This is the first edition of our Tax Update for the Shipping & Offshore sector for 2021. This year we will again inform you about national and international developments, diverse court decisions, bills and practical experience that are topical and relevant for the sector.
Although 2021 has only just started it is nevertheless already proving itself to be a very relevant tax year for the maritime sector in the Netherlands. This is due, among other things, to international developments such as Brexit and the European Mandatory Disclosure Rules. In addition, the national flag exception in the Dutch tonnage regime will apply in 2021 and the evaluation of the tonnage regime in the Netherlands is in full swing!
Lastly, we will be monitoring the Pillar 1 and Pillar 2 developments as regards the shipping & offshore industry and in the light of the tonnage regime.
We will keep you updated on developments in the industry in 2021!
Meijburg & Co, February 2021
Brexit: UK flag no longer qualifies as an EU/EEA flag
- As a result of Brexit – a fait accompli since January 1, 2021 – the UK flag will no longer be considered an EU flag. This means that since the start of the new year ships flying the UK flag will, in principle, no longer qualify for the Dutch tonnage regime.
- To continue to meet the flag requirement, ships flying the UK flag will therefore, in principle, be required to reflag to an EU flag. Similar effects can be seen in other Member States that have introduced a tonnage regime, because the EU flag conditions arise from European Guidelines.
- Even in the United Kingdom it was necessary to amend the tonnage regime. The United Kingdom has included the UK and Gibraltar flags as qualifying flags to ensure that UK flagged ships continue to qualify.
Mandatory Disclosure Rules
- As of January 1, 2021 the Mandatory Disclosure Rules (“DAC6”) took effect in the Netherlands (click here for the effective dates in other EU countries). DAC6 requires intermediaries and/or taxpayers to report certain cross-border arrangements.
- For an arrangement to be reportable it must comply with at least one of the various hallmarks. However, a number of these hallmarks will only trigger a reporting obligation if the main benefit test is also met.
- One of the hallmarks is C.1.D: a deductible payment between two or more related businesses, if the payment is subject to a favorable tax regime at the level of the recipient.
- In the parliamentary records on the Dutch implementation of DAC6, the tonnage regime was one of the examples cited as a favorable regime with regard to this hallmark. However, hallmark C.1.D. will only trigger a reporting obligation if the main benefit test is also met.
- During the parliamentary debates in the Netherlands it was subsequently noted that normal application of the tonnage regime will generally mean that the main benefit test will not be met quickly, because the tonnage regime is usually applied in accordance with the underlying rationale of the tonnage regime (in the Netherlands this is monitored by the Dutch tax authorities).
- We recommend investigating whether there is a reporting obligation based on this, or one of the other hallmarks, in the relevant EU Member States or other jurisdictions.
- Lastly, we would like to point out that there are differences in how DAC6 is implemented in the various Member States, which means that other European countries may view the main benefit test differently.
Opinion by Advocate General to the Court of Justice of the European Union about the interpretation of ‘Member State of registration’ in the context of tax on insurance premiums for seagoing vessels
- Central to this case was the interpretation of ‘Member State of registration’ as referred to in EU directives in the field of taxes, because tax on insurance premiums can only be imposed in the Member State of registration. In the case at hand the ships flew another flag than that of the country where they were registered in the ownership register. According to the Advocate General the registration of a ship in an official register for the purposes of proof of ownership (and thus not the flag of a ship) is decisive. We will inform you further once the Court of Justice of the European Union has rendered its judgment.
The Netherlands (miscellaneous)
- The tonnage regime contains several exceptions to the flag requirement. One of these exceptions is the national exception to the flag requirement. This exception applies in 2021! Some welcome breathing space in light of Brexit. However specific conditions must be met, which requires a prudent approach.
- The national exception means that in 2021 ships (ownership, bareboat charter or ship management) without an EU/EEA flag can be added to the fleet under the tonnage regime of a Dutch taxpayer.
- Since 2020 an additional requirement has however applied, i.e. at least one qualifying ship (ownership, bareboat charter or ship management) in the fleet must fly an EU flag. This means that in 2021 in principle each ship that is placed under the tonnage regime does not have to fly an EU/EEA flag (for example a UK flag), provided one qualifying ship in the fleet flies an EU/EEA flag.
Evaluation Dutch tonnage regime
- From time to time the Netherlands evaluates the tax regime for maritime shipping (tonnage regime / remittance reduction maritime crews and free depreciation for seagoing vessels). Currently, the tonnage regime in particular is under scrutiny. For example, based on current definitions in the Dutch tax regime for maritime shipping, certain types of ships do not qualify (although this is often possible in other Member States) or only partly qualify in respect of specific activities at sea, including the construction of offshore wind farms. The Minister of Infrastructure & Water Management has indicated that the evaluation will be completed in the first half of 2021.
- In view of the government’s caretaker status, it may take some time before any follow-up to this evaluation, i.e. the much-needed extension of the tonnage regime, can be expected!
Cyprus reduces tonnage tax to 30% for ‘green’ ships under the Cyprus Green Incentives Programme
For financial years from 2021 onward, Cyprus has reduced the tonnage tax to 30% for ships for which it can be showed that pro-active measures have been taken to reduce the impact on the environment. For more information click here.
Hong Kong publishes tax policy on ship leasing (management) activities
Hong Kong has published policy on various local tax relief that is available for ship leasing and ship leasing management activities.
Switzerland: potential implementation of a tonnage tax regime
This was previously discussed in Parliament but delayed. We understand that it will be on the agenda again in February. We will keep you posted on developments. See also this link.
Slovenia: what’s happening?
The National Council, the Upper Chamber of Parliament, unanimously vetoed the December 2020 changes to the Tonnage Tax Act, which extend the Act by another 10 years. This meant that the National Assembly had to vote on the bill again, with 46 votes required. In January 2021 the Lower Chamber of Parliament failed to overturn the Upper Chamber’s veto on changes to the Tonnage Tax Act.
The veto had been proposed by a group of councilors who argued that the changes have no adequate safeguards against tax defaulters. It seems that Slovenia is the first Member State to abolish a tonnage tax regime. See also this link.
Greece: supplies for commercial vessels are exempt from VAT, customs duties and excise taxes
The Greek tax authorities have clarified that items intended for the supply of commercial vessels are exempt from VAT, customs duties and excise taxes, provided that such items are to be used for the movement, maintenance and general fulfilment of the purposes for which the ships in question are intended. More information (in Greek only).
India: Indian ruling (Technip France SAS); offshore supply of equipment under the composite contract is not taxable in India, however, offshore services are taxable in India
Recently, the Authority of Advance Rulings (AAR) rendered a decision on the taxability of a composite contract for the offshore supply of services and equipment in India. The AAR ruled that the offshore supply of equipment under a composite contract is not taxable in India, but offshore services are. Please click here for a memo by KPMG India on this ruling.
KPMG Cyber: IMO - time for action
In 2017, the International Maritime Organization (IMO) adopted a resolution aimed at including Maritime Cyber Risk management in Safety Management Systems. The intention is to encourage organizations to seriously and formally consider cyber risks as part of their maritime operations.
The resolution took effect as of January 1, 2021. This means that all organizations in the shipping industry are required to include their cyber risk approach as part of the annual verification of their Document of Compliance going forward.
An important element is the expectation that organizations consider their vulnerabilities in both Information Technology (such as HR and Finance systems) and Operational Technology systems (such as bridge systems, communication, cargo handling) and how these are identified and protected. International Guidelines are available as reference material, but it will require significant effort by organizations to formally adopt and implement these into their operational processes. Click here for more information or contact Pieter de Meijer.