DECISION
Introduction
1.
This is an Appeal by Graham Paterson Limited. It became clear at the
outset of the hearing that the Appellant was in fact Graham Paterson (“GP”) as
an individual and the correspondence in relation to this matter between the Appellant
and the Respondents had been in the name of GP. The Tribunal for the purposes
of clarity and with the agreement of the Appellant and the Respondents directed
that the hearing should proceed as an appeal by GP.
2.
GP’s Appeal was against a closure notice issued on 27 October 2010 for 2006-2007 requiring repayment of a claim for Seafarers’ Earnings Deduction (“SED”)
for the period 6 April 2006 to 10 December 2007 whilst he was on board a vessel
“Edda Fjord”. The total amount of tax claimed was £6,500.18.
3.
HMRC state that the criteria for making a claim for SED has not been
met.
Facts
4.
No witnesses were present at the hearing.
5.
Reference was made to the unusual circumstances whereby the issue of SED
in relation to the Edda Fjord during the same period as under this Appeal had
been the issue of a First-tier Tribunal case, Graham Gouldson and HMRC (TC/2009/106551)
(“the Gouldson case”), which in turn had been the subject of an Upper Tribunal
Appeal (“the Gouldson Appeal”) 2011 [UKUT]238.
6.
GP was a seafarer between 6 April 2006 and 10 December 2006 during which time he served on board the Edda Fjord.
7.
The Edda Fjord’s official classification is as a multi purpose supply
vessel (“MPSV”)
8.
During the relevant period, the Edda Fjord worked in conjunction with
the semi- submersible rig called Thunderhorse in the Gulf of Mexico.
9.
Thunderhorse was in the process of being constructed as part of a
drilling platform/storage facility anchored to the seabed.
10.
It was accepted by the parties that whereas Thunderhorse was not in use
in the exploitation of mineral resources at the relevant period it was to be
used for a specific purpose, principally “for the purposes of exploiting
mineral resources by means of a well” when its construction was complete.
11.
The Edda Fjord had previously been utilised in conjunction with a floating
storage tank called Bonga off the Nigerian coast and, during this period and
whilst in the Gulf of Mexico, the vessel had accommodation units attached to it
which housed several hundred construction workers who were working on the
construction of the rigs/storage tanks. It was established that the number of accommodation
units which had been available when the vessel was off the Nigerian cost had
been considerably increased for its work in the Gulf of Mexico.
12.
Construction work on Thunderhorse continued round the clock and the role
of the Edda Fjord was to provide accommodation for several hundred construction
workers and ferry them backwards and forwards to Thunderhorse and provide
supplies. There was some dispute as to whether the transfer was by way of a
gangway or by a basket transfer otherwise known as a “Billy Pugh”.
13.
GP provided evidence from the shipping company which owned the Edda
Fjord that there was no gangway whereas HMRC, relying on the Gouldson judgement,
stated that there was.
14.
Extracts from the logbook produced by employees of the Norwegian owners
of the Edda Fjord, Østensjø Rederi
(“OR”), showed evidence of constant activity in the ferrying of construction
workers.
15.
Reference was made to the 500 metre area around Thunderhorse into which
the Edda Fjord had to enter in order to carry out the basket transfer task. An
example of a log book on 1 November suggested that at 0820, the 500 metre
checklist was completed, at 0827 the vessel entered the 500 metre zone, that
the basket transfer took place between 0857 and at 0907 the vehicle exited the
500 metre zone. This appeared to be repeated throughout the day and, on that
particular date, basket transfers took place at 0525, 0625, 2350, in addition
to the 0855 transfer.
16.
A review of other pages from the log book suggested this was a typical
daily task of the Edda Fjord.
17.
When the basket transfer process took place, the vessel was not anchored
but instead relied on “dynamic positioning” (“DP”) which is a computer
controlled system which automatically maintains a vessel’s position and heading
by using her own propellers and thrusters. It was understood that position
reference sensors combined with wind sensors, motion sensors and gyrocompasses provide
information to the computer pertaining to the vessel’s position and the
magnitude and direction of environmental forces affecting its position. The aim
is to keep the vessel steady and in one place.
18.
It was suggested that the Edda Fjord had to remain outwith the 500 metre
zone or, presumably radius, of Thunderhorse for safety reasons and, furthermore,
that the vessel stayed within the vicinity of Thunderhorse by sailing.
19.
