Welcome to the latest edition of the Transport & Logistics Newsletter – bringing you the latest sector developments from Belgium and across Europe. Highlights of this edition include the corporate taxation in the global offshore shipping industry, the global airlines & airports statement of capabilities and the airport operators’ quest for efficiency.
We hope you enjoy the read!
Shipping companies that are part of the offshore value chain need to understand how differences in tax treatments can affect their business in key territories. In this report we take a detailed look at how relevant vessels are handled. We focus specifically on shipping companies that are part of the value chain within the offshore industry (wind farms, oil rigs etc.). While offshore activities may be more commonly seen as part of the energy businesses, the shipping industry actually performs a number of critical services using highly specialised vessels. These include wind farm construction vessels, accommodation and support vessels, FPSO's (Floating Production Storage and offloading vessels), anchor handling and drill ships.
This report reviews the tax regimes applicable to shipping companies operating in the offshore sector in a number of key jurisdictions around the globe. Our comparative analysis can help companies evaluate their options when establishing new services and operations or considering relocation of existing operations.
Upon a proposal by Minister of Finance Johan Van Overtveldt, the Council of Ministers has adopted a preliminary draft of an Act (“preliminary Bill”) and a draft cooperation agreement introducing a recovery measure providing for specific aid to economically disrupted zones, in cooperation with the relevant Regional Governments.
The Act pertaining to the Competitiveness, Employment and Recovery Pact (“Competitiveness Act”) makes it possible to support, in the short run, employers who are willing to invest in a region that is suffering from a large-scale collective dismissal.
The preliminary Bill adapts the Competitiveness Act to the new EU Regulation on block exemption based on aid zones, which became effective on 1 July 2014. It also clarifies the original text.
Thanks to the draft cooperation agreement, negotiations with the various Regions can be started up.
Preliminary Bill adapting title 3 of the Act of 15 May 2014 implementing the Competitiveness, Employment and Recovery Pact, and sections 2758 and 2759 of the Belgian Income Tax Code 1992, to Commission Regulation (EU) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty
Draft cooperation agreement between the Belgian State and the Region concerning the implementation of section 16 of the (Belgian) Competitiveness Act
Please find below the draft of the Act (“preliminary Bill”) and the draft cooperation agreement:
You know more than most how airlines and airports literally keep the world moving. Vast quantities of people and goods are moving by air around the world around the clock. Air transport plays a vital role in business, trading and personal relationships within and between all regions of the world. More than three billion people and 50 million metric tons of cargo were transported by air in 2013.
But you also know about the challenges facing airport operators and the airline industry. Airlines and airports have the lowest return on invested capital in the whole air transport value chain. There is a constant pressure to lower the cost base but, at the same time, there is the need to innovate product and service offerings to maximise a share of the growing air transportation market. Growth itself is a big challenge for many airport operators as they strive to expand infrastructure capacity to match demand.
A shipping company mainly works with ships it rents, on a time-charter basis, from ship owners that are established in tax havens. Since recently, all payments made from Belgium to a person in a country with which Belgium has not entered into a double taxation treaty are in principle subject to non-resident tax on the basis of what is referred to as the “catch all” provision (section 228, §3 of the Income Tax Code 1992). In this manner, Belgium wants to tax income that would otherwise entirely escape taxation because it is not taxed in the country where its recipient is established (see Fisc. Act. 2014, 33/2 and 2012, 44/1).
The question is then whether also the fees that the company pays for chartering the ships fall within the scope of the catch all provision. The company argued that international demand for ships is so high that the company would be forced to pay a higher price to compensate for the new tax. In this respect, it should be noted that a charter agreement typically includes a “gross up” clause, which guarantees a specific net remuneration. So, what it comes down to is that the company itself would eventually need to pay the deficit, i.e. the extra tax. This would be a significant competitive disadvantage for Belgian shipping companies compared to their foreign competitors.
From a purely legal perspective, too, the shipping company has arguments to challenge that the catch all provision is applicable. It referred to the intention underlying the relevant law. In the shipping company’s view, relying on the examples given in the memorial of explanation, the intention would mainly have been to tax fees provided in return for technical support and “therefore” no charter fees.
According to the literal wording of the law, what needs to be involved is income that is “at the expense of” a domestic company. “At the expense of” implies that it is to be deducted from the taxable result as a business expense (Commentary to the Belgian Income Tax Code No. 228/31). This condition is not met in the case of a company that is taxed on a lump sum basis under the tonnage taxation regime as it cannot deduct anything from its tax result.
The Rulings Office, however, holds the view that, rather on the contrary, the intention of the law was to give a broad interpretation to the catch all provision, so that all income can be taxed that, until that time, had escaped taxation. [A plan aiming to ease the law does nothing to alter the interpretation of the current law.] The intention of the Minister and Government to limit the scope of application (see Fisc. Act. 2014, 1/9 and 34/3) cannot be taken into account (Also the courts have found that any criticism of the Minister does not cancel the law and does not create any legitimate expectations – see Fisc. Act. 2000, 5/8). After all, the law has not been amended yet, for the time being. And the Rulings Office also believes that, irrespective of the tonnage taxation, the charter fees definitely have to be deemed to have been included in the establishment of the taxable profit, and to have been borne by the company. Consequently, the catch all provision is applicable.
Source: Advance Decision n° 2014.540 of 9 December 2014, published on www.fisconetplus.be
Today’s airports are increasingly complex operations, requiring excellence across a broad and diverse set of capabilities and the management of many different stakeholders. Increasing service expectations (from both passengers and airlines); regulator-imposed constraints on aeronautical charges; and the need to fulfill a national, regional, or municipal development role mean that airports are continually challenged in a drive for efficiency, service quality, and passenger growth. Being able to focus operating expenses and investments on the capability areas that matter most is critical to meeting these challenges.