H M Revenue & Customs TAX Ruling

[kangaroo]

I have been in the industry for the last 18 months on tranee salay
now I have to pay tax on what I have earnt since january,
have I just wasted nearly 2 years of my life.
I started in this industry to give me some hope of retirement and look after my family, snakes and fucking ladders, thank you Gordon. 🙁

Mmmm, a little confused here..Back in 2002, I was a Trainee with my company for 3 trips – approx 6 months. Why have you been a Trainee for 18 months?

Then again, I did have an Electronics Trade and 10 Years Post Trade Experience before I joined the ROV Industry..times are changing from the IMCA Recommended Guidelines I guess.

It seems to me, the previous poster is correct and rates need to go up in the UK to compensate for the loss of the deduction.

Taxes are high in Australia, but the rates are high to compensate – AU$1400 for experienced Sub Eng with Neptune for work in Oz I have been quoted. Minus the 30 – 40 % tax and this is still a good rate.

[kangaroo]

Whoops, that was a bit low..I was actually offerred the following:

"After this project this system is heading to Australia for construction work for 4 months, rates are 1450aud per day plus super for Senior Pilot Tech."

[i-robot]

Mmmm, Well 18 months ago i was desparate for a start offshore, kind of
got used to doors being closed in my face, however I perseverd and got a start. I do have 30yrs mechanical back ground, however my day rate
do’s not compensate for the fact I now have to pay tax, at the time I found it hard to believe it was tax free, it was obvious that it was only a matter of time before that loop hole was closed

[sunseeker]

SORRY MONKEY HAVE BEEN FLAT OUT TODAY.REGARDLESS IT SEEMS THAT EVERYONE ALREADY KNOWS THAT THE GOOD OLD TAX MAN POSSIBLY WILL GO BACK TO 2006/07 WELL THERE GOES THE NEW AUDI
HAVE ME BEEN READING WHAT MOST GUYS ARE WRITING & IT IS CLEAR THAT THE RATES HAVE TO GO UP!! i HAVE KIND OF WORKED IT OUT TO BE ABOUT £75 A DAY GIVE OR TAKE.HOWEVER FEEL FREE TO CORRECT ME!!!

[Bacaruda]

If oil companies can pay that rate in Oz then they are selling the rest of us short.

Was it the unions in Oz that managed to get you guys that rate ?.

[i-robot]

Well, it dose seem obvious that the day rate should compensate
the tax we now have to pay, which will push up the price of oil,
fuel, food…… I think you know the rest.

[SGB]

i HAVE KIND OF WORKED IT OUT TO BE ABOUT £75 A DAY GIVE OR TAKE.HOWEVER FEEL FREE TO CORRECT ME!!!

Totally agree with you there sunseeker, but should we demand all our fellow brother ROV crews get it, even the Drill rig guys and the lucky blighters who are not affected by the new tax ruling or should it just be the individuals who will be losing out. Either way I don’t care, 75 quid a day by 200 days a year is another 5 grand in the rebate pot in April. 😀 😀 😀 😀 😀 😀

Its an excellent idea……..but it won’t happen will it? Where will this money to pay for these pay rises come from?, the only companies who are reaping the benefits of high oil prices, apart from the UK Government are the oil companies themselves not the service companies. Any profit made by service companies is being ploughed back to be spent on new equipment and new vessels to try to make more work for all of us. Look at how many new vessels and ROVs are being brought into service and with that comes work. Shame the vast majority of them will be involved in construction work 🙁

Perhaps BP and Shell will start a benevolent fund to help……. 😆

[Deep6]

We had this same situation many years ago in the early days of Sat diving many of us left for sunny climates (Saudi Arabia).
Eventually we got a special tax deal but it took a long time. There were safety concerns, when we left as the new replacements were not up to scratch and it cost lives.

With ROVs it will be different there will be material losses instead.

Best advice is find out as much as you can and look for the tax breaks they are there if we all keep our eyes peeled. coms like this site will be a big help in the coming months.

[Balloo]

Its a lot of dosh 400 million and as i said it wont pull broon out the broon stuff he is in.
But it may pay for some MPs expenses.

What I have from my accountant so far is its official from 14th jan 08 but they are looking to claim back 07-08 claims, and they may challenge more etc etc.

