This is the fourth edition of our Tax Update for the Shipping & Offshore sector, in which we inform you about national and international developments, various court decisions, bills and practical experience, which are both current and relevant to the sector.
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Shipping & Offshore Market Group
KPMG Meijburg & Co
Australia: Transfer pricing risks and offshore drilling-related leasing arrangements
The Australian Taxation Office (ATO) on 26 September 2019 released a draft compliance approach to transfer pricing issues related to projects that involve the use, in Australian waters, of non-resident owned mobile offshore drilling units (MODUs).
The draft compliance approach—PCG 2019/D5—would primarily affect Australian taxpayers that lease vessels from non-resident related parties under bareboat charter arrangements for drilling and drilling-related activities (such as pipe-laying and heavy-lift vessels) in Australian waters.
Click here for more information.
Cyprus: abolish initial ship registration fees
Deputy Minister for Shipping Natasa Pilides briefed the parliamentary committee on Transport about new draft regulations approved by the cabinet for the registry’s new pricing policy which provides for rounding off fees, grouping of fees as well abolishing the initial registration fee with respect to ocean going commercial Cyprus ships.
Click here to read more on this matter.
Denmark: tonnage tax
In the second half of November 2019, a bill proposal on the extension of the tonnage tax scheme to a number of specialized shipping activities will be submitted. In addition, the bill will provide for an extension of the sailor's allowance to seamen on board a marine survey vessel for research purposes. The proposal contains some new elements, which we will share a.s.a.p.
Netherlands: 2020 Tax Plan package (tonnage tax)
On Budget Day, September 17, 2019, the government presented the 2020 Tax Plan package to the Lower House. The proposed tax measures focus on lower labor costs, combating tax avoidance and tax evasion, an attractive business climate for economic activities of substance and further environmental measures. Many of the proposed measures will take effect on January 1, 2020, among others some new elements within the Dutch tonnage tax system. For a total overview of the proposed Dutch tax plans we refer to the following link.
Pursuant to EU State aid rules, the European Commission has granted approval for the Dutch tonnage tax regime for seagoing vessels to be extended to December 31, 2028. To obtain the Commission's approval for an extension, the government committed itself to amending the tonnage regime in respect of (i) vessels that are held for time and voyage charter, (ii) the flag requirement, and (iii) the imposition of a maximum of 50% of the income from activities that are regarded as secondary activities for maritime transport.
- The under (i) intended change means, in short, that the annual total of the net day tonnages of the ships held by a taxpayer for time or voyage charter in any one year, which do not fly the flag of an EU/EEA country, will not exceed 75% of the annual total of the net day tonnages of all the taxpayer’s vessels that are eligible for the tonnage regime. In calculating this 75% cap, the tonnage of a vessel of which the taxpayer is co-owner, is only taken into account in proportion to the ratio of their co-ownership.
- The change mentioned under (ii) results in two adjustments. Firstly, in order to be eligible for a legal exception to the flag requirement, a taxpayer must sail (owned, chartered etc.) at least one of its vessels that qualify for the tonnage regime under a flag of an EU/EEA country. Secondly, the flag requirement will also apply to shipmanagers (technical and crewing) in respect of vessels which they manage on behalf of another party.
- The change mentioned under (iii) means that the part of the profit arising from non-transportation activities may not exceed 50% of the total annual profit. If in any one year this profit cap is exceeded, the part of the profit that must be attributed to the non-transportation activities is not eligible for the tonnage regime, which means that this part of the profit will be taxed pursuant to the regular profit determination rules.
These new rules can have significant impact and it is recommended to analyze the consequences. Furthermore the proposed rules provide for transitional law according to which some proposed rules in relation to the flag requirements will not apply until the first financial year starting on or after January 1, 2029 for vessels which already applied for the tonnage tax regime on December 31, 2019. We recommend you to contact your tonnage tax specialist to discuss if action is required or recommended in relation to the new rules and proposed transitional law. Please visit our website for more information or contact details.
KPMG Middle East and South Asia (MESA): tax guide
Please find below the 2019 e-Edition of KPMG Middle East and South Asia (MESA) tax guide. This guide is part of the regional thought leadership of KPMG, available online on kpmg.com and KPMG MESA app.
