(a). Ring fencing refers to the segregation of the operations of a company into separate income streams for business, regulatory or tax purposes. The IMF defines ring fencing for tax purposes as “Limitation on consolidation of income and deductions for tax purposes across different activities, or different projects, undertaken by the same taxpayer.” This is to ensure that costs and revenue from operations in one ring-fenced area are not transferred to another ring-fenced area undertaken by the same person.

The term Separate Mineral Operation is used to describe the ring fence concept in relation to mining operations under the Income Tax Act, 2015 (Act 896). There are different types and levels of separate mineral operation. These include:

1. Mineral operations conducted in respect of each mine constitute a Separate Mineral Operation. Where a person is conducting mineral operations in two or more mines, the mineral operations under each mine constitutes a Separate Mineral Operation for tax purposes.
2. Where a person is conducting mineral operations in two or more mines with a shared processing facility, the mineral operations in the two mines are required to be considered as the same Separate Mineral Operation.
3. Where a person conducts mineral operations under a reconnaissance licence before the grant of a prospecting licence, such mineral operations is conducted in respect of the prospecting licence and constitute the same Separate Mineral Operation. Mineral operations conducted under a prospecting licence before the grant of a mining lease, and the mining lease falls within the prospecting licence area, such mineral operations is conducted in respect of the prospecting licence and constitute the same Separate Mineral Operation.
4. Each Separate Mineral Operation is required to be treated as an independent business. The chargeable income is required to be determined separately for each Separate Mineral Operation. Any person engaged in mineral operations is therefore required to keep separate books of accounts and file tax returns for each Separate Mineral Operation.
5. Transactions between a Separate Mineral Operation and another Separate Mineral Operation or any other business activities belonging to the same person is required to be carried out as though they were done between independent persons (Arm’s Length Principle.)
6. The transfer of an asset to or from a separate mining operation is required to be treated as acquisition or disposal of the asset.

(b). Additional Participating Interest – This is interest that is acquired in any petroleum operations by GNPC on behalf of the State after the discovery of oil and gas in commercial quantities. GNPC does not pay exploration cost but contributes towards development and production costs. This entitles GNPC to additional take in any distribution of revenue or petroleum to interest holders.

Additional Oil Entitlement – AOE is in the nature of an additional profit tax based on the rate of return achieved. The AOE is meant to ensure that the State shares in excess profit accruing to Contractors. The State is entitled to additional oil, if the cash flows of the Contractor reaches a specified after-tax real rate of return.