If only I was a multi millioniare football club owner and not away for 6 weeks at a time, sailing into 10m seas, and up to the elbows in tellus 32.

Yes brown lets get production up so you can tax some more

[ROV_Monkey]

Lets face it guys the companies will have to put up rates for construction work which tends to be more labour intensive, we all used to put up with it as you usually got your tax back on a construction vessel.

Africa you usually work your t#ts off down there on construction as you get virtually no weather down time and when on transit you catch up with your maintenance.

If not we will all be trying to get that retirement post on a rig in the North sea, or on to a cable ship.

Thinsub

SGB wrote

Totally agree with you there sunseeker, but should we demand all our fellow brother ROV crews get it, even the Drill rig guys and the lucky blighters who are not affected by the new tax ruling or should it just be the individuals who will be losing out. Either way I don’t care, 75 quid a day by 200 days a year is another 5 grand in the rebate pot in April.

Its an excellent idea……..but it won’t happen will it? Where will this money to pay for these pay rises come from?, the only companies who are reaping the benefits of high oil prices, apart from the UK Government are the oil companies themselves not the service companies. Any profit made by service companies is being ploughed back to be spent on new equipment and new vessels to try to make more work for all of us. Look at how many new vessels and ROVs are being brought into service and with that comes work. Shame the vast majority of them will be involved in construction work

Not that many years ago the companies used to pay a construction bonus, also a "long trip" bonus, i.e over 28 days.

After a few phone calls, chats and God knows how many beers the following occurs to me:

1 If we are losing the bonus do we fight it or roll over? If we want to fight it, contact your MP, your union….JOIN THE UNION. This has to be a gift to them surely?

2 If we roll over how do we compensate for the differences in the workscope between Rig work and construction as highlighted above? If you want a construction bonus, we’ll have to fight for that also, who’ll fight collectively for it??

3 Don’t get me wrong, this will put the ROV / Construction companies in a tight spot, they priced the jobs years in advance without any "Construction Bonus" for the guys at the sharp end and this really isn’t their fault. But IF we can put pressure on the Gubment from: the union, your MP, AND the companies themselves then we stand a much better chance then acting alone.

4 As per usual, I would expect a united front from ROV construction crews will be as difficult to get as herding cats

Monkey

[James McLauchlan]

More background: Possibly appearing in a UK National newspaper soon, if it hasn’t done so already.

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“NAUTILUS UK has made top-level protests over a ‘malicious and destructive’ move to exclude even more seafarers from income tax concessions.

The Uni0n has called for urgent talks with the Treasury and the Department for Transport after HM Revenue & Customs revealed revised guidance on the vessels that do not qualify under the Seafarers’ Earnings Deduction (SED) income tax rules.
It is also urging members to protest to their MPs over the changes, warning that they could have a potentially disastrous effect upon the recruitment and retention of British maritime professionals.

Following a special commissioners’ decision in the case of the vessel Pride South America, HMRC is significantly expanding the list of vessels it defines as not being a ‘ship’ – to include construction, construction support, well service and dive support vessels.
It will also now consider some other offshore vessels — including those used in seismic surveys — on an individual basis, dependent on the work undertaken. Pipe laying barges, for instance, will continue to be considered as ships only if they are involved solely in laying pipes.
Nautilus UK deputy general secretary Peter McEwen described the new guidance as ‘outrageous’ and said letters have been sent to the Chancellor and the shipping minister calling for the move to be reconsidered.
‘This is a classic example of dysfunctional government, where on the one hand the DfT is seeking to regenerate the British maritime skills base and on the other hand HMRC seems to be intent on doing all it can to destroy it.’
Mr McEwen said the latest changes were arbitrary and counter-productive, showing a complete disregard for the reasons the income tax concessions were introduced.
‘The Treasury consistently ignores the fact that the measures were established with the direct intention of helping to safeguard a strategic supply of sufficient British seafarers,’ he pointed out. ‘The concessions are for seafarers, and should be given irrespective of the vessel on which they work.’

The Uni0n is also warning ministers that the new rules will cause serious problems for seafarers and their families, because HMRC is understood to be likely to apply them retrospectively on claims submitted after 14 January 2008.

Nautilus told ministers it was particularly ironic that news of the HMRC guidance emerged only a day after the Department for Transport issued a press release celebrating the growth of the UK fleet marked by the addition of the newbuild oil drilling SHIP Stena Carron.

