Tax? A comradely wave of sympathy

Simon Tatham considers owners, charterers, and one of life’s grim inevitables.

It was Benjamin Franklin who famously wrote “in this world nothing can be said to be certain, except death and taxes”. Equally certain is the annoyance of having to pay a tax that one feels is unjust, and while on the question of justice, I ask how it can possibly be fair that tax lawyers are the very highest earning in the profession. Moreover, one suspects they are probably clever enough to ‘Render unto Caesar’ rather less than us poorer shipping lawyers – but give me a collision, grounding or salvage any day.

It is not every day, therefore, that we are asked to comment on issues of tax arising on the employment of tugs or offshore support vessels, and we are thankful for that. However, one does feel a comradely wave of sympathy with owners when, after months of hard work in often hot and humid climates far from home, charterers announce that not only are local taxes due, but they fall on owners to pay.

As always, the answer lies, or should lie, in the terms of the charter, but with the best will in the world, it is not always possible to predict every eventuality. In one instance, we heard that local tax regulations might result in VAT being charged on a day rate under Supplytime, whereas if the job could be done as a lump sum under Towcon it would not. In such a case, tax advice might have been taken and the tax issue avoided, but other questions would arise as to whether Towcon is operationally suitable for the job itself, something that even the cleverest accountant could not answer. Over to the brokers.

If we take an unamended Supplytime, the contract of choice for lengthy operations in territorial waters, the starting point is clause 30, tucked away at line 1,157 et seq. Here it provides that within the day rate, owners shall be responsible for taxes stated in Box 32, and the charterers shall be responsible for all other taxes. So it’s back to Box 32. Here, the typical insertion reads something like this: ‘All taxes of statutory and actual place of Owners’ business and country of Vessel’s flag-state’. Variants of this can be longer and more complex, with the objective of placing the onus to pay local taxes arising on charterers.

Such a clause, however, might not assist in a case where, for example, a vessel is redelivered with abundant tanks replenished by charterers at local rates inclusive of tax at a price perhaps 30-40 per cent in excess of that available to the same vessel bunkering in the roads the next day with outward clearance. This can be particularly annoying for owners who had purchased bunkers at a competitive rate pre-delivery, and sold them to charterers at that price. If the amount of fuel is greatly in excess of the quantity on delivery, owners might argue that charterers are in breach of clause 10, which requires that the vessel be redelivered with about the same quantity as on delivery, and thus contest the additional tax element. Clause 10 provides that the price payable is that prevailing at the time and port of redelivery unless stated in Box 19. As there may be two prices, the local taxed price and the price available to vessels with outward clearance, owners might be tempted to insert an appropriate provision, or alternatively seek to persuade charterers to minimise the bunkers left on board on redelivery.

Simon Tatham is a partner of Tatham Macinnes LLP and a founding member of its new service, TugAdvise.com. He has 30 years’ experience in shipping law.