This is the first edition of our new Tax Update for the Shipping & Offshore sector, in which we inform you about national and international developments, various court decisions, bills and practical experience relevant to the sector.
Please use it to your advantage!
Shipping & Offshore Market Group
KPMG Meijburg & Co
Court of Justice of the European Union decision: Latvian sailor insured for social security purposes in Latvia
On May 8, 2019, the Court of Justice of the European Union (CJEU) ruled that a Latvian sailor - a Latvian citizen working for a Dutch employer on board a seagoing vessel sailing under a non-EU flag outside the territory of the European Union - is insured for social security purposes in his state of residence (Latvia). The employment relationship has a sufficient connection with the territory of the EU, so that the sailor falls within the scope of the EU regulation on the coordination of social security systems. Under these coordinating rules, social security is allocated to Latvia. For more information about the decision please click here (in Dutch).
Does the Dutch minimum wage apply on board seagoing vessels?
The decision rendered by the Council of State (Administrative Jurisdiction Division) on April 17, 2019 regarding the Minimum Wage and Minimum Holiday Allowance Act may have a serious implications. According to the Council of State, the Dutch minimum wage must be paid if a seagoing vessel has a Dutch home port. This will affect a large part of the Dutch fleet; after all, the payroll costs of non-EU sailors on board seagoing vessels with a Dutch home port will then significantly increase. For more information about this see (in Dutch):
Tonnage tax regime (ship management) under scrutiny
Ship management (technical and crew management) is eligible for the tonnage tax regime. The Netherlands is currently in talks with the European Commission about the extension of this regime:
- One of the items under discussion is whether the general flag condition (EU/EEA flag) should also apply to ship managers (which is not yet the case).
- There is also discussion on the tonnage tax application of timecharters (other EU tonnage tax regimes apply for example a ratio).
- The Royal Association of Netherlands Shipowners (Koninklijke Vereniging van Nederlandse Reders) has provided the Ministry of Infrastructure & Water Management and the Ministry of Finance with input (to which KPMG Meijburg & Co also contributed) for the discussions with the Commission.
- More clarity is expected at the end of May. Any changes could then be included in the 2020 Tax Plan.
Does supervision of ship building/construction by a contracting party at foreign shipyard constitute a permanent establishment?
Opinion issued by Advocate General Niessen: The party concerned performed supervision activities for their employer with regard to the construction of a drilling vessel in South Korea. Relevant in this case was whether the construction supervision activities performed by the buyer of the vessel at the shipyard resulted in a permanent establishment in South Korea. According to the Court of Appeals and the Advocate General there is not a permanent establishment. Fore more information click here (in Dutch).
Mining Act: increase in investment tax credit for offshore plant and machinery
On April 30, 2019, the bill “Amendment of the Mining Act (the removal or rehabilitation of mining plant and machinery and investment tax credit for offshore mining)” was opened for public consultation. (For more information click here, in Dutch.)
The bill provides for the investment tax credit (Section 68a of the Mining Act) for offshore mining to be increased from 25% to 40%. This will make the tax credit generic for all mining plant and machinery investments in operating assets, with the exception of mobile mining plant and machinery. In addition, it is proposed that the tax credit not only apply to the purchase or production of mining plant and machinery, but also to making improvements. If the bill is implemented, this change to the investment tax credit will also apply to the current tax year.
The bill also contains additional rules for the removal of both offshore and onshore mining plant and machinery, as well as introducing a new system to ensure compliance with removal requirements.
IRS Practice Unit on Shipping and Air Transport Article
On April 30, 2019, the US Internal Revenue Service (IRS) published a “practice unit”. These are published for IRS internal practice purposes and are prepared by its Large Business and International Division, which primarily focuses on companies. The document describes how the shipping article should be applied in the US and in relevant treaties. See: Shipping and Air Transport Article Overview.
If you would like to know more about any of the above issues, please contact the specialists of our Shipping & Offshore team. Their contact details can be found on our website (right above).