The press release also noted the work of the MCA Aberdeen office in encouraging some 40 new offshore vessels to the UK flag – ‘ranging from deep water drill ships, dive support/well service ships, platform/field support ships, anchor handlers and standby ships.’

Nautilus UK is already seeking a judicial review of an earlier HMRC administrative decision which could mean members in both the offshore and short sea sectors facing tax bills of as much as £46,000, and Mr McEwen said a further legal challenge may need to be considered if ministers do not make a positive response to the Union’s latest complaints.”

[James McLauchlan]

The Case that kicked it all off!

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Torr v R & C Commrs and related appeals (2008) Sp C 679 Theodore Wallace

Decision released 14 January 2008

Employment – seafarers – foreign earnings deduction – workover/support vessel for oil industry – ship – whether offshore installation within Offshore Installation and Pipeline Works (Management and Administration) Regulations 1995 and ICTA 1988, s. 837C(1) – whether stationed when dynamically positioned – ICTA 1988, s. 192A – ITEPA 2003, s. 384 and 385 – appeals dismissed

HEADNOTE
A special commissioner decided that five taxpayers were not entitled to foreign earnings deduction for seafarers in years when they were working aboard a vessel carrying out well-workover operations in the South Atlantic.

Facts
These five appeals concerned the entitlement of the taxpayers to the foreign earnings deduction for seafarers in years when they were employed aboard a vessel carrying out well-workover operations in Brazilian territorial waters. The first three appeals related to 2002–03 when the relevant legislation was (ICTA 1988, s. 192A and reg. 3 of the Offshore Installation and Pipeline Works (Management and Administration) Regulations 1995 (‘the 1995 Regulations’). The other two appeals related to 2003–04 and 2004–05 when the relevant legislation was contained in ITEPA 2003, s. 384 and coupled with reg. 3 of the 1995 Regulations for 2003–04 and s. 837C(1) of ICTA 1988 for 2004–05.
The vessel was a self-propelled, dynamically positioned, semi-submersible vessel, originally designed as an offshore drilling unit but in the periods in question operated as a workover/support vessel carrying out well-workover operations in the South Atlantic. The vessel was built in Holland in 1987 when a condition survey report stated that the vessel was suitable for workover and support operations in accordance with her original design concept for pipeline and other sub-sea installations; it stated that in her present condition the vessel could not be used for drilling. It was accepted by the Revenue that, apart from the exclusion of offshore installations by ICTA 1988, s. 192A(3) and ITEPA 2003, s. 385(a), the vessel in question was a ship.

It was agreed that all the taxpayers had qualifying periods for the purposes of s. 192A and that the ship was an excepted structure (and therefore not an offshore installation) in the period 21 April 2002 to 28 June 2002 whilst undergoing repairs. A certificate issued by Lloyd’s Register of Shipping on 24 February 1999 gave the gross tonnage as 12,314. The certificate gave the class as workover/support vessel. The definition in Lloyd’s regulations of ‘workover’ was that the vessel could install, refurbish and perform sub-sea completion work on wells but could not enter the pressure confines of the well due to the limitations of its equipment. The designation ‘support vessel’ indicated that the vessel had functions other than workover, i.e. diving, crane operations, including heavy lifts, construction and pipe laying.

The taxpayers argued that the vessel was not used while standing or stationed in relevant waters. ‘Stationed’ meant wholly static or anchored; a degree of permanence was needed. The vessel was not engaged in the exploitation of minerals resources. It neither made use of the oil nor benefited from the exploitation. The ship was purely a service vessel. It was only involved in low risk work which was carried out when the well was ‘killed’. When a well was killed it was not being exploited but rather was being repaired.

The Revenue said that there were two key questions: whether the vessel was used for the purposes of mineral exploitation by means of a well and, if so, whether it did so while stationed. They accepted that there was a border-line beyond which a ship was not used for exploitation, but said that the vessel in this case was not beyond that line. The words ‘by means of a well’ appeared to add nothing, merely reflecting the fact that oil was extracted via a well whereas some other minerals might be dredged. The activities of the vessel were an integral part of the exploitation. In order to be stationed a vessel did not have to be totally static: here the vessel was kept in position by dynamic positioning when work was being carried out. When in transit to a site, although not then stationed, it was ‘to be used’.

