Tax Update Shipping & Offshore - March 2024
Dear reader,
A new update from the Shipping & Offshore team covering various worldwide updates from a tax perspective within this industry.
Included are 2 Court rulings, Dutch VAT developments (!) as well as the interesting (and opposite?) developments in Switzerland and Singapore in terms of tonnage tax regimes. Finally, no news yet regarding the SBIE for mobile (offshore) assets.
Please reach out if you have any questions/remarks.
Ernst-Jan Bioch
Content
1. Court rulings
2. Netherlands
3. Switzerland
4. Singapore
5. Bahamas
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1. Court rulings
1.1 Court ruling: Karachi v A.P. Moller Maersk
The Supreme Court of Pakistan has ruled that income of a shipping company arising from container and terminal handling charges falls within the category of "profits from the operation of ships in international traffic" and is entitled to the benefits available under the treaties with Belgium and Denmark. The decision was handed down on 12 January 2024 in CIT Zone-IV, Karachi v A.P. Moller Maersk and another.
The question was whether income arising from container detention charges (“CDC”), container service charges (“CSC”) and terminal handling charges (“THC”) falls within the category of “profits from the operation of ships in international traffic” in the context of double taxation conventions concluded between Pakistan and Denmark, as well as between Pakistan and Belgium.
The conclusion is that profits arising from CDC, CSC and THC relate and ancillary to the operation of ships in international traffic. Consequently, these profits squarely fall within the purview of the expression “profits from the operation of ships in international traffic”. Therefore, CDC, CSC, and THC collected by the respondents are part of the revenue earned in shipping in international traffic and are to be dealt with in accordance with the provisions of the Pakistan-Denmark Double Taxation Convention and the Pakistan-Belgium Double Taxation Convention, as the case may be.
1.2 Court ruling: The Upper Tribunal (UT) has narrowed the scope for claiming capital allowance on studies connected to windfarm developments.
Earlier in 2023, the First-tier Tribunal (FTT) considered several issues surrounding a capital allowance claim made in connection with the development of UK offshore windfarms by subsidiaries of Orsted A/S. The UT has now considered the case and, while it approved the FTT’s decision on a few issues, it took a different position on the eligibility of surveys and studies, narrowing the scope of potential claims for similar expenditure.
In this case (Gunfleet Sands Limited and others v HMRC), the UT considered a number of appeals from both parties against the FTT’s judgment which fell into four categories:
- Whether the windfarm should be treated as a single item of plant or split into components
- Whether the FTT’s approach on studies and surveys was correct
- Whether a revenue deduction was available for expenditure not qualifying for capital allowances
- Whether HMRC’s error in amending the returns precluded later correction following a closure notice
Please check here the full KPMG input.
2. Netherlands
2.1 Netherlands: VAT Knowledge Group of the Dutch tax authorities
The Knowledge Group of the Dutch tax authorities published a new position about the VAT treatment of freight services last week.
Situation
A logistics service provider established in the Netherlands provides freight services to a customer established in the Netherlands. The transport service concerns the transport of goods from a third country to another third country (e.g., from China to the US).
Question
Is the 0% VAT rate applicable to the freight services?
Answer
No, the 0% VAT rate does not apply to the transport of goods between third countries. The general VAT rate applies to this freight service. More information can be found here (only available in Dutch).
In the Netherlands often the above services were subject to 0% Dutch VAT. Action is required and please contact you Meijburg & Co contact to discuss the best approach.
2.2 Netherlands: VAT The new Explanatory Notes to Table II
On December 22, 2023, the Ministry of Finance published the Explanatory Notes to Table II. This Decree contains rules and policy on the application of the zero rate for VAT purposes. This rate is applied, among other things, to the export or intra-Community supplies of goods. The zero rate makes compliance significantly simpler and provides cash flow benefits for international trade. Moreover, it is very important to apply the zero VAT rate correctly. After all, wrongly applying the rate entails a material business risk. The decree is a new version of the Table II Regulation, which was due for replacement after several decennia and various updates and will take effect on April 1, 2024. We discuss the in our view most important matters and changes.
3. Switzerland; no tonnage tax!?
The Economic Affairs and Tax Committee of Switzerland's upper house (Commission), the Council of States has once again dealt intensively with the proposal to introduce a tonnage tax on seagoing vessels. In view of the strained financial situation of the Confederation and still unresolved questions, she is asking her Council not to intervene.
The Commission has taken note of a report on the financial impact of a tonnage tax, which it requested during the last discussion. It considers it difficult to quantify the advantages and disadvantages of an introduction, even in the light of the new information, and that the risk of loss of revenue is too high in the current situation. In addition, the question of the constitutionality of the project remains controversial. Finally, the Commission does not want to introduce a tax reduction for a single sector; rather, the question of tonnage taxation should be embedded in an overall tax strategy. For all these reasons, the Commission is asking the Council, by 7 votes to 4 with 2 abstentions, not to act on the proposal. A minority is of the opinion that the introduction of the tonnage tax would be an advantage. They consider the risk of default to be less great than feared and is requesting that the proposal be accepted.
4. Singapore: tonnage tax
Under the MSI-Shipping Enterprise (Singapore Registry of Ship) (MSI-SRS), MSI-Approved International Shipping Enterprise (MSI-AIS) and MSI-Maritime Leasing (Ship) (MSI-ML(Ship)) schemes, qualifying income of qualifying shipping entities are exempt from tax. Budget 2024 introduces an alternative basis of tax in respect of these schemes from YA 2024, under which the qualifying income of qualifying shipping entities will be taxed by reference to the net tonnage of their ships. The alternative net tonnage basis of tax will apply to all qualifying ships of such MSI entities. The Maritime and Port Authority of Singapore will provide further details by the third quarter of 2024.
5. Bahamas: end of Bahamas VAT Exemptions for Cruise Lines from 1 March 2024
The Bahamian government plans to end the 9-year VAT exemption for cruise lines operating on private islands in the Bahamas. Starting from March 1, 2024, the government aims to apply a standard 10% VAT rate to all transactions related to goods and services for the millions of tourists visiting these destinations annually. Department of Inland Revenue has set a deadline of February 16, 2024, for the cruise industry to provide input on potential consequences resulting from the VAT reform. Our specialist James Sanderson is available for questions and further assistance on this development. Guidance-on-cruise-line-operations-FINAL-DRAFT-Version-5-14-Jan-2024-B.pdf (finance.gov.bs)
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