MESA is a diverse and rapidly growing region spanning across the Gulf Cooperation Council (GCC), wider Middle East and South Asia. Each country within these clusters has its own distinct characteristic, demonstrated by variations in their tax and regulatory regime as well as economic and fnancial environment. A very useful tax guide for companies operating in the MESA area!
Mexico: tax reform inititvie for 2020
The tax reform initiative for 2020 include various elements that can be relevant specifically in relation to the offshore industry (lease of movable property, VAT witholding for labor contracting, PE concept etc.). Visit the website for more information.
EU: shore-side electricity (evaluation report)
The evaluation takes into account the Energy Taxation Directive (ETD) objectives, all provisions of the ETD and the relevant case law by the Court of Justice of the European Union. The time period covered is from the adoption of the Directive until the availability of the latest reported data. Pursuant to Article 19(1) of the Directive, in addition to the provisions foreseen in particular in its Articles 5, 15 and 17, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions in the level of taxation for specific policy considerations. From the report it follows that as of 2019, four Member States have applied for a derogation in order to be authorised to apply a reduced tax rate to electricity directly supplied to vessels berthed in ports.
Follow this link for the report.
It was planned in the Netherlands to include a proposal in the Dutch tax plans for 2020 for an exemption from shore-side electricity (https://zoek.officielebekendmakingen.nl/stcrt-2019-39775.html). We note this has not been the case and is now expected to be proposed in the tax plans for 2021. From the The Royal Association of Netherlands Shipowners we understand that for 2020 specific compensation is considered.
The United States of America: BEAT
The “BEAT” is a new anti-base erosion measure, enacted as part of US tax reform. The BEAT operates by imposing a 10% penalty tax on certain deductible payments made by multinational US taxpayers to foreign related persons. Only certain multinational groups are subject to the BEAT – those (i) that exceed an average US gross receipts threshold of $500m over a 3-year testing period, and (ii) whose tainted base erosion payments exceed a specified percentage of total deductions (3% generally; 2% for certain financial institutions).
BEAT has implications for intercompany payments made by multinational freight forwarders. The freight forwarding industry generally works through an internal global network to accomplish logistics solutions while complying with international regulations. US entities that make intercompany payments to foreign affiliates – particularly payments for third party carrier services – have been identified to the US Internal Revenue Service as payments at risk for BEAT.
How can we help manage BEAT risk? The BEAT rules contain very specific technical exceptions. Based on our analysis, and depending on the specific organizational structure and legal arrangements within the freight forwarding group, we believe that a substantial portion of the intercompany payments are eligible for one or more of the available exceptions. We have successfully applied these exceptions for several freight forwarders, allowing them to significantly mitigate their BEAT liability. In some cases, because the BEAT only applies to groups whose base erosion payments are at least 3% of total deductions, our analysis has resulted in US taxpayers escaping application of the BEAT entirely.
Contact the following US tax experts to discuss the impact of BEAT:
Patrick J. Browne Jr. / KPMG LLP /+1 (202) 256-9096 / firstname.lastname@example.org
Kimberly J. Majure / KPMG LLP / +1 (202) 533-5270 / email@example.com
Roundtable: Friday, November 1, 2019 - Rotterdam
When a foreign company operates on the Norwegian continental shelf, various compliance requirements arise and the company might be confronted with tax consequences.
Where offshore related services exceed a total of thirty days within a 12-month period, this will normally lead to creation of a permanent establishment and allow Norway to tax the profit attributable to such. Where the offshore presence of an individual exceed 30 days within a 12-month period, this will allow Norway to tax the Norwegian source employment income.
This is well-known within the industry, however many foreign companies are not aware of that Norwegian compliance requirements should be fulfilled, even if the foreign Company or individual is Tax Treaty Protected as described above.
We as Meijburg’s Shipping & Offshore market group therefore would like to welcome you to a roundtable with our special guest from KPMG Norway; Torstein Jansen-Vistnes.
For more information and registration click here.
Non Tax: Cyber Risk Management for the Maritime Sector
The Maritime Sector, in line with other Industries, is digitizing at high pace. Through innovations, vessels become more and more connected to more traditional IT systems both on board and on shore. This would allow for example to remotely operate and service a vessel. With this digitalization, the cyber risks change as well. KPMG is working with various maritime organizations to apply our experience from the Oil & Gas and Chemical Industry to support securing their fleet.
Please read this brief paper on our offerings on this matter.