GP did not work on Thunderhorse but on the Edda Fjord where he was a
pipe fitter and was involved in construction work. No clear evidence was produced
as to the amount of each day that was devoted to this kind of work.
20.
In addition to a certain amount of construction work, another role of
the Edda Fjord was to provide fresh water and supplies to Thunderhorse and based
on the Gouldson case this would probably be once a week.
21.
Although no direct evidence was available, it was accepted by the
parties that the Edda Fjord did not supply itself by travelling from the Thunderhorse
area, which was approximately 150 miles from the shore, to a nearby port. Instead,
it was accepted that other vessels would come and supply the Edda Fjord, which
would then in turn supply Thunderhorse.
22.
HMRC supplied copies of internet articles confirming the use of the Edda
Fjord as a dynamically positioned “floatel” (floating hotel), that the vessel
was fitted with approximately 330 beds whilst in Nigeria and later 450 beds for
BP’s Thunderhorse platform in the US Gulf of Mexico; this included statements
such as the Edda Fjord being utilised to transfer personnel to and from
offshore installations as well as providing accommodation in remote areas of
the world.
23.
Photographs and pictures of the Edda Fjord, both in its condition as a
MPSV, and as a MPSV with the accommodation attached, were submitted.
24.
Letters or emails were submitted from OR. One such communication dated 6 August 2010, confirmed that the Edda Fjord was provided to BP for construction
support services of Thunderhorse and that the services included general and
liquid cargo supply and accommodation.
25.
OR said the Edda Fjord was never connected to Thunderhorse by moorings
nor at anchor during the duration of the contract.
26.
A further OR communication dated 22 July 2010 stated that “Graham Person
(sic) was on board the Edda Fjord during our stay at the BP Thunderhorse
project as shown in his service sea book. During this time, the Edda Fjord was
never fixed to the platform by mooring lines or gangway, just stayed alongside
on DP during the transfer of people, general cargo and bulk cargo”.
27.
HMRC referred to a fax from OR dated 7 April 2008 which said “Edda Fjord was finished, demobilising from an accommodation unit and into a supply
vessel 19 December 2006”.
28.
Reference was made to the fact that the word “ship” is not defined in
the Income Tax (Earnings and Pensions) Act (“ITEPA”) 2003 other than at Section
385 which says “it is not a ship if it is an offshore installation”.
29.
“Offshore installation” is defined at Section 837C of the Income and Corporation
Taxes Act (“ICTA”) 1988.
30.
It was established that neither Thunderhorse rig nor the well were in
production until June 2008 because as a result of shoddy workmanship and poor
weather it was unfit for use until then.
31.
Reference was made to guidance produced by the RMT union issued on 26 March
2009 which stated that the Inland Revenue had accepted that “vessels that might
be treated as offshore installations under the Inland Revenue guidance are in
fact multi purpose vessels which can be used for navigation and, in addition, that
other vessels may have been constructed with a particular purpose in mind but,
subsequently, changed for different users”.
32.
RMT also claimed to have persuaded the Inland Revenue that a claim for
SED should not be ruled out on the basis that the vessel on which a seafarer
might be engaged remains stationed for more than five days.
33.
Reference was also made to the Inland Revenue guidance which stated that
“when applying the legislation, the rule of thumb was that a vessel standing or
stationed for more than three days was regarded as standing and stationed for
the purposes of the definition of offshore installation, whereas a vessel that
was standing or stationed for three days or less did not satisfy the
definition. In a small number of cases, this rule of thumb was used in claims
to SED”.
34.
The HMRC guidance states that this is not a statutory rule and has no
legal basis but HMRC accepted that, as a broad guide, it may be helpful in some
borderline cases and that during the relevant period the test was five days.
35.
GP claimed that the vessel sailed within a period of five days or at times
less than five days for the purpose of conducting engine trials or burning soot
from exhausts or funnels. This involved sailing several miles away from the
platform and was clearly navigation and not a mere movement in deep water.
36.
Reference was made to an OR letter dated 20 April 2012 by Havad Melvaer which stated that GP “was not directly hired by OR and worked on the vessel on a
contractual basis hired by a third party. Edda Fjord was, in this period, not permanently
attached nor on DP and was only approaching the 500 metre zone to send
personnel back and forth between Thunderhorse and the vessel. Please also be
advised that Edda Fjord used to sail at least every five days either for engine
trials and/or burning suite (sic) from exhausts or funnels etc. This is
verified from some scans from the ship’s logs attached to the letter”.
37.
Mr Melvaer was not the master at the time but had provided copy logs.
