Tax Update Shipping & Offshore - December 2019
Estonia: Introduction of tonnage tax
Several amendments to the Corporate Income Tax Act will take effect on January 1, 2020, based on two Bills on Amendments (No. 705 SE and 722 SE). Bill 722 SE further establishes the tonnage tax for shipping companies as an alternative to the existing corporate income tax regime. The bill can be accessed on the following link (in Estonian): 722 SE. The rules are to a large extent comparable to the Dutch regime. They also include measures on the taxation of crew members and social security contributions.
The tonnage tax regime is intended take effect on July 1, 2020, if approved by the European Commission.
Guernsey, Isle of Man and Jersey: Guidance on aspects in relation to the economic substance requirements
On November 22, 2019 the Guidance on aspects in relation to the economic substance requirements as issued by Guernsey, the Isle of Man and Jersey was published. This document also includes specific guidance on the economic substance requirements applicable to shipping companies, which is described in chapter 4.8 (including some examples).
Indonesia: Upstream oil and gas activities; tax incentives for cost allocations
The 2019 regulation is viewed as an effort to make the upstream oil and gas industry more attractive to investors and contractors, and there are reports that even more tax incentives are being considered. The tax incentives included in the regulation are expected to provide a positive cash flow for exploration contractors and qualifying exploitation contractors. The tax treatment clarifications are expected to make both tax audits and the procedure for challenging tax assessments more efficient.
Read an October 2019 report prepared by the KPMG member firm in Indonesia for more in depth information.
Kenya: Non-resident shipping income
On November 7, 2019 the Finance Act, No. 23 of 2019 was published. It introduces amendments to the Income Tax Act (corporate tax) including a shipping clause. Section 9(1) of the Act has been expanded to include the tax income of a non-resident shipping line.
Nigeria: International shipping activities
On December 4, 2019 the Federal Inland Revenue Service (FIRS) issued a public notice informing the public of the issuance of its Information Circular No. 2019/03 on claiming tax treaty benefits in Nigeria (“the Circular”). The Circular is intended to provide guidance and clarity on the requirements and the process of accessing and computing various tax treaty benefits available to residents and non-residents deriving income from Nigeria and its treaty partners. The Circular also covers shipping activities.
Currently, the Double Taxation Agreements (DTAs) modify the application of Section 14 Corporate Income Tax Act to companies operating in the international transport sector in/from a treaty country. The modifications provide two instances for which a company operating in this sector may enjoy treaty benefits:
- where there is reciprocity in international traffic between Nigeria and a treaty country of a foreign airline or shipping company. That is, where a Nigerian transport company operates in a treaty country and a foreign transport company from the same treaty country also operates in Nigeria, the transport companies will be taxed in their respective countries in a given year of assessment;
- where there is no reciprocity, the tax rate applicable will be as stated in the respective DTA, which is usually between 1% and 1.5%. Only DTAs with the United Kingdom, Italy and China are exempted from this rule.
Please click here to download a copy of the Information Circular. If you would like to know more about the above, please contact: Wole Obayomi (KPMG Nigeria) ng-fmtaxenquiries@ng.kpmg.com
The Netherlands: Tonnage tax case law
- Ship management (technical & crewing): This case concerned whether the taxpayer still met the tonnage tax requirements on ship management (full technical and crew management) if some of the crewing activities were outsourced by the taxpayer to a third party. The Court ruled that within the contractual arrangements the taxpayer had actual control of and was involved with the selection of crew members. Furthermore, the taxpayer was actively involved with who was going to work on which ship and intervened if necessary. It also supervised the deployment of the crew. Please click this link for the Court judgment (in Dutch), which has, in our view, practical relevance.
- Tonnage tax (insurance commission and channel frequency discount): Taxpayer X participated in various shipping CVs (limited partnerships), which were transparent for tax purposes. The taxpayer arranged insurance for the relevant vessels on behalf of these CVs. Because the taxpayer concluded the insurance contracts with the same insurance broker, the taxpayer (not the limited partnership) benefited from a discount on the insurance premium. The taxpayer also benefited from a frequency discount due to the fact that the vessels made regular trips across the specific channel. The Court ruled that the tonnage tax regime is applicable on both types of income as this income relates to the exploitation of the vessels of the limited partnerships. The income does not derive from a separate enterprise of the taxpayer, but from its shipping activities. Please click this link for the Court judgment (in Dutch).
United Arab Emirates: Economic substance requirements
On September 11, 2019 Ministerial Decision No. 215 was issued for the year 2019 regarding the sectors and economic activities eligible for up to 100% foreign ownership in the United Arab Emirates. The Decision provides further guidance on the application of Cabinet Decision No. 31 of April 30, 2019 concerning the economic substance requirements of, among others, shipping companies.
Non-tax matters:
- European Maritime Safety Agency issues Guidance on Inspections of Ships by the Port States under EU Regulation 1257/2013 on Ship Recycling
The European Maritime Safety Agency (EMSA) has issued Guidance on Inspections of Ships by the Port States in Accordance with Regulations (EU) 1257/2013 on Ship Recycling. The guidance seeks to ensure the harmonized implementation and enforcement of the provisions of the Ship Recycling Regulation and of the Port State Control Directive.
In line with the Ship Recycling Regulation, ships falling within the scope of this regulation are to have an Inventory Certificate (IC) (for existing ships: as of December 31, 2020) or a Ready for Recycling Certificate (RfRC), as applicable held on board. Regardless of the presence of the IC on board, it will lose its validity if the condition of the ship does not correspond substantially with the particulars of the IC. The same applies to the RfRC. Completion of the renewal survey within a five-year period is also a necessary requirement in order to retain a valid IC.
A detailed inspection may be carried out by port State control where a ship does not carry a valid certificate, or there are clear grounds for suspecting that either the condition of the ship or its equipment does not correspond substantially with the particulars of that certificate and/or Part I of the IHM, or that there is no on-board procedure for the maintenance of Part I of the IHM.
In the event of a breach of the Ship Recycling Regulation, a ship may be warned, detained, dismissed or excluded from the ports or offshore terminals under the jurisdiction of a Member State.
For more information about the EU Ship Recycling Regulation and obligations deriving therefrom for ship owners, feel free to contact Stephan Piazza on stephanpiazza@kpmg.com.mt
- IMO 2020 Value proposition Part II (the call for sustainable supply chain)
Part I focuses on the importance of green fuel alternatives and Part II deals with the impact of IMO 2020 on supply chains and business models.
Part I: https://home.kpmg/xx/en/home/insights/2019/08/imo-2020-value-proposition.html
Part II: https://home.kpmg/xx/en/home/insights/2019/11/imo-2020-value-proposition-part-ii.html
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