ReCAAP Incident Alert on Recent Attacks on Ships at Anchor in Manila Bay, Philippines and Mid Year MARSEC Report
Circular Ref: A(21)127
Issue Date: 19 Jul 2021
As you may recall, the Association has supported global shipping organisations to seek exemption of the shipping sector from the above digital taxation proposals, and on 1 July, the OECD promulgated a new statement, as released by 130 countries and jurisdictions comprising the OECD Inclusive Framework, that outlined the new framework for the global tax reform within the context of the ongoing digital taxation initiative.
Initially, in light of the above OECD statement, the position was as follows:
- The global package, as preliminarily agreed by the Inclusive Framework, would appear to have a minimal impact on shipping (if any).
- The technical work and the detailed implementation plan would be ongoing for finalisation by October 2021. (The framework is expected to enter into effect in 2023.)
- The global shipping community would continue to monitor the development to ensure that the final outcome is favourable to the industry.
Very recently, we have gathered from the International Chamber of Shipping (ICS) that the OECD Secretariat has shared the a draft document (attached) with the ICS among others, for comments by the shipping community.
Briefly, as summarised by the ICS Secretariat, these are the implications of the OECD Secretariat draft model rule and commentary for shipping:
1. With respect to inland transportation, International Shipping Income does not include net income directly obtained from the transportation of passengers or cargo by ship via inland waterways within the same jurisdiction.
2. International shipping Income also includes gains from the sale of a ship used for the transportation of passengers or cargo in international traffic provided that the ship has been held for use by the Constituent Entity for a minimum of 10 years.
3. Bareboat charters must not exceed 3 years to be covered by the exemption.
4. Qualified Ancillary International Shipping Income – as outlined on page 1 (paragraph 3) of the OECD Secretariat’s draft – must not exceed 50% of international shipping income.
5. The shipping company must demonstrate that the strategic and commercial management of all ships concerned is effectively undertaken from within the jurisdiction where the shipping company is located and that this activity contributes substantially to economic activity and employment within the jurisdiction.
According to the ICS Secretariat, this draft document, which is reportedly intended to serve as a potential basis for the design of the shipping exemption, surprisingly goes far beyond the scope of Article 8 of the OECD Model Tax Convention and introduce additional (non-Article 8) requirements in such a way that would severely undermine the exemption, while offshore shipping income would explicitly not be covered. It seems that there “appears to be a disconnect between the information which the OECD has released publicly with respect to shipping and Pillar Two and the document which the OECD Secretariat provided for comments”.
The ICS is, together with some other global/regional shipping organisations, pursuing the matter with the OECD, with a view to ensuring exemption of the shipping sector from the OECD digital taxation proposals. So far as the Hong Kong Shipowners Association is concerned, we will liaise with the HKSAR Government to seek advice and to support the efforts of the global shipping community.
We will keep Member posted about the development. In the meantime, if you have any queries or need more information, please do not hesitate to contact me or our Regulatory Affairs Director, Captain Gautam Ramaswamy.