Legislation
38.
Section 29 Taxes Management Act
1970 states that -
“29 (1) If an officer of the Board or the Board
discover, as regards any person (the taxpayer) and a year of assessment –
(a) that any income which ought to have been
assessed to income tax, or chargeable gains which ought to have been assessed
to capital gains tax, have not been assessed, or
(b) that an assessment to tax is or has become
insufficient, or –
(c) that any relief which has been given is or has
become excessive
The officer or, as the case may be, the Board may,
subject to subsections (2) and (3) below, make an assessment in the amount, or
further amount, which ought in his or their opinion to be charged in order to
make good to the Crown the loss of tax.”
“29 (3) Where the taxpayer has made and delivered a
return under section 8 or 8A of this Act in respect of the relevant year of
assessment, he shall not be assessed under subsection (1) above –
(a) in respect of the year of assessment mentioned
in that subsection; and
(b) in the same capacity as that in which he made
and delivered the return,
Unless one of two conditions mentioned below is
fulfilled.”
“29 (4) The first condition is that the situation
mentioned in subsection (1) above is attributable to the fraudulent or
negligent conduct on the part of the taxpayer or a person acting on his
behalf.”
“29 (5) The second condition is that at the time
when an officer of the board –
(a) ceased to be entitled to give notice of his
intention to enquire into the taxpayer’s return under section 8 or 8A of this
Act in respect of the relevant year of assessment; or
(b) informed the taxpayer that he had completed his
enquiries into that return;
The officer could not have been reasonably expected
on the basis of the information made available to him before that time, to be
aware, of the situation mentioned in subsection (1) above.
39.
Section 378(1) ITEPA 2003 states -
“A deduction is allowed from earnings from an
employment as a seafarer if: -
(a) the earning are relevant taxable earnings,
(b) the duties of the employment are performed
wholly or partly outside the United Kingdom, and
(c) any of those duties are performed in the course
of an eligible period.”
40.
Section 384 ITEPA 2003 gives the
meaning of employment “as a seafarer” -
“In this chapter employment ‘as a seafarer’ means an
employment (other than Crown employment) consisting of the performance of
duties on a ship or of such duties and others incidental to them”.
41.
Section 385 ITEPA 2003 gives the
meaning of “ship” stating -
“In this chapter ‘ship’ does not include an offshore
installation.”
42.
Section 837C ICTA 1988 gives the meaning of “offshore installation” -
“837C(1) For the purposes of the Corporation Tax
Acts unless the context otherwise requires, ‘offshore installation’ means a
structure which is, is to be, or has been, put to a use specified in subsection
(2) while –
(a) standing in any waters
(b) stationed (by whatever means) in any waters, or
(c) standing on the foreshore or other land
intermittently covered with water.”
“837C(2) The uses are:
(a) use for the purposes of exploiting mineral
resources by means of a well;
(b) use for the purposes of exploration with a view
to exploiting mineral resources by means of a well;
(c) use for the storage of gas in or under the shore
or the bed of any waters;
(d) use for the recovery of gas so stored;
(e) use for the conveyance of things by means of a
pipe;
(f) use 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 in any of paragraphs (a) to (e) while –
(a)
standing in any waters
(b)
stationed (by whatever means) in any waters, or
(c)
standing on the foreshore or other land intermittently covered with
water.”
Cases Referred To
Torr v HMRC 2008 Spc 00679
Spowage & Ors v
Revenue & Customs [2009] UKFTT 142 (TC)
Graham Gouldson v Revenue & Customs
[2010] UKFTT 349 (TC)
Graham Gouldson v
HMRC [2011] UKUT 238 (TCC)
John Davies v Revenue & Customs [2012] UKFTT 127 (TC)
GP’s Submissions
43.
GP says that HMRC has classified Edda Fjord as an offshore installation
and not a ship, which he says, is an incorrect and/or narrow description of the
task the vessel was performing.
44.
GP says that the Edda Fjord qualified as a ship and was not standing or stationed
in heavy waters.
45.
GP says that a ship must be capable of navigation and this means ordered
movement across the water; that Edda Fjord was used to sail within a period of
at least five days or at times less for conducting engine trials and burning
soot from the exhaust or funnels and this has been verified by OR.
46.
GP says the Edda Fjord sailed several miles away from Thunderhorse and,
whilst doing so, used its navigating equipment and that this was not a mere
movement in deep water due to weather but regular events.
47.
