Shipping Industry Almanac

490 Pages·2013·5.76 MB·English

Shipping Industry
Almanac
2013
Shipping Industry Almanac 2013
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About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our
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visit www.ey.com.
© 2013 EYGM Limited.
All Rights Reserved.
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Table of contents
Introduction i
Australia 1
Barbados 23
Belgium 29
Brazil 45
Canada 61
China 77
Curaçao 89
Cyprus 95
Denmark 101
Dominican Republic 109
Egypt 121
Estonia 125
Finland 133
France 139
Germany 149
Greece 159
Hong Kong 169
India 177
Indonesia 191
Ireland 199
Isle of Man 209
Italy 219
Japan 227
Luxembourg 233
Malaysia 247
Malta 255
Mexico 265
The Netherlands 273
New Zealand 285
Norway 295
Oman 305
Panama 315
Philippines 331
Portugal 353
Qatar 359
Russia 373
Singapore 389
South Africa 399
Spain 407
Sri Lanka 415
Sweden 421
Taiwan 427
Thailand 435
Turkey 441
United Arab Emirates 451
United Kingdom 459
United States of America 469
Ernst & Young shipping industry network 475
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Introduction
The Shipping Industry Almanac is published annually by Ernst & Young’s
shipping industry network, which comprises more than 100 shipping
executives from Ernst & Young member firms in over 50 countries
around the globe.
The Shipping Industry Almanac has been keeping our clients and friends
informed and updated for the last 16 years since our first edition in 1998. It
provides a valuable overview of the current investment climate for shipping
companies in 47 countries worldwide.
A directory of Ernst & Young shipping professionals across our four service lines
of assurance, tax, transactions and advisory is included, and highlights our in-
depth local knowledge and our global reach.
The information published in this Almanac was researched and compiled
by Ernst & Young professionals in the countries concerned. Each country
chapter covers the following subjects: tax, human capital, corporate structure,
grants and incentives as well as general information, such as registration
requirements.
The content is based on information current as of 1 January 2013, unless
otherwise indicated.
For more information, please visit us on ey.com or contact us at
[email protected] or call your local Ernst & Young office.
This publication contains information in summary form and is therefore
intended for general guidance only. It is not intended to be a substitute for
detailed research or the exercise of professional judgment. Neither
EYGM Limited nor any other member of the global Ernst & Young
organization can accept any responsibility for loss occasioned to any
person acting or refraining from action as a result of any material in this
publication. On any specific matter, reference should be made to the
appropriate advisor.
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Australia
1. Tax
1.1 Income tax treatment of shipping companies
1.1.1 Australian domestic tax law
Shipping companies are subject to the general tax laws of Australia, including income tax, goods and services
tax, stamp duty and employment-related taxes (including fringe benefits tax, payroll tax and superannuation,
i.e., compulsory pension).
Subject to the following comments, shipping companies operating in Australia generally pay tax at the rate of
30% of taxable income. Australian tax resident companies include worldwide income in their taxable income.
Non-Australian tax resident companies include only income derived from sources in Australia. The “source”
of specific income depends on the individual facts and circumstances of each case and relies on a range
of factors, including the place of execution of contracts, where the services are performed, and where the
remuneration is payable. Where a non-Australian resident shipping company “operates” by way of leasing
equipment (i.e., a bareboat charter) for use in Australian waters, specific rules apply to impose Australian
royalty withholding tax on the charter payments at the non-treaty rate of 30% on gross. The imposition of
such royalty withholding tax is subject to the overriding application of Australia’s double tax agreements
(DTAs). For the sake of completeness, true time charter payments (i.e., payments for the provision of
services) are not subject to such royalty withholding tax.
A specific regime, commonly referred to as the “freight tax regime,” applies to entities whose principal place
of business is outside Australia and who own or charter a ship to carry passengers, goods, livestock or mail
“shipped in Australia.” These entities will be taxed at the current corporate tax rate of 30% on 5% of the
amount paid or payable to them in respect of such carriage. In this regard, 5% of charter fees is effectively
deemed to be that entity’s Australian taxable income, with no offsetting deductions allowed. This means
effectively a final tax of 1.5% is imposed on gross freight income.
Under this regime, “shipped in Australia” means that goods or passengers are placed on board the ship in
Australia, regardless of their final destination, i.e., the regime applies to Australian coastal trade as well as
exports from Australia.
