EIM33103 - Seafarers' Earnings Deduction: meaning of offshore installation: 2004-05 onwards
Section 385 ITEPA 2003 and Finance Act 2004
Schedule 27 FA 2004 introduced Section 837C ICTA 1988 which provided a free-standing definition of offshore installation for the purposes of the Tax Acts including the Seafarers’ Earnings Deduction. For Income Tax purposes, Section 837C has been superseded by Section 1001 ITA 2007 with effect from 6 April 2007.
Definition of offshore installation - Section 837C ICTA 1988
Subsection 1 defines an offshore installation as a structure (a term which includes a ship or other vessel) which is, is to be, or has been, put to one of the uses listed in subsection 2 while standing or stationed in any waters. The definition will therefore include any floating structure that maintains its position while being used for the specified activities regardless of whether it anchors or keeps on station by dynamic positioning. The reference to “any waters” means that structures of this nature that are, are to be or have been used for the specified activities anywhere in the world should not be accepted as ships for the purposes of the deduction.
Specified uses
Subsection 2 sets out the activities for which the structure is, is to be or has been used for it to satisfy the definition of offshore installation. These are 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 the deduction.
Changes in use
Section 837C(3) provides that a structure is not an offshore installation if –
- it has ceased permanently to be put to a specified use,
- it is not, and is not to be, put to any other specified use, and
- since ceasing permanently to be put to a specified use, it has been put to a use which is not so specified.
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.
Example
The following example illustrates how the legislation works. On
6 April 2004, 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
2005, 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 2004-05. 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 2004-05 are not eligible for the deduction.
Definition of offshore installation - Section 1001 ITA 2007
The definition in ITA 2007 uses slightly different concepts but has the same effect as section 837C ICTA. Instead of specified use, ITA uses the expression ‘relevant use’ as defined in subsection 3. Subsection 4 reproduces the requirement that the structure is used while standing or stationed in any waters. And subsection 2 deals with changes of use in the same terms as Section 837C(3).
