bookings of cargo and passengers, management of bunkers, provisions and victualling requirements; personnel management, training organizations, technical management of ships, operation of foreign offices or branches under UK–based
management; and support facilities in the UK such as training facilities, terminals,
etc. In respect of all of the above, all qualified members of the group must participate
together.
There are several other factors that come into play such as the amount of work
carried out in the UK compared with other places, the nature and extent of UK
accommodation, number of UK employees, residence of key staff members in the
UK including directors, a reasonable balance between UK-based activities and UK
tonnage and flagging, classing, insuring and financing of ships in the UK. There are
also special rules that apply to vessels providing services at sea where only the
transport element is subject to tonnage tax, vessels other than supply vessels, tugs,
anchor handlers or tankers which are subject to normal taxation, operating in UK
waters of the North Sea, transitional provisions on capital allowances for depreciation, and on chargeable gains, ring-fencing of tonnage profits from non-tonnage tax
profits or losses particularly finance costs, leasing companies’ ownership of vessels
which cannot make an election and to which a special regime of capital allowance
applies, corporate partnerships and lawful tax avoidance. Within a date fixed by
statutory instrument, a UK ship operating company can elect to enter the tonnage tax
system for an initial period of 10 years.
24
Other parameters that constitute the framework for entitlement to tonnage tax
privilege are as follows:
(a) Activities including ship operations in international trade, and dredging and
towing services provided at least 50% of these activities take place at sea. The
shipowner or bareboat charterer, if it qualifies, must engage in certain management activities regarding the ship.
(b) Vessels and owners which qualify include ships that are owned and those that are
bareboated-in. Ships bareboated-out do not qualify. Time-chartered ships may
qualify provided a maximum of 75% of the fleet’s tonnage is on time charter.
(c) Capital gains are not subject to additional tax. Deferred tax liabilities are valued
at fair market value when the ship enters the tonnage tax system and “claw back”
rules on hidden reserves are realized during the lock-up period which is for
10 years after which the deferred tax liabilities no longer exist. The capital gains
which are derived during the lock-up period are a part of the tonnage tax base.
25
A company is regarded as operating a ship if it is used by the owner or charterer.
Regarding the latter, the ship must be time, voyage chartered-out or bareboat
chartered out to another UK group member or in certain circumstances to a third
party where there is a short-term over-capacity and the charter is for no more than
24 “TTM01010: Introduction to Tonnage Tax: a Brief Guide” http://www.hmrc.gov.uk/manuals/
ttmmanual/ttm01010.htm; The Tonnage Tax Regulations (2000) 2000 2303.
25 Leggate and McConville (2005).
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
721
management; and support facilities in the UK such as training facilities, terminals,
etc. In respect of all of the above, all qualified members of the group must participate
together.
There are several other factors that come into play such as the amount of work
carried out in the UK compared with other places, the nature and extent of UK
accommodation, number of UK employees, residence of key staff members in the
UK including directors, a reasonable balance between UK-based activities and UK
tonnage and flagging, classing, insuring and financing of ships in the UK. There are
also special rules that apply to vessels providing services at sea where only the
transport element is subject to tonnage tax, vessels other than supply vessels, tugs,
anchor handlers or tankers which are subject to normal taxation, operating in UK
waters of the North Sea, transitional provisions on capital allowances for depreciation, and on chargeable gains, ring-fencing of tonnage profits from non-tonnage tax
profits or losses particularly finance costs, leasing companies’ ownership of vessels
which cannot make an election and to which a special regime of capital allowance
applies, corporate partnerships and lawful tax avoidance. Within a date fixed by
statutory instrument, a UK ship operating company can elect to enter the tonnage tax
system for an initial period of 10 years.
24
Other parameters that constitute the framework for entitlement to tonnage tax
privilege are as follows:
(a) Activities including ship operations in international trade, and dredging and
towing services provided at least 50% of these activities take place at sea. The
shipowner or bareboat charterer, if it qualifies, must engage in certain management activities regarding the ship.
(b) Vessels and owners which qualify include ships that are owned and those that are
bareboated-in. Ships bareboated-out do not qualify. Time-chartered ships may
qualify provided a maximum of 75% of the fleet’s tonnage is on time charter.
(c) Capital gains are not subject to additional tax. Deferred tax liabilities are valued
at fair market value when the ship enters the tonnage tax system and “claw back”
rules on hidden reserves are realized during the lock-up period which is for
10 years after which the deferred tax liabilities no longer exist. The capital gains
which are derived during the lock-up period are a part of the tonnage tax base.
25
A company is regarded as operating a ship if it is used by the owner or charterer.
Regarding the latter, the ship must be time, voyage chartered-out or bareboat
chartered out to another UK group member or in certain circumstances to a third
party where there is a short-term over-capacity and the charter is for no more than
24 “TTM01010: Introduction to Tonnage Tax: a Brief Guide” http://www.hmrc.gov.uk/manuals/
ttmmanual/ttm01010.htm; The Tonnage Tax Regulations (2000) 2000 2303.
25 Leggate and McConville (2005).
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
721