In March 2006, the Australian Taxation Office (ATO) issued the finalized Taxation Ruling, TR 2006/1, which
considered the type of payments that form the basis for calculating the deemed Australian taxable income
for the freight tax regime. In the ruling, the ATO considered whether the following types of payments were
subject to the freight tax regime:
•► Amounts paid or payable by way of demurrage
•► Any dispatch moneys paid by a shipowner or charterer
•► Cleaning charges
•► Deadfreight payments
1.1.2 Potential effect of Australia’s double tax agreements
Australia’s DTAs may impact the Australian tax treatment of shipping companies, including those subject
to the specific freight tax regime. Australia has negotiated DTAs with a range of countries, including the
following:
Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Fiji, Finland, France,
Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kiribati, Malaysia, Malta, Mexico, Netherlands,
New Zealand, Norway, Papua New Guinea, Philippines, Poland, Romania, Russian Federation, Singapore,
Slovakia, South Africa, South Korea (ROK), Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand,
Timor-Leste*, Turkey, United Kingdom, United States of America, Vietnam.
* The treaty between Australia and Timor-Leste (formerly East Timor), the Timor Sea Treaty, is an
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agreement which creates the Joint Petroleum Development Area (JPDA) and dictates how tax revenues,
etc., from petroleum resources within the JPDA are to be shared. The treaty grants taxing rights over 90%
of the income from petroleum resources derived from working in the JPDA to Timor-Leste and 10% to
Australia.
Under the shipping and air transport profits articles of Australia’s DTAs, profits from the operation of ships
are generally only taxable in the country of residence unless the profits relate to operations “confined solely
to places” in the other country. Unlike the business profits article (refer below), such taxing rights (i.e., over
coastal shipping) will be granted to Australia regardless of the existence of a permanent establishment (PE) for
the non-Australian resident company.
In this regard, it must be noted that it is the view of the ATO that “voyages to nowhere,” embarking and
disembarking in Australia, are considered to be “confined solely to places in Australia.” In determining
residence, tiebreaker provisions apply under most (but not all) DTAs, deeming residence to be the place of
effective management.
In addition, as a result of the broad interpretation of the 2005 decision in the McDermott case (see below),
each of Australia’s DTAs needs to be carefully considered to determine whether the use of equipment (e.g.,
ships) in Australia may cause a PE to exist.
This has been reinforced by recent DTAs (e.g., Finland, Japan, Norway, the UK, the US) that require the
lessor to “maintain” or “operate” the substantial equipment in Australia in order for a PE to arise. Significant
ATO guidance now exists on these issues in the form of public rulings: Taxation Ruling TR 2007/10 and TR
2007/11 (refer below).
1.1.3 Recent ATO activity impacting shipping companies
Application of the decision in the McDermott case
The ATO continues to focus attention on the shipping industry. During 2005, the Full Federal Court (the
A
Court) handed down a decision in the McDermott case. This dealt with a Singaporean company which u
s
bareboat chartered (i.e., an equipment lease) a barge to a related Australian company for use in Australia. tra
The Court determined that while the charter payments constituted a royalty for Australian tax purposes, the lia
Australian company was not required to withhold royalty tax. The Court found that the use of the barge in
Australia resulted in the Singaporean company having a PE for the purposes of the Australia/Singapore DTA.
Some current Australian DTAs (including the Singapore DTA) deem a foreign resident to have a PE and to
carry on business through that PE where substantial equipment is used in Australia “by, for or under contract
with” the foreign resident. Where such a PE exists, Australia’s DTAs generally prevent Australia from imposing
royalty withholding tax (as the income of the PE is subject to 30% Australian tax on a net assessment basis).
In this regard, it is worth noting that Australia’s current approach to DTAs is to exclude equipment leasing
from the definition of royalty such that withholding tax will not be levied. This approach is reflected in the
US, UK and Norwegian DTAs, among others. The Court also commented that the shipping article was not
applicable, as the barge was not a ship for its purposes.
Public rulings on vessel leasing structures
Over the last decade, the ATO has released a number of rulings relating to the treatment of shipping and
vessel leasing operations, setting out its interpretation of how both domestic Australian tax law and DTAs
treat such arrangements.
These rulings include TR 2003/2, TR 2006/1, TR 2007/10, TR 2007/11, TR 2007/31 and TR 2008/8.
As a result of those rulings, there is now greater clarity around the approach the ATO is likely to take in
considering the Australian tax implications of vessel leasing arrangements as well as the use of ships for
transport and non-transport operations.
A central theme in these rulings is that the ATO will determine the implications of an arrangement by its
substance rather than its legal form. For example, if a Baltic and International Maritime Council (BIMCO)
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time charter arrangement is in substance a true bareboat charter (i.e., a contract for the lease of equipment,
albeit with, for example, supernumerary crew), the ATO is likely to characterize the payments as a royalty.
As such, care needs to be exercised in relation to the tax implications where payments (e.g., royalties,
payments for services) are made to a non-Australian resident relating to a vessel located in Australian waters.