Issue
The issue under the 1995 Regulations was whether the ship was a structure used while standing or stationed in relevant waters for the exploitation of mineral resources.

Decision
The special commissioner (Theodore Wallace) (dismissing the appeals) said that in the context of reg. 3 of the 1995 Regulations, ‘exploitation’ clearly referred to physical rather than economic exploitation, particularly since the exploitation was ‘by means of a well’. It did not cover sale of mineral rights for a capital sum or royalties. It clearly involved extraction of the crude oil from under the sea bed. Furthermore it involved use of a structure.

The real question was how far the concept of use of a structure for exploitation of mineral resources by means of a well extended. In the context of the 1995 Regulations it involved a structure on or from which persons were working or near which persons were working, the enabling provisions being concerned with health and safety at work. It was clear from reg. 3(2)(e) that the structure might be mobile. Regulation 3(1)(a) distinguished ‘exploration with a view to exploitation’ from ‘exploitation’ and suggested that pure exploration would not otherwise be covered.
The paradigm example of a structure within reg. 3(1)(a) was a platform. In this case the platforms had over 100 persons working on them. Those working on the platform were concerned to ensure continuity of production from the wells. Long periods of time occurred with no problem. However when there was a problem the well sometimes had to be killed temporarily to enable remedial action to be taken. The mineral resources did not cease to be exploited merely because a well was killed to enable corrective action to be taken. Although exploitation did not encompass work after the oilfield had ceased production, it did cover repair work when the field was in production notwithstanding the fact that the field had to be temporarily killed. There was no logic in the 1995 Regulations, which were directed to health and safety, applying if the structure was only in use during normal production when there was no problem but not applying if the structure was used to remedy a problem. In all the circumstances, the vessel in this case was used for the exploitation of mineral resources, notwithstanding that the wells were killed or shut down while it was being used.

The use was while standing or stationed. It would be absurd to suggest that a ship could only be stationed if it was either secured by anchors or hawsers. A ship could clearly be stationed in deep water. While the context in which the word ‘stationed’ was used was as an alternative to ‘standing’, the word clearly envisaged the ship being substantially stationery. When dynamically positioned the vessel in question was stationed.

For 2003–04, ICTA 1988, s. 192A(2) and (3) were replaced by ITEPA 2003, s. 384 and 385. There was no change in the law as it applied to the circumstances under appeal. For 2004–05, ICTA 1988, s. 837C(1) replaced the reference to reg. 3 of the 1995 Regulations. No substantive change was effected as regards the taxpayers. While the logic of applying health and safety legislation to persons employed on offshore structures in British waters or the Continental Shelf was clear, the logic of denying foreign earnings deduction to seafarers working on offshore structures in the South Atlantic was not apparent. However the tribunal was under a duty to interpret the law as enacted and the appeals were dismissed.

Capt Mair did not attend and was not represented.

GF Robertson, of Diss Accounting and Taxation Services (European) Ltd, for Mr Torr, Mr Innes, Capt Hargrave and Mr Buchanan; Colin Williams, Inspector of Taxes, for the Respondents
DECISION
1. These five appeals concerned the entitlement of the Appellants to the foreign earnings deduction for seafarers in years when they were employed aboard the vessel ‘Pride South America’ formerly called ‘Amethyst 1’ carrying out well workover operations in the Campos Basin, within Brazilian territorial waters. I refer to the vessel as Pride South America.

2. The appeals of Mr Torr, Capt Mair and Capt Hargrave related to 2002/03 when the relevant legislation was section 192A of the Income and Corporation Taxes Act 1988 (‘ICTA 1988’) and regulation 3 of the Offshore Installation and Pipeline Works (Management and Administration) Regulations 1995, which I refer to as ‘the 1995 Regulations’.

3. The other two appeals related to 2003/04 and 2004/05 when the relevant legislation was contained in sections 384 and 385 of the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’) coupled with regulation 3 of the 1995 Regulations for 2003/04 and section 837C(1) of ICTA 1988 for 2004/05.

4. It was accepted by the Revenue that, apart from the exclusion of offshore installations by ICTA 1988, section 192A(3) and ITEPA 2003, section 385, the Pride South America was a ship.

