International accountant and shipping adviser Moore Stephens says companies in the offshore maritime sector could be among those hit by a 25% Diverted Profits Tax (DPT) charge under draft UK legislation scheduled to enter force in April 2015.
Under the draft legislation, published by the UK government in December 2014, the new DPT could potentially apply to many UK companies transacting with overseas connected parties.
Moore Stephens tax partner Sue Bill says: “The legislation as currently drafted is very wide-ranging and can apply wherever a UK company has entered into arrangements with connected parties involving enterprises or transactions with ‘insufficient economic substance.' For example, this could apply where a UK company leases equipment from an overseas-connected company located in a low-tax jurisdiction, where the lessor’s staff do not carry on any significant activities and where it is reasonable to assume that the transaction or transactions were defined to secure a reduction in the UK company’s corporation tax liability.
“Companies caught by the rules will be subject to a 25% tax charge. This will not usually apply to tonnage tax companies, because any transactions with related parties are unlikely to reduce the company’s tax liability as this is based on the net tonnage of vessels owned or chartered in to the company. However, the new rules could potentially affect many other companies, including those operating in the offshore sector.
“Her Majesty’s Revenue & Customs has said that further consideration needs to be given in certain circumstances to the interaction of these new rules with the cap on bareboat charter payments made to an associate by a company working on the UK Continental Shelf (UKCS). It is therefore not yet clear whether these rules will be modified for companies working on the UKCS.”