The tax implications for the parties will depend on a number of circumstances, including the substance of
the arrangement, the nature of the activity undertaken, the degree of activity required and whether any of
the parties have an Australian PE. In relation to finance, lease or hire purchase arrangements, the foreign
resident lessor/provider (subject to other facts and circumstances) should generally not have a PE in
Australia, as such arrangements are viewed as a sale from an Australian tax perspective.
As a result of the ATO’s interpretation in TR 2008/8, there is the potential for non-transport activities aboard
a ship in Australian waters to be caught in the Australian tax net, despite not giving rise to a PE for the
purpose of the treaty.
Summary of general characterization of charter party contracts
Royalty
Character
Substance of arrangement withholding tax*
of income
Equipment lease (e.g., a true demise or a
Royalty income
bareboat charter or dry lease) **
Provision of service (e.g., a true time charter
Fee for services N/A
party or wet lease)
A voyage charter party Fee for services N/A
* Particular DTAs may affect the liability for royalty withholding tax, particularly if the use of the equipment
results in the non-resident having a PE.
** Particular DTAs (e.g., UK, USA, Norway) do not treat payments under equipment leases as royalties.
Focus on international transactions
The ATO has continued to take an increased interest in international tax transactions. In particular, the
ATO has increased its scrutiny of corporate transactions of large businesses. Specific areas of interest
have included mergers, acquisitions and divestments; classification of instruments into debt/equity; capital
raisings; international structures used; debt funding; and the interaction of the thin capitalization and transfer
pricing regimes.
The ATO has released various discussion papers and rulings over the last five years relating to international
transactions, business restructuring, and intra-group financing and loans. Among other things, these provide
the ATO’s position regarding the application of the transfer pricing, thin capitalization and general anti-
avoidance provisions, as well as domestic Australian tax law and relevant compliance obligations.
The rulings released include:
•► TR 2010/7 – interaction of the thin capitalization and transfer pricing provisions
•► TR 2011/1 – transfer pricing impact of cross-border restructures by businesses
TR 2010/7 contains the ATO’s observations on appropriate methods to be used to determine the arm’s
length consideration for cross-border intra-group debt arrangements under Australia’s transfer pricing
provisions. These methods apply even where such arrangements comply with the safe harbor thresholds
under the thin capitalization rules.
The ruling is retrospective in its application. Furthermore, the ruling provides that the transfer pricing rules
are paramount; therefore, the thin capitalization provisions do not prevent the transfer pricing provisions
from operating to price intra-group debt at arm’s length.
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TR 2011/1 considers cross-border business restructures of Australian activities and the transfer pricing
implications. The ruling also sets out the ATO’s views as to the need for:
•► A commercial rationale for the restructuring from an Australian benefit perspective
•► Appropriate pricing of functions or assets moving overseas
•► Its power to recharacterize a restructuring to reflect arm’s length behavior
Advance pricing arrangements have also been revised through Practice Statement Law Administration (PS LA)
2011/1 as released on 17 March 2011. This restates the ATO’s commitment to Advance Pricing Agreements
(APAs) and sets out timelines and processes for such agreements between taxpayers and the ATO.
Changes to the transfer pricing rules
Historically, Australia’s transfer pricing legislation has been encompassed in Division 13 Income Tax
Assessment Act 1936 (Cth). Division 13 applies to any taxpayer who has supplied or acquired property
under an international agreement, where the Australian Commissioner of Taxation (the Commissioner)
considers that the taxpayer has:
•► Received consideration which was less than the arm’s length consideration in respect of the supply
Royalty
Character •► Not received any consideration, when an arm’s length party would have expected such consideration
Substance of arrangement withholding tax*
of income •► Given consideration that exceeds an arm’s length consideration in respect of the acquired property
Equipment lease (e.g., a true demise or a These provisions were intended to counter “non-arm’s length transfer pricing” or “international profit
Royalty income
bareboat charter or dry lease) ** shifting” by enabling the Commissioner to adjust “profits by reference to the conditions which would have
existed between independent parties under comparable circumstances.” . However, during recent transfer
Provision of service (e.g., a true time charter
Fee for services N/A pricing court cases in Australia, the ability of the ATO to apply profit-based transfer pricing methods and
party or wet lease)
rely upon the Organisation for Economic Co-operation and Development (OECD) Guidelines was called into
A voyage charter party Fee for services N/A question, since the wording of Division 13 refers specifically to “arm’s length consideration” and the OECD
Guidelines are not specifically incorporated into Australian law.
In particular, the ATO has historically relied upon the Associated Enterprises articles of Australia’s double A
u
s
taxation treaties as a separate power to impose transfer pricing adjustments/apply profit-based transfer pricing tra
methods and it became apparent during the course of these court cases that the legal ability of the ATO to do lia
this may be viewed as questionable by the Australian courts.
