Tax Update Shipping & Offshore - October 2020
Welcome to the third Shipping & Offshore Update of 2020, in which we inform you about global developments that may be important for businesses throughout the entire sector.
The third Tuesday of September is Budget Day in the Netherlands. For non-Dutch readers: the day that the tax plans for the coming year are announced. Normally a day full of symbolism, such as the royal carriage procession with the Glazenkoets (glass coach), the balcony appearance, and school children and royal fans lining the route taken by the head of state to the Ridderzaal (the room where the speech from the throne is given).
For the first time in history, all festivities surrounding Budget Day were canceled. As Prime Minister Rutte noted at this last press conference before the third Tuesday in September: “The coronavirus is forcing all of us to make major adjustments. It will be a Budget Day without pomp and ceremony, and I think that’s a shame.”
In addition, we can conclude that the presented plans (click here for a memorandum with the relevant measures) are not something to get too excited about. On the other hand, the 2021 Tax Plan package contains additional measures to stimulate economic growth during the corona crisis, and measures for a better, fairer and greener tax system. Many of the proposed measures will take effect on January 1, 2021. Several aspects of these plans are discussed below.
The reduction of the general corporate income tax rate from 25% to 21.7% as of January 1, 2021, which had been adopted in 2019, will be canceled. The general corporate income tax will thus remain at 25%. However, the reduction of the low CIT rate from 16.5% to 15% will go ahead. The SME bracket to which the low CIT rate applies will also be extended from EUR 200,000 to EUR 245,000 in 2021 and to EUR 395,000 as of 2022. This may be some benefit in this for taxpayers that apply the Dutch tonnage regime to all their activities. After all, the profit for tax purposes under the tonnage regime is such that possibly only the low CIT rate will apply. This is not what companies operating vessels that do not fully fall under the tonnage regime will have been expecting, although this of course depends on the particular result. The question is whether it is worth capitalizing on this.
By way of a Memorandum of Amendment to the 2021 Tax Plan, the government will propose an in time unlimited carry-forward loss set-off as of January 1, 2022 (currently a carry-forward period of six years applies; the carry-back period is and will remain one year). However, losses will only be fully available for carry-forward and carry-back set off up to an amount of EUR 1 million of taxable profit. In the case of a higher profit, the losses will only be able to be set off up to 50% of that higher taxable profit. In light of the proposed changes, parties that do not apply the tonnage regime but that may be eligible to do so, are well-advised to reconsider applying this regime. If free depreciation for seagoing vessels is applied, it is also important to closely monitor this in light of this loss limitation (possibly even by moving some of the depreciation potential into the future).
New group scheme
Work is in progress on a new group corporate income tax scheme. This development is related to the fact that the current fiscal unity regime is vulnerable under EU law. On Budget Day, the Deputy Minister of Finance, Mr. Vijlbrief, sent a letter to the Lower House of Parliament in which he outlined, among other things, the main features of a potential new group scheme and the follow-up process. The decision to present a bill to the Lower House will be left to a following government.
A new group scheme on a stand-alone basis, as discussed in the aforementioned letter, will have implications for the application of the tonnage regime by maritime shipping, since various assessments will not take place at the group level but at the level of the entity (which means certain entities will no longer be eligible for the tonnage regime unless additional measures are taken). In our view, this can be easily resolved in the statutory scheme of the tonnage regime itself, in accordance with approaches that also appear in the tonnage regimes of other EU Member States.
Reduced energy tax rate for shore-side power plants
Shore-side power is electricity from the onshore distribution grid supplied to ships at berth. When ships use shore-side power, they are no longer dependent on their own mineral oil-powered generators for their own electricity supply. This improves air quality, reduces noise emissions and reduces CO2 emissions. It is proposed to apply a reduced rate of EUR 0.0005 per kWh to supplies of electricity to shore-side power plants that meet the conditions for energy tax and not to set a rate for the surcharge for sustainable energy.
The new withholding taxes also need to be taken into account, as well as the tightening of the liquidation and cessation loss schemes (for example, in the oil and gas industry). The government also wants to use the Job-related investment allowance (Baangerelateerde Investeringskorting; BIK) to encourage businesses to invest. If businesses make an investment, for example the acquisition of new equipment, they will receive a credit that they can set off via their payroll tax and social security contributions. The BIK is not yet part of the 2021 Tax Plan, but will be included by way of a Memorandum of Amendment.
We will keep you updated on developments in the industry in 2020 and in anticipation of 2021!
Meijburg & Co Rotterdam, September 2020
The Netherlands: second mate, third mate, the whole crew!
The Court of Appeals in The Hague has rendered judgment in two cases in which the underlying issue was the interpretation of Article 15(3) of the Netherlands-Switzerland tax treaty. In dispute was whether there was a service performed on board a vessel operated in international traffic.
Ship under construction?
During the periods in which the second mate in the case at hand worked on the vessel, the vessel was under construction in a shipyard in a country that was not the state of residence or the country of the employer, and berthed in port in the Netherlands. According to the Court of Appeals, during that period the ship was thus not operated for the transport of persons or goods in international traffic.
Transfer during the construction stage?
The transfer of the ship to the Netherlands during the construction stage does not qualify as the (commercial) transport of persons or goods. Therefore, Section 15(3) of the treaty does not apply.