GP says that Edda Fjord was never fixed to Thunderhorse by mooring lines
or a gangway and that this is confirmed by OR and, at other times, it was
always moving and was neither wholly static nor anchored.
48.
GP says that the GP positioning was primarily used while transferring
personnel by the basket transfer method to Thunderhorse.
49.
GP accepted during the hearing that an offshore installation could
include a vessel that was mainly for the provision of accommodation for persons
who work on or from a structure which is to be put to a use for exploiting
mineral resources by means of a well and/or exploration with a view to
exploiting mineral resources by means of a well but went on to say that the
Edda Fjord was a MPSV and was not mainly for the provision of accommodation
because it could be used for navigation; was performing multiple services other
than accommodation and that it would not be fair to consider only one service
and ignore others in a way which would narrow the description of use.
50.
GP says that neither the platform nor the well were in production until
June 2008.
51.
GP says that the Edda Fjord was not mainly for accommodation and was not
stationed and, accordingly, was not an offshore installation and so SED should be
allowed.
HMRC’s Submissions
52.
HMRC say that the Edda Fjord was an offshore installation and not a
ship. It was designed as an accommodation unit and it was used as an
accommodation unit and that this was its main use.
53.
The use in this form continued until 19 December 2006 when it was demobilised from an accommodation unit into a supply vessel as verified by OR.
54.
HMRC say that as the Edda Fjord was mainly used for accommodation it
fits the definition in Section 837C(2)(f) of the Income and Corporation Taxes
Act 1988.
55.
HMRC refer to the Gouldson case in relation to the same vessel over the
same period and to the Tribunal’s decision that the SED should not be allowed
as the Edda Fjord was an offshore installation.
56.
HMRC say that GP was aboard during this period, that he was aware of the
Gouldson case and he had not disputed any of the findings in any correspondence
with HMRC prior to the Tribunal hearing.
57.
HMRC rely on the evidence in relation to Edda Fjord whilst in the Gulf of Mexico based on the statements made in the Gouldson case.
58.
HMRC distinguish the Spowage case because the vessels in that
case were floating toolboxes so that their main or primary function was
providing tool services even although they also provided accommodation.
59.
HMRC say that whilst the Edda Fjord may have performed other tasks it
was mainly accommodation and the other tasks were minimal.
60.
HMRC refer to the Gouldson Appeal in relation to the contention
that the Edda Fjord was an offshore installation as a structure in the course
of construction which on completion would be used for mineral exploitation.
61.
HMRC say that their guidance notes are simply guidance and state only a
rule of thumb in relation to the length of period a vessel is standing or
stationed.
62.
HMRC say that the relevant test is whether a structure is an offshore installation
by reference to Section 837C(1)(b) and in particular, whether it is stationed
by whatever means in any waters.
63.
HMRC refer to the Torr case which stated as follows:-
“I have no hesitation in
deciding that the use was whilst standing or stationed.
The new shorter Oxford
English Dictionary gives the following meaning for stationed:-
‘1.Assign a post, position or
station to (a person, troops, ships etc); place, post.
2. To take up one’s station,
post oneself.’
It would be absurd to suggest
that a ship can only be stationed if it is either secure by anchors or hawsers.
A ship can clearly be stationed
in deep water.
While the context, in which
the word ‘stationed’ is used, is an alternative to ‘standing’, the word clearly
envisages the ship being substantially stationary.
I am satisfied that, when
dynamically positioned, the Pride of South America was stationed”.
64.
HMRC say that the Edda Fjord was not standing but that it was stationed,
relying on Judge Colin Bishopp’s statement in the Gouldson appeal:
“There can in our judgement
be no doubt that when Edda Fjord was in position close to Bonga and Thunderhorse
it was ‘stationed (by whatever means) in any waters’:
On that point, we agree with
the Special Commissioner in Torr and with his reasons: ‘stationed’ does
not require a vessel to be fixed rigidly in one immovable position but allows a
minor movement in relation to a fixed point. There can equally be no doubt .....
that Bonga and Thunderhorse, when their construction was complete, were to be used
‘for the purposes of exploiting mineral resources by means of a well’, since
each would perform a role in the commercial exploitation of oil extracted from
a well”.
65.
HMRC say the dictionary definition of stationed is “a place or position
where a person or thing stands or is assigned to stand; a place or area where a
person is required to work”.
66.