As a result of the recent activity in the courts and the associated concerns with the appropriate application
of Division 13, which became apparent as a result of the various proceedings, a major reform of Australia’s
transfer pricing legislation is currently under way. During August 2012, a bill was introduced into the
Australian parliament which included new proposed transfer pricing legislation in the form of ”Subdivision
815-A – Treaty-equivalent cross border transfer pricing rules.” This bill has now been given Royal Assent and
is hence now effective.
The key aims of the legislative reforms are:
•► To ensure that the ATO is empowered to apply profit-based transfer pricing methodologies, where
deemed appropriate
•► To align Australia’s domestic legislation around transfer pricing with OECD guidelines and guidance (the
OECD Model Tax Convention and OECD Transfer Pricing Guidelines are now specifically referred to as
being relevant in interpreting the arm’s length principle
•► To further clarify and legislate the ATO position in relation to financing arrangements and the interaction
of the thin capitalization/transfer pricing rules.
During November 2012, a second exposure draft was released (containing Subdivisions 815-B to 815-E),
which, if (as expected) enacted, will introduce a full self-assessment regime in Australia for transfer pricing
and implement similar rules to those outlined above for all international related party transactions. The new
draft legislation also makes reference to the concept of a “transfer pricing benefit” and requires taxpayers
1 Taxation Ruling TR 94/14 – para 10
2 Taxation Ruling TR 94/14 – para 10
3 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations
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to consider whether the actual conditions with related parties are consistent with what the ”arm’s length
conditions” would have been.
The exposure draft released in November 2012 did not introduce mandatory contemporaneous transfer pricing
documentation requirements; however, it does state that where a taxpayer has not prepared contemporaneous
transfer pricing documentation, it will be treated as not having a reasonably arguable position in relation to their
transfer pricing arrangements. Where no reasonably arguable position is accepted by the ATO in any future
review, higher penalties are likely to apply in the event of any adjustments to taxable income.
The new draft legislation contained in the second exposure draft will apply prospectively from the date of
Royal Assent being granted (which is expected to be in early 2013). At this time, Subdivision 815-A and
Division 13 will be repealed and replaced by Subdivisions 815-B to 815-E (applicable to all international
related party transactions in treaty and non-treaty countries).
One of the key impacts of the new legislation is that it effectively reinforces the power of the ATO to
reconstruct a transaction between related parties, on the basis that independent parties dealing at arm’s
length would not have entered into the arrangements which actually exist between two related parties. In
this case, the ATO may seek to hypothesize an arm’s length arrangement and then assess what a commercial
outcome from those arrangements would be.
International dealings schedule
The ATO has introduced a new schedule, the International Dealings Schedule (IDS), which replaces
Schedule 25A and the thin capitalization schedule for 2012 income tax returns, including early balancers.
The IDS is mandatory where the aggregate amount of transactions or dealings with international related
parties, including the value of property transferred or the balance outstanding on any loans, is greater than
A$2 million or the thin capitalization provisions apply.
The IDS requires a greater level of detail in many of the disclosures compared to Schedule 25A. The ATO has
recognized that taxpayers might not be able to fully complete the schedule and has stated that taxpayers
should approach the 2012 IDS on a “best efforts” basis. However, the ATO does expect taxpayers to be in a
position to be fully compliant for the 2013 IDS and onward.
Reportable tax position schedule
The ATO undertook a pilot program for the 2012 income year that required some taxpayers to disclose
whether they have a material reportable tax position (RTP). A RTP is one or more of the following:
•►► A material position that is about as likely to be correct as incorrect or less likely to be correct than
incorrect, i.e., where there is 50% or less likelihood of the position being upheld by a court
•► A material position in respect of which uncertainty about taxes payable or recoverable is recognized and/
or disclosed in the taxpayer’s or a related party’s financial statements
•► A taxpayer triggers a capital gains tax event during the income year, the taxpayer’s capital proceeds
exceed A$200 million, and there is a material difference between the accounting and tax consequences
of the event
This pilot applied to selected large and key taxpayers in Australia, other than those with advance compliance
arrangements with the ATO. It is expected that the RTP pilot will be rolled out to a wider population of
taxpayers in 2013.
Other issues
Consistent with recent OECD and G20 activity, the renewed focus of the ATO has also extended to scrutiny of
tax haven countries. In this regard, Australia has recently signed tax information exchange agreements with
a range of countries, including Andorra, Bahrain, the Cook Islands, Costa Rica, Liberia, Liechtenstein, Macau,
Mauritius and Montserrat.
1.2 Other Australian income tax considerations
1.2.1 Shipping reforms
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