5. The issue under the 1995 Regulations was whether the Pride South America was a structure used while standing or stationed in relevant waters for the exploitation of mineral resources. I return later to the actual wording of regulation 3(1)(a). The wording of section 837C is similar but not identical.

6. Captain Hargrave gave evidence and was cross-examined. The documentary evidence included certificates by Lloyd’s Register of Shipping, print-outs from the data.rigzone.COM website and the website of Pride International plc the owner of Pride South America, an extract from a work history or log of services performed by Pride South America during the years in question and a condition survey report dated September 1998.

7. The following facts were agreed.

8. Throughout the year 2002/03 Mr Torr was employed by Jaymar Shipping Services Ltd, working as a chief electrician aboard the Pride South America in seven periods falling wholly or partly within that year.

9. Throughout the same year Capt Mair was employed by Pride International Ltd, working as an ISM co-ordinator and Master aboard the Pride South America in seven periods falling wholly or partly within that year.

10. In the year 2002/03 Mr Innes was employed by Pride International Ltd, working as a Master/D.P.O aboard the Pride South America. In the year 2003/04 he was employed in the same capacity aboard the same vessel by Petroleum International PTE Ltd in thirteen periods falling wholly or partly within those years.

11. Throughout the year 2003/04 Capt Hargrave was employed by Petroleum International PTE Ltd, working as a Chief Mate aboard the same vessel in seven periods falling wholly or partly within that year.

12. Throughout the years 2003/04 and 2004/05 Mr Buchanan was employed by Petroleum International PTE Ltd, working as a senior D.P.O., Second Officer and Second Mate aboard the same vessel in fourteen periods falling wholly or partly within those years.

13. The Pride South America is a self-propelled, dynamically positioned, semi-submersible vessel, originally designed as an offshore drilling unit but in the periods in question operated as a workover/support vessel carrying out well workover operations in the Campos Basin.

14. It was agreed that all Appellants had qualifying periods for the purposes of section 192A. It was also agreed that the Pride South America was an excepted structure (and therefore not an offshore installation) in the period 21 April 2002 to 28 June 2002 whilst undergoing repairs.

15. I find the following additional facts. The vessel was built in Holland in 1987. It was acquired by Pride International in 1988 for whom a condition survey report was prepared. The report stated that the vessel was suitable for workover and support operations in accordance with her original design concept for pipeline and other sub-sea installations; it stated that in her present condition the vessel could not be used for drilling.

16. A certificate issued by Lloyd’s Register of Shipping on 24 February 1999 gave the gross tonnage as 12,314. The certificate gave the class as workover/support vessel. The definition in Lloyd’s regulations of ‘workover’ was that the vessel could install, refurbish and perform sub-sea completion work on wells but could not enter the pressure confines of the well due to the limitations of its equipment. The designation ‘support vessel’ indicated that the vessel had functions other than workover, i.e. diving, crane operations, including heavy lifts, construction and pipe laying.

17. The Pride South America has never undertaken any drilling operation since its arrival in the Campos Basin on contract from Pride International to Petrobras. It was employed solely on field construction, including platform refurbishment and installation of sub-sea manifolds, sub-sea X-mas tree installation and recovery and workover duties such as cleaning seabed flow lines and X-mas trees of hydrates and similar substances. At the relevant time it was not fitted with a blow out preventor (or BOP) and could therefore only be engaged on operations not involving a high level of risk. It did not recover or store hydrocarbons and was not engaged in oil field exploration.

18. In 1998 the diving equipment was removed, the central lifting derrick was increased in height and the after deck was strengthened to allow umbilical laying operations.

19. On top of any oil well under the sea is a structure known as an X-mas tree extending about 10 metres up from the sea bed. The oil flows up through the X-mas tree which has a set of valves through which the oil flows via a pipeline to the oil platform which may be up to five miles away. Manifolds are junction boxes for a number of pipelines to be connected for a single onward flow. The oil flows up under its own pressure unless it is an older well when sea water is injected to produce the necessary pressure. The Campos Basin is an old field.

20. Pride South America used remotely operated vehicles with cameras controlled by operators on the vessel who could adjust the valves on the X-mas tree using the remotely controlled vehicles.

