Our latest update from the Shipping & Offshore team covers various worldwide developments from a tax perspective within this industry. Please reach out if you have any questions.
Meijburg & Co, July 2023
1. Nigeria - Freight tax
Dozens of foreign shipping companies have recently received back tax claims from Nigeria’s federal tax authority to the tune of several million US dollars. Apparently, the tax authority – the Federal Inland Revenue Service (FIRS) – has sent letters to shipping companies regarding alleged sums of Companies Income Tax due, owing, and payable on freight incomes earned by vessel owners, operators or charterers that have called at Nigerian ports to load wet cargoes, dating back to 2010. However, we understand from the FIRS that this is part of a wholesale review that the tax authority is doing, and that more letters would be issued in the coming weeks or months.
What is this about? See and hear it all in a video podcast by our colleague Akinwale Alao, head of KPMG Nigeria’s Maritime Tax desk.
2. Belgium-Holland - tax treaty
On June 21, 2023 the Netherlands and Belgium signed a new tax treaty. This treaty, which still needs to be ratified by both countries, completely revises the 2001 treaty that was last amended by protocol in 2009. The new treaty will apply at the earliest as of January 1, 2024 (but probably as of January 1, 2025) and will subsequently replace the current treaty.
The provision with respect to offshore activities, currently included in Article 24, now appears in Article 5 of the new treaty. In a similar vein to the Netherlands-Germany tax treaty, the scope has been broadened to, in principle, cover all activities carried on offshore. The former offshore clause was limited to the exploration or exploitation of the seabed and subsoil and their natural resources (or associated activities). Just as the Netherlands-Germany tax treaty, the new treaty excludes preparatory or auxiliary activities, towing or anchor handling by ships (towage vessels) and the carriage of supplies or personnel by ships or aircraft in international traffic.
Crew on board ships
Article 15(3) implies an exclusive source-State taxation wider in scope than Article 8 that regulates the power to tax in respect of profits derived from the operation of ships, barges and aircraft in international traffic. It covers all forms of operation of ships, barges and aircraft and is not limited to their operation in international traffic. This is particularly important for the situation occurring in inland navigation in which an inland vessel is operated both in and outside international traffic or, for example, in relation to crew working on board offshore vessels (dredgers and cable-laying vessels etc.).
A summary of other important aspects of the new treaty can be found here.
3. Malaysia - Guidelines for tax treatment of lease expenses for special assets under the Petroleum (Income Tax) Act 1967 (PITA)
The Inland Revenue Board (IRB) has recently issued guidelines for the tax treatment of lease expenses for special assets under the Petroleum (Income Tax) Act 1967 (PITA). The guidelines provide clarity on the tax treatment of lease expenses for special assets such as a floating production system (FPS), floating production storage & offloading (FPSO) and floating storage & offloading (FSO) under Section 15(1) PITA. Click here for the relevant guidelines.
4. Denmark - Expansion of the Danish Exclusive Economic Zone
On 1 June 2023, the bill on Expansion of the Danish tax territory was enacted. The rules expand the limited tax liability for individuals and companies within the Danish continental shelf/Exclusive Economic Zone (“EEZ”). The new rules will become effective on 1 July 2023.
The rules expand the Danish tax jurisdiction to also provide legal basis for taxation of foreign individuals and companies that perform activities between the 12 Nautical Miles Zone and the EEZ, in contrast with today’s legal basis which only provides tax jurisdiction for activities performed by foreign individuals and companies within the 12 Nautical Miles Zone.
As a consequence of the rules, companies will be subject to Danish limited tax liability if the conditions for establishing a permanent establishment are met. This will, among other things, require a Danish tax filing obligation. Similarly, foreign individuals can be subject to limited Danish tax liability if they perform activities for a foreign entity establishing a Danish permanent establishment due to activities conducted in the EEZ. The rules are expected to have a material impact on foreign companies and its employees operating outside the 12 nautical miles zone.
Expansion of the Danish Exclusive Economic Zone - KPMG Denmark
KPMG submission on the GloBE International Shipping Exclusion Draft Discussion Note
KPMG has formed a working group of Partners and Directors with international shipping clients. Based on feedback from clients and our knowledge of client business structures and activities, the Discussion Note raises issues that we shared with the OECD Secretariat. We believe the issues outlined in the Discussion Note would benefit from additional guidance. At the same time we also discussed the issue of mobile assets (for example in the maritime and offshore industry) and produced another draft discussion note on this topic, which was also shared with the OECD Secretariat. If you have any questions about these draft discussion notes please e-mail us.
IMO still discussing the introduction of a global tax on shipping
Public and private sector parties met in Paris on June 22-23 at the Summit on a New Global Financing Pact, and affirmed their collective determination to address the joint climate, environmental and developmental challenges through increased global cooperation. Click here for the Chair’s discussion summary.
With regard to the maritime industry, 23 countries and regional organizations, i.e. Barbados, Cyprus, Denmark, EU Commission, France, Georgia, Greece, Ireland, Kenya, Lithuania, Marshall Islands, Mauritius, Monaco, the Netherlands, New Zealand, Norway, Portugal, Slovenia, Solomon Islands, South Korea, Spain, Vanuatu and Vietnam, have committed to adopting an ambitious revised IMO Greenhouse Gas Strategy in order to place the international maritime transportation sector on a path consistent with the goal of ensuring the global warming threshold of 1.5 degrees Celsius is not exceeded. They also supported the adoption of the principle of a levy on the greenhouse gas emissions of this sector as part of a package of measures to implement this strategy, underlining that revenue from the levy should contribute to a “just and equitable transition” of the shipping sector. The London-based International Maritime Organisation (IMO) seems to have a target of net zero emissions by 2050. The plans are not yet final and are currently being discussed at the IMO during the IMO’s 80th Marine Environment Protection Committee (July 3-7, 2023).
Pillar Two as per 2024
Below list shows the countries that will apply the Income Inclusion Rule of the OECD’s Pillar Two GloBE Model Rules as per 2024:
- EU member states – potential deferrals where few UPEs
- New Zealand
- United Kingdom
As such, these countries will apply a Top-up Tax on a parent entity in respect of low-taxed jurisdictions within an EUR 750m MNE group.