If you are employed in the offshore Oil industry, from the 6th April 2008 you need to be aware that we now have to look more closely at your sea service to ensure that you still have a valid claim to Seafarers Earnings Deduction (SED).
In order for the Revenue to disallow a vessel as a vessel for SED purposes the vessel must be used in a "relevant purpose" AND it must be stationed for in excess of 5 days, or 120 hours as we prefer to term it. Therefore it follows that if a vessel is stationed or stationary for more than 5 days, but is not employed in a relevant purpose then it is OK. Similarly, if a vessel is employed in a relevant purpose but is not stationed for more than 120 hours then, again, it is OK.
A relevant purpose is defined at EIM33103 which is the Revenues Employment Income Manual, and can be viewed on HMRC Website if you want a fascinating read!
The details are shown herewith:
- Definition of offshore installation - Section 1001 ITA 2007
- The definition of a ship excludes an offshore installation ( EIM33101)
An offshore installation is a structure (a term which includes a ship or other vessel) which is, is to be, or has been, put to a "relevant use" while standing or stationed in any waters. The definition will therefore include any floating structure that maintains its position while being used for a relevant use regardless of whether it anchors or keeps on station by dynamic positioning (see EIM33108).
The reference to "any waters" means that structures of this nature that are, are to be or have been used for a relevant use anywhere in the world, should not be accepted as ships for the purposes of the deduction
## Relevant use
A structure is an offshore installation if it is, is to be or has been put to a relevant use whilst in water. A relevant use is use for
- exploiting mineral resources by means of a well;
- exploration with a view to exploiting mineral resources by means of a well;
- storage of gas in or under the shore or the bed of any waters;
- recovery of gas so stored;
- conveyance of things by means of a pipe;
- mainly for the provision of accommodation for persons who work on or from a structure which is, is to be, or has been, put to a use specified above
EIM33104 lists different categories of vessel and structure used in the offshore oil and gas industry and indicates whether they are regarded as ships or offshore installations for the purposes of SED.
## Changes in use
Section 1001(2) provides that a structure is not an offshore installation if:
- it has ceased permanently to be put to a relevant use,
- it is not, and is not to be, put to any other relevant use, and
- since ceasing permanently to be put to a relevant use, it has been put to a use which is not relevant.
The effect of this provision is that a structure that satisfies the definition of offshore installation will remain within the definition unless it has permanently ceased to be used as an offshore installation with no prospect of resuming such use and it has been put to an entirely new use.
See EIM33107 for vessels designed to be capable of more than one use.
## New Rule Example
The following example illustrates how the legislation works. On 6 April 2007, a mobile drilling rig in port in Rotterdam obtained a contract for work in the Dutch sector of the North Sea from 1 May. It left Rotterdam on 30 April and carried out exploration drilling for gas until 31 July. On completion of its contract, it returned to Rotterdam and remained idle until 31 December. On 1 January 2008, it obtained a new drilling contract in the Gulf of Mexico and left Rotterdam on 1 February arriving in Mexican waters on 28 February where it drilled for oil between 1 March and 5 April.
The rig was an offshore installation throughout 2007-08. At any one time, it was either in use, to be used or it had been used for "exploration with a view to exploiting mineral resources by means of a well". This includes all periods in transit between locations and the periods when the rig was not used. Therefore, earnings attributable to any duties performed on the rig in 2007-08 are not eligible for SED.
## Definition of offshore installation before 6 April 2007 - Section 837C ICTA 1988
The definition of an offshore installation in section 837C ICTA 1988 which applied until 5 April 2007 had the same effect as section 1001 ITA 2007. The only significant difference in wording was the reference to a "specified" use in section 837C instead of a "relevant" use in section 1001.
If you are still with me I will now produce the definition of standing or stationed that we have been given by the Revenue:
## EIM33108 - Seafarers' Earnings Deduction: standing or stationed in any waters: dynamic positioning Section 1001(4)(a) and (b) ITA 2007
For the purposes of a claim to Seafarers' Earnings Deduction (SED), an individual must perform duties of an employment on a ship. The definition of a ship excludes an offshore installation (see EIM33103).
An offshore installation is defined primarily in respect of the relevant use ( EIM33107) that it performs, but the structure must also be put to that use whilst "standing or stationed" in any waters ( EIM33103) in order for it to be classed as an offshore installation. If a vessel does not satisfy both of these conditions it is not an offshore installation and, as long as it is capable of movement across water, it is a ship for the purposes of SED.
## The meaning of "standing" or "stationed" in any waters
In Torr and Others v CIR (see EIM33106), one of the appellants' arguments relied on the suggestion that the Pride South America (PSA) was not an offshore installation because it was neither standing nor stationed when carrying out its well workover and support duties.
The appellants relied on the fact that as the PSA operated in deep water it was not possible to fix the vessel to the sea floor by anchor or hawser. Instead it used dynamic positioning (DP) to maintain its position over a well whilst performing its operations.
## The Special Commissioner dismissed this contention as follows:
"I have no hesitation in deciding that the use was while standing or stationed. The New Shorter Oxford Dictionary gives the following meaning for "station": "1. assign a post, position or station to (a person, troops, ship, etc); place, post. 2. To take up one's position, 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 be stationed in deep water. While the context in which the word "stationed" is used is as an alternative to "standing", the word clearly envisages the ship being substantially stationary, I am satisfied that when dynamically positioned the Pride South America was stationed."
## Dynamic positioning
It follows from this decision that a vessel which is substantially stationary because of DP satisfies the requirement to be "standing or stationed" in the definition of an offshore installation. Of course a vessel positioned by DP may be subject to some lateral and vertical motion in the water but that is no different from a vessel secured by hawser or anchor.
However, a vessel may use DP when it is underway to maintain a compass heading that may not be in the direction of vessel motion. In these circumstances the DP helps the vessel maintain its progress and navigation but the DP is not intended to keep the vessel substantially stationed.
In other circumstances, DP may be used to maintain a vessel's position on station (e.g. over a well), which may include some lateral movement, but subject to the length of time that the vessels is stationed in this way ( EIM33109), HMRC may regard a vessel in this situation as "stationed" within the definition of an offshore installation. This may include movement of position around an offshore installation by a vessel that is providing services or supplies to that installation.
See EIM33109 for guidance regarding the length of time that a vessel must spend "standing or stationed" to satisfy this leg of the definition of an offshore installation.
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