1. Tax efficiency in shipping finance Matthew Hodkin Partner | Tax London Norton Rose Fulbright LLP 24 June 2015

2. Introduction 1.The importance of tax structuring The policy approach to the taxation of shipping Key tax planning considerations 2.Recent developments in international taxation International Tax Structuring: Still Desirable? G20 / OECD / EC: Work in Progress

3. Setting the scene – the importance of tax structuring

4. Setting the scene – the importance of tax structuring The policy approach to the taxation of shipping Tax authorities have tools Transfer pricing rules can affect the tax payable on intra-group arrangements Withholding taxes are a tool used to restrict outflow of profit Shipping is the original mobile industry Easy to locate ownership/financing in other jurisdictions through SPVs Crew are mobile as well and can be employed via agencies offshore BUT much activity can and does remain onshore Tax authorities also operate to incentivise Introduction of tonnage tax regimes Greek Law 89/67 UK finance leasing rules for “bona fide British shipping”

5. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

6. Setting the scene – the importance of tax structuring Key tax planning considerations Withholding taxes Tend not to affect shipping as it does other industries because owners/operators are typically in jurisdictions without withholding Mobile industry unlike extractive industries Transfer pricing Taxes can be minimised under existing principles by reducing the risk being taken by the onshore entity Beware of the risk of bringing offshore entities onshore BUT much activity can and does remain onshore Permanent establishments Not generally a concern where trading However offshore exploration activity may be different Double taxation treaties often helpful to shipping

7. Changes to international taxation

8. Changes to international tax arena International tax structuring: Still desirable? Press coverage “Double Irish” “Dutch sandwich” Tax has become a reputational issue as well as a fiscal issue International response Base erosion and profit shifting (BEPS) Increasing use of PR by tax authorities Domestic measures (eg UK diverted profits tax) Building on doctrines of beneficial ownership (Indofoods)

9. Never make anything simple and efficient when a way can be found to make it complex and wonderful.

10. Changes to international tax arena G20 / OECD / EC: Work in Progress BEPS - Action plans being developed by OECD Action 1 – tax challenges of digital economy Action 2 – neutralise effect of hybrids Action 3 – strengthen CFC rules Action 4 – limit base erosion by interest deductions and other finance payments Action 5 – transparency and substance Action 6 – prevent treaty abuse Action 7 – artificial avoidance of permanent establishments Action 8, 9, 10 – transfer pricing to align with value creation (intangibles, risks and capital, other high-risk transactions) Action 11 – data collection Action 12 – disclosure of aggressive tax planning Action 13 – re-examine transfer pricing Action 14 – efficient dispute resolution Action 15 – multilateral instruments Different relevance to different types of transaction ”

11. Changes to international tax arena G20 / OECD / EC: Work in Progress Tax structuring tools under scrutiny: Base erosion, including transfer pricing Hybrid loans and entities Treaty shopping, including permanent establishments Transparency Impact on domestic tax authorities: UK – diverted profits tax

12. Diverted profits tax New UK tax Aims to tax avoided permanent establishments Also taxing entities lacking economic substance Double taxation treaties may not apply (but is this right?) Questions as to compatibility with EU law

13. Changes to international tax arena - conclusion Tax planning still necessary to avoid traps However, need to beware aggressive tax avoidance Governments beginning to introduce rules separately Tension between taxing human capital and risk capital Also tension between incentivising an industry and discouraging investment

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