21. The Pride South America could not be used when the oil was flowing because it was not appropriately equipped. When there was a problem requiring its attendance, the well was ‘killed’, by which is meant that the flow was halted temporarily, with all valves being closed when Pride South America was summoned.

22. Although a blow out preventor was fitted in 1998 it was not used and was put into wet storage in 2000. It was recovered from wet storage in 2002 but had become choked with sand and was never used.

23. When necessary an X-mas tree was removed and brought up to the surface for repair on board Pride South America or to be changed for another X-mas tree.

24. Pride South America also carried out work similar to rodding through a drain, stirring up sand and dirt in pipelines using a coiled tubing unit after which diesel oil was pumped through the pipeline to the platform where it was burned off.

25. Other work performed included the construction of manifolds under the sea to connect pipelines, the replacement of pressure vessels on platforms and the construction of accommodation on platforms for workers.

26. When necessary Pride South America carried out work down a well when it had been killed, pumping a heavy liquid into the well. On occasion measuring devices were placed on an X-mas tree to measure the temperature or pressure. Pride South America did not work on abandoned wells.

27. The Campos Basin is one of the largest deep water oilfields in the world. The log shows work on a manifold at a depth of 1890 metres. The Campos Basin is over 100 miles out into the Atlantic from Rio de Janeiro and has hundreds of wells. Pride South America went from field to field as required. The work history showed 18 movements in 2002-03, including four jobs involving X-mas trees, two involving manifolds, five involving pipelines and three involving platforms. Apart from a journey to Rio to pick up a manifold, the longest job was 28 days recorded as ‘Break Hydrate & flush Flow lines to platform’.

28. The work history showed 24 movements in 2003-04 involving nine X-mas trees and 26 movements in 2004-05 involving fourteen X-mas trees.

29. Frequently Pride South America was required to leave work in progress in a safe or protected condition and to move to a higher priority problem, perhaps two days away travelling at up to 7 knots. Some X-mas trees or wells operated without a problem for many years.

30. When working on an X-mas tree Pride South America was connected to the tree by a pipe and maintained its position directly above the tree by dynamic positioning. The connecting pipe was flexible. Wire-lining to obtain readings from a well required dynamic positioning.

31. Although mainly engaged in repairing non-functioning equipment, Pride South America was not engaged in a regular maintenance programme, being used rather when problems arose. Its time is charged out at around $120,000 dollars a day; Pride International charges almost twice as much for its drilling rigs.

Submissions
32. Mr Robertson said that the Pride South America was not used while standing or stationed in relevant waters. He referred to paragraph 18 of the Guidance Notes by the Health and Safety Executive for the 1995 Regulations. He said that ‘stationed’ meant wholly static or anchored; a degree of permanence was needed.

33. He said that Pride South America was not engaged in the exploitation of minerals resources. It neither made use of the oil nor benefited from the exploitation. Pride International was merely a contractor. The ship was purely a service vessel. It was only involved in low risk work which was carried out when the well was killed. When a well was killed it was not being exploited but rather was being repaired.

34. He said that the argument advanced by the Revenue would mean that anyone working on a ship involved in the oil industry would be stripped of foreign earnings deduction, including surveyors working on survey vessels. He said that the Revenue’s case conflicted with the Revenue Manual at EIM 33104 which listed well service vessels among ships which may be accepted as ships; all the other vessels listed there would be excluded as offshore installations.

35. For the Revenue, Mr Williams said that there were two key questions: whether Pride South America was used for the purposes of mineral exploitation by means of a well and, if so, whether it did so while stationed.

36. He said that the word ‘exploitation’ was not statutorily defined and should be given its normal meaning. The New Oxford English Dictionary (2nd ed.) gave ‘The action of making use of and benefiting from resources.’ There was no significance in the addition of the words ‘the purposes of’ after ‘for’ in section 837C or their absence in the 1995 Regulations. He said that exploitation involves several stages in extracting crude oil from a well. The well has to be drilled; its infrastructure has to be completed with X-mas tree, pipes and manifolds; then follows the production stage when the oil is extracted; finally when exhausted the well has to be closed down and made safe. All are envisaged at the outset. Maintenance and repairs are necessary to keep the field operating so as to exploit the mineral resources. He said that it was too simplistic to say that Pride South America was just repairing: the repairs were essential to the exploitation. The process of exploitation was a long-term process. Although an individual well or X-mas tree may not require attention for many years, over a field of any size some trees would need attention in any year.

