Chapter OT41610
| Published date | 13 March 2016 |
| Record Number | OT41610 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
Many Double Taxation Agreements have an Article covering Shipping and Air Transport modelled on the one found in the OECD Model treaty.
The OECD Model is discussed in more detail in the International Manual at INTM153090 onwards. The OECD also publishes a Commentary on the Model.
There are also countries with which the UK does not have a full double taxation treaty but does have a limited agreement covering only shipping and air transport, e.g. Brazil.
Three questions may arise in deciding whether or not profits arising from operations in the UKCS etc. are exempt under a shipping and air transport Article or agreement namely:
- what is a ship
- have profits arisen from the operation of a ship
- what is meant by “International Traffic”.
This issue was before the Court of Appeal in 2001 in the case of Perks v Clark and Others (74TC187). Carnwath J agreed that it was reasonable to say that in most cases the categorisation of a vessel, as a ship or not, should be governed by its design and capability, rather than its actual use at any time:
“… the categorisation of a structure, as a ship or not, should be governed by its design and capability, rather than its actual use at any time…”.
The Court ruled that the word “ship” was an ordinary English word and the meaning of an ordinary word was not a question of law and it was for the Commissioners to decide as a question of fact whether the statutory words applied to the facts of the case.
The critical question is whether a structure is used in navigation. Provided navigation is a significant part of the function of the structure in question, the mere fact that it is incidental to some specialised function does not take it outside the definition of ship.
It is also clear that relative infrequency of navigation does not necessarily exclude a structure from the definition of ship. The Court agreed that in most cases, the categorisation of a structure should be governed by its design and capability rather than by its actual use at any time.
It was held in the Perks v Clark case that a jack-up drilling rig was a ship.
Previous to 2001 HMRC held the view that only semi-submersible drilling rigs and certain other multi purpose units could qualify as ships. Now in addition to jack-ups there may be other floating structures in the offshore oil and gas industry that are capable of satisfying the tests advocated by the Court of Appeal. HMRC will consider such...
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