Click here for the full judgment.
The background to this case concerning a third mate is more or less the same. The third mate worked on board a vessel that was used to lay offshore pipelines in waters of various depths. Is this the same as a vessel that is operated in international traffic?
The Court ruled that it follows from the OECD Commentary that international traffic covers the commercial transport of persons and goods in the proper sense. In the case in question, the vessel was operated for the laying of pipelines. Before, after or during the performance of this activity there may be the transport of persons or goods, such as the transport of sections of pipes, but this transport is incidental to the main activity for which the vessel is used. Such transport does not qualify as the (commercial) transport of persons or goods.
Click here for the full judgment.
The Netherlands: new tonnage tax rulings published
As a result of the new ruling practice in the Netherlands, new tonnage tax rulings will have to be published.
Two rulings covering companies operating offshore vessels (cable or pipelaying activities and lifting activities / offshore construction & decommissioning) have been issued. Both rulings are in line with our experience in practice. Please click on the following links to access these rulings (in Dutch): ruling1 and ruling2
Denmark: Commission approves extension of Danish seafarer scheme for maritime transport
The European Commission has approved, under EU State aid rules, extending the coverage of a scheme supporting the maritime transport sector in Denmark to include research vessels. Under the existing scheme, seafarers employed on board eligible vessels registered in a Member State of the European Economic Area can benefit from a partial income tax deduction. Under the amended scheme, seafarers working on board research vessels will benefit from the same tax deduction as other seafarers. The Commission concluded that research vessels are involved in maritime activities that are subject to the same legal requirements and competitive conditions as maritime transport. This is in line with the guidelines on State aid to maritime transport. The approval is mentioned in the EC Daily News of July 9, 2020. More information will be available on the Commission's competition website, in the public case register under case number SA.55760.
Iceland: Stamp duty on documents concerning the transfer of ownership of vessels abolished
As of May 20, 2020, Iceland abolished stamp duty on documents relating to the transfer of ownership of vessels. The abolition was adopted by Parliament on May 20, 2020 under Law no. 49/2020, which amends Law no. 138/2013 on stamp duties.
Italy: Commission approves Italian tax measures for maritime transport
The European Commission has approved, under EU State aid rules, the prolongation until the end of 2023 of various Italian support measures for maritime transport under Italy's International Registry scheme. Under this scheme, shipping companies are granted a corporate tax reduction and other benefits. Following the changes to which Italy has committed, the special corporate tax reduction for shipping companies will be applied to a shipping company's:
- core revenues from shipping activities, such as cargo and passenger transport;
- certain ancillary revenues that are closely connected to shipping activities (capped at a maximum of 50% of a ship's operating revenues);
- revenues from towage and dredging, subject to certain conditions;
- and bareboat charter-out and time and/or voyage charter-in activities, subject to a number of conditions.
Please click here for the full text of the decision.
United States-Hong Kong International Shipping Agreement suspended or terminated
The U.S. Department of State recently informed the Hong Kong authorities that the United States-Hong Kong International Shipping Agreement has been suspended or terminated—the exact treatment is not yet clear.
Please click here for more information from our US colleagues and here for more information from our colleagues in Hong Kong.
Nigeria: TAT’s judgement on the tax deductibility of demurrage and other expenses
The Tax Appeal Tribunal (TAT) sitting in Lagos recently rendered judgment in the consolidated tax appeals between Tetra Pak West Africa Limited and the Federal Inland Revenue Service on the tax deductibility of certain expenses and the applicability of interest and penalty on assessments under dispute.
Please click here for more information.
Singapore: Finance lease payments by shipping enterprises to non-resident persons exempt from income tax
The Ministry of Finance is exempting finance lease payments (normally subject to 10% withholding tax):
- for payment under finance lease of a Singapore ship
- for payment under finance lease of a foreign ship
- for payment under finance lease of a container by a shipping enterprise
- for payment under finance lease of a container by an approved international shipping enterprise or approved container investment enterprise
Please click here and here for more information.
France: reduced tax rate for electricity directly provided to vessels at berth in a port
France wants to provide an incentive for operators to develop and use shore-side electricity in order to reduce airborne emissions and noise from the combustion of fuels by vessels at berth as well as CO2 emissions. The application of a reduced tax rate (of EUR 0.50/MWh, in France the standard electricity tax rate is EUR 22.50/MWh) would make shore-side electricity more competitive compared to the burning of bunker fuels on board, which is tax-exempt.
France requested the authorization to be granted until December 31, 2025, starting from January 1, 2020, within the maximum period allowed by Article 19(2) of the Directive. The proposal will not impact the EU budget. The Commission found the request compliant with overall EU environmental policy.
This link contains a Council proposal authorizing France to apply a reduced tax rate to electricity directly provided to vessels at berth in a port in accordance with Article 19 of the Energy Taxation Directive.
There is a new category in the Shipping & Offshore newsletter: Downloads. In the upcoming year we will regularly discuss a specific topic, issue or case in detail; you can request to download this from our website.
We will start with an (English-language) version of the frequently referred to Dutch tonnage regime. If you would like to know more about it: we offer a factsheet clearly outlining this regime; the factsheet can be requested here (free-of-charge).