37. Mr Williams accepted that there is a border-line beyond which a ship is not used for exploitation, but said that Pride South America was not beyond that line. He said that the words ‘by means of a well’ appeared to add nothing, merely reflecting the fact that oil is extracted via a well whereas some other minerals might be dredged. He said that the activities of Pride South America were an integral part of the exploitation. He said that if necessary he would have submitted that the reconstruction of staff accommodation on a platform was encompassed in the term ‘exploitation’.

38. He said that in order to be stationed a vessel does not have to be totally static: here Pride South America was kept in position by dynamic positioning when work was being carried out. He said that when in transit to a site although not then stationed it was ‘to be used’.

39. He said that the manual was not relevant to the interpretation of the statutes but the distinction in EIM 33014 might be that the ships listed might not be standing or stationed. He said that the HSE guidance to the 1995 Regulations was only guidance. He pointed to paragraph 22 where in effect it said that intervention of three days or more was permanent enough for a ship to be stationed.
Conclusions

40. The appeals concerning 2002/03 and 2003/04 turn mainly on the interpretation of regulation 3 of the 1995 Regulations which were not made for any purpose related to tax, being concerned with the safety, health and welfare of persons on offshore installations or engaged in related pipe-line work in British controlled waters. The regulations were in fact made under the Health and Safety at Work etc. Act 1974 which provided for replacement of the Mineral Workings (Offshore Installations) Act 1971 by regulations. The 1995 Regulations substituted definitions of ‘controlled waters’ and ‘offshore installation’ in section 12 of the 1971 Act ‘unless the context otherwise requires’, providing that ‘offshore installation’ has the same meaning as in regulation 3 of the 1995 Regulations’.

41. Section 192A of ICTA, which was inserted by the Finance Act 1998, which gave the foreign earnings deduction for seafarers provided under subsection (2) that employment as a seafarer means an employment consisting of the performance of duties on a ship. Subsection (3) provided,
‘For the purposes of this section a “ship” does not include–
(a)any offshore installation within the meaning of the Mineral Workings (Offshore Installations) Act 1971, or
(b)what would be such an installation if the references in that Act to controlled waters were to any waters.’
Regulation 3 of the 1995 Regulations provides so far as relevant,
‘(1)… the expression “offshore installation” means a structure which is, or is to be, or has been used, while standing or stationed in relevant waters …–
(a)for the exploitation, or exploration with a view to exploitation, of mineral resources by means of a well;
(b)for the storage of gas in or under the shore or bed of relevant waters or the recovery of gas so stored;
(c)for the conveyance of things by means of a pipe; or
(d)mainly for the provision of accommodation for persons who work on or from a structure falling within any of the provisions of this paragraph;
and which is not an excepted structure.
(2)For the purposes of paragraph (1) the excepted structures are–
…
(b)a well;
…
(e)a mobile structure which has been taken out of use and is not for the time being intended to be used for any of the purposes specified in paragraph (1); and
(f)any part of a pipeline.
(3)For the purposes of these Regulations there shall be deemed to be part of an offshore installation–
(a)any well for the time being connected to it by pipe or cable;
(b)such part of any pipeline connected to it as is within 500 metres of any part of its main structure;
(c)any apparatus or works which are situated –
(i)on or affixed to its main structure; or
(ii)wholly or partly within 500 metres of any part of its main structure and associated with a pipe or system of pipes connected to any part of that installation.
(4)Where two or more structures are, or are to be, connected permanently above the sea at high tide they shall for the purposes of these Regulations be deemed to comprise a single offshore installation.’

42. Neither side cited any cases on the interpretation of regulation 3 and none are cited in paragraph 916 of volume 20(2) of Halsbury Laws (4th ed, re-issue).

43. In my judgment in the context of regulation 3 ‘exploitation’ clearly refers to physical rather than economic exploitation, particularly since the exploitation is ‘by means of a well’. It does not cover sale of mineral rights for a capital sum or royalties. It clearly involves extraction of the crude oil from under the sea bed. Furthermore it involves use of a structure.

44. The real question is how far the concept of use of a structure for exploitation of mineral resources by means of a well extends.

