Moore Stephens warns on new trap under UK tonnage tax
Moore Stephens tax partner Sue Bill says, “HMRC has significantly extended some anti-avoidance rules relating to leasing companies, so that they apply to existing UK shipowning companies chartering out ships which enter UK tonnage tax. The rules can apply where, very broadly, at least half of the value of the company’s plant and machinery is chartered out or at least half its income in the previous twelve months is from the chartering out of plant and machinery including ships, even where the chartering is to another group company.
“Currently, there is no window of opportunity for an existing UK shipowner to enter tonnage tax. The new rules may however apply if a UK shipowning company in a tonnage tax group enters tonnage tax because it starts to carry on activities that qualify for tonnage tax, for example because it owns a vessel which ceases to be chartered out on a long-term bareboat charter, or a vessel that starts to be used ‘at sea’, or the company’s ships start to be strategically and commercially managed in the UK. The rules may also apply in some circumstances where the company is acquired by another tonnage tax group.
“Broadly speaking, if the rules apply, the company will be taxed on an amount equal to the excess of the net book value of its assets over their tax written-down value. It may be possible to reduce this taxable income using tax losses and/or capital allowances. Clearly this could result in a very large tax liability. Once the company has gone into tonnage tax, the normal transitional rules will apply whereby a balancing charge can arise if any vessels held on entry into tonnage tax are sold within seven years. This could mean there is effectively a double charge to tax.”
The new rules will apply, including where there is no tax avoidance motive, to companies entering tonnage tax on or after 21 March 2012.
Sue Bill concludes, “Generally, the Budget was encouraging for the shipping sector as it emphasised the importance that the government attaches to ‘rebalancing’ the economy and ensuring that the UK is a competitive regime for industry. Unfortunately, at the same time, the government has introduced legislation which poses a potentially serious threat for existing UK shipowners going into tonnage tax. Whilst there will be many tonnage tax groups that are not affected by these new rules, it is essential that those who might be affected consider their position carefully.”
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