)     in the case that right is held as a capital asset, the base cost of that right on the date of that disposal; or

(b)     in the case that right is held as trading stock, the amount taken into account in respect of that right in terms of section 11(a) or 22(1) or (2),

that company is deemed to have disposed of that right for an amount equal to the amount contemplated in items (a) or (b), as the case may be, and that other company is deemed to have acquired that right –

(i)      where that right is so disposed of as a capital asset, for a cost equal to any expenditure in respect of that right incurred by that company that is allowable in terms of paragraph 20 of the Eighth Schedule and to have incurred such cost at the date of incurral by that company of such expenditure, which cost must, where that right is acquired as –

(A)    a capital asset, be treated as an expenditure actually incurred by that company in respect of that right for the purposes of paragraph 20 of the Eighth Schedule; or

[Sub-item (A) amended by section 88(1) of Act 35 of 2007 and substituted by section 55 of Act 23 of 2020]

(B)     trading stock, be treated as the amount to be taken into account by that company in respect of that right for the purposes of section 11(a) or 22(1) or (2); or

(ii)     where that right is so disposed of as trading stock and that right is acquired as trading stock, for a cost equal to the amount referred to in item (b), which cost must be treated as the amount to be taken into account by that company in respect of that right for purposes of section 11(a) or 22(1) or (2).

(3)

(a)     If an oil and gas company disposes of any oil and gas right to another company pursuant to an agreement that participation treatment as contemplated in subparagraph (1) applies and-

(i)      that right is held as a capital asset; and

(ii)     the market value of that right exceeds the base cost of that right on the date of that disposal,
any gain derived by that company in respect of the amount contemplated in subitem (ii) is deemed to be an amount of gross income, and that other company that acquired that right may deduct from its oil and gas income as contemplated in paragraph 5(1) (but not including 5(2)) an amount equal to the amount deemed to be gross income of the company that disposed of that right.

(b)     If an oil and gas company disposes of any oil and gas right to another company pursuant to an agreement that participation treatment as contemplated in subparagraph (1) applies and-

(i)      that right is held as trading stock; and

(ii)     the market value of that right exceeds the amount taken into account in respect of that right in terms of section 11(a) or 22,

that other company that acquired that right may deduct from its oil and gas income as contemplated in paragraph 5(1) (but not including 5(2)) an amount equal to the amount deemed to be gross income of the company that disposed of that right less the applicable deduction allowable as contemplated in section 11(a) or 22, as the case may be, in respect of that right.