45. In the context of the 1995 Regulations it involves a structure on or from which persons are working or near which persons are working, the enabling provisions being concerned with health and safety at work. It is clear from regulation 3(2)(e) that the structure may be mobile.

46. Regulation 3(1)(a) distinguishes ‘exploration with a view to exploitation’ from ‘exploitation’ and suggests that pure exploration would not otherwise be covered.

47. The paradigm example of a structure within regulation 3(1)(a) is a platform. The platforms in the Campos Basin had over 100 persons working on them. Those working on the platform were concerned to ensure continuity of production from the wells. Long periods of time occurred with no problem. However when there was a problem the well sometimes had to be killed temporarily to enable Pride South America to attend and take remedial action.

48. In my judgment the mineral resources do not cease to be exploited merely because a well is killed to enable corrective action to be taken. While I do not accept the submission of Mr Williams that exploitation encompasses work after the oilfield has ceased production, I hold that it does cover repair work when the field is in production notwithstanding the fact that the field has to be temporarily killed.

49. I see no logic in the 1995 Regulations, which are directed to health and safety, applying if the structure is only in use during normal production when there is no problem but not applying if the structure is used to remedy a problem. In my judgment the Pride South America was used for the exploitation of mineral resources, notwithstanding that the wells were killed or shut down while it was being used.

50. I have no hesitation in deciding that the use was while standing or stationed. The New Shorter Oxford English Dictionary gives the following meaning for ‘station’: ‘1.Assign a post, position or station to (a person, troops, ships, etc.); place, post. 2. To take up one’s station, post oneself.’ It would be absurd to suggest that a ship can only be stationed if it is either secured by anchors or hawsers. A ship can clearly be stationed in deep water. While the context in which the word ‘stationed’ is used is as alternative to ‘standing’, the word clearly envisages the ship being substantially stationery, I am satisfied that when dynamically positioned the Pride South America was stationed.

51. For 2003–04 section 192A(2) and (3) of ICTA 1988 were replaced by sections 384 and 385 of ITEPA 2003. In my judgment there was no change in the law as it applies to the circumstances under appeal.

52. For 2004–05 section 837C(1) of ICTA 1988 replaced the reference to regulation 3 of the 1995 Regulations. In my judgment no substantive change was effected as regards the circumstances of Mr Buchanan.

53. While the logic of applying health and safety legislation to persons employed on offshore structures in British waters or the Continental Shelf is clear, the logic of denying foreign earnings deduction to seafarers working on offshore structures in the South Atlantic is not apparent. However while I have considerable sympathy with the Appellants, my duty is to interpret the law as enacted. The appeals are dismissed.

[piedpiper]

it would be nice to hear what the RMT/OILC have to say on this subject. Has anyone approached them yet ?

piedpiper

[James McLauchlan]

My gut feeling is that the mighty Revenue may have not quite arrived at the correct decision here and that they [Revenue] may well reverse the decision.

Please don’t feel that this is about a few ROV guys n gals getting their tax back or not and the tax man fighting for more of his share.
It’s much bigger than that. It’s about UK shipping and UK flagged vessel & crews as a whole. UK ROV, Divers etc. just happen to fall under the same flag (as it were).

The one thing I often think about when reading all this is the definition of a DP vessel holding station. It seems that a lot of the Revenues decision making process on this hinges around the definition of ‘on station’.

Take this vessel for example.. it’s a ‘Well intervention vessel’, working as a support (construction vessel) along with a smaller (pipe lay) vessel (The Seven Navica). We are on DP as a construction vessel … but although ‘holding station on DP’ we have also moved KM’s throughout the past days.. sometimes 5m moves, sometimes 500m moves all on DP. Would the Revenue view that as a vessel ‘Keeping Station’? How about we move 2km on DP?

Taking the well intervention classification of this ship out of the equation, say we were a normal DP ROV construction boat? Doing the same thing and making the same moves… would we then still be classed as keeping station?

Until they [Revenue] define exactly what ‘keeping station on DP’ means they will never hear the end of this in court.

[James McLauchlan]

it would be nice to hear what the RMT/OILC have to say on this subject. Has anyone approached them yet ?

piedpiper

As it is such an emotive topic I would expect the RMT/OILC to make a statement. Just not seen or heard anything to that effect yet. If someone does, please feel free to post it in this thread.

[Author]

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