HMRC say that stationed can refer to an area and not to a specific spot;
that Thunderhorse is the centre of the area, that the Edda Fjord does not need
to be fixed to one spot and that by sailing or circling around or in close
vicinity to that spot, it was in the area and, therefore, stationed.
67.
HMRC say that as the Edda Fjord did not move away from this area during
the period under dispute, it was stationed and was not, therefore, a ship.
Reasons for Decision
68.
Subsequent to the Hearing, the Tribunal sourced a further case on SED which
was heard on 25 January 2012 being John Davies v HMRC.
69.
The Tribunal had the benefit of both the Gouldson case and the Gouldson
Appeal in relation to the Edda Fjord during the period under appeal and Mr
Gouldson was on the Edda Fjord at the same time as GP.
70.
These cases had decided that the Edda Fjord was mainly for the provision
of accommodation, for persons who worked on a structure which was to be put to
a specified use, being specifically for the purposes of exploiting mineral
resources by means of a well and this was accepted by the Tribunal.
71.
This left the issue before the Tribunal, based on the facts placed
before it at this instance, of whether the Edda Fjord was -
a. standing
in any waters
b. stationed
(by whatever means) in any waters
This question is one of fact and degree.
72.
In view of the previous judgements, it was incumbent on GP to provide
evidence that would show the Edda Fjord was not stationed in any waters (by
whatever means) nor standing.
73.
The Tribunal found on the facts before it that the Edda Fjord was not
standing in any waters.
74.
The more difficult decision was whether, based in particular on the logs
and information provided by the masters or former masters or employees of OR,
whether there was sufficient movement of the Edda Fjord to evidence that it was
navigating rather than being stationed.
75.
The Torr case had held that the word “stationed” meant
substantially stationary and that this could be the case while a structure was
using its dynamic positioning facility.
76.
The evidence produced at this hearing from OR indicated that the Edda
Fjord only used dynamic positioning for the basket transfers and that the Edda
Fjord would sail several miles away from the Thunderhorse site for the purpose
of burning soot from the exhaust or funnels but this had to be seen in the context
that Thunderhorse was approximately 150 miles from the nearest shore.
77.
The Tribunal found that the Edda Fjord was “stationed” next to Thunderhorse
whilst it was circling it.
78.
The Gouldson Appeal stated that “stationed” does not require a
vessel to be fixed rigidly in an immoveable position but allowed “minor
movements in relation to a fixed point”.
79.
In this case, evidence was led that the Edda Fjord would normally keep
at least 500 metres away from the Edda Fjord for “health and safety” reasons and
so, accordingly, would be at least that distance away from Thunderhorse for the
greater part of each day and evidence, which may not have been available in either
the Gouldson case or the Gouldson Appeal, that the ship travelled
several miles away.
80.
In the Davies case, where the SED was allowed, the Tribunal were
considering a more versatile vehicle which was not mainly for the purpose of
accommodation. On a regular basis, it travelled approximately five miles
between two rig installations and was in transit on over 20 occasions in each
month. It also made additional small movements almost daily in order to move
its position. In addition, the vessel, in this case had to go in for repairs
and was substantially absent for a period of months.
81.
Similarly, in the Spowage case, the vessels were found to be
constantly moving around the oil field which was made up of five major fields
with approximately 160 platforms.
82.
Although sympathetic to the submissions made by GP, there was sufficient
evidence before the Tribunal to establish on a balance of probabilities that
while operating during the period under the Appeal, the principle purpose of
the Edda Fjord was the provision of accommodation and that, whilst operating as
such, the vessel was stationed and although it was moving around, it was not
moving around to a sufficient extent to be considered to have moved away from
the area.
83.
The Edda Fjord was not roving; it was circling, albeit at a number of
miles radius from Thunderhorse throughout the whole period; it did not return
to shore to obtain supplies but was instead supplied in situ in the area
around Thunderhorse and would need to be in that area so that it could
consistently ferry employees backwards and forwards three or four times every
24 hours.
84.
Its main purpose was to provide accommodation for those workers and it
needed to be nearby in order for them to be transported to their place of work.
85.
The Tribunal accepted that the Edda Fjord may have travelled several
miles away for the purpose of burning soot and for other practical and likely
mechanical purposes but, based on the evidence of the frequency of transfers,
it followed that it remained within a certain radius of it so that it could
ensure it was able to transport the workers from Thunderhorse to their only
home in that area.
86.
The Appeal is dismissed.
87.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
W RUTHVEN GEMMELL WS
TRIBUNAL JUDGE
RELEASE DATE: 10 July 2012
