Lockhart v Revenue and Customs (INCOME TAX/CORPORATION TAX : Exemptions and reliefs) [2017] UKFTT 559 (TC)
[54]The Tribunal accepts that it appears that the Nkossa II is capable of travelling under its own steam. The lloydslistintelligence.com document refers to it having a speed of 1 knot, and the Appellant also said this in his evidence. However, the Tribunal finds on the evidence that in the period in which the Appellant worked on the ship, it was stationary in a fixed location. The lloydslistintelligence.com document indicates that it did not move from the N’Kossa terminal between 1996 and 2013. The “Factsheet” refers to the Nkossa II as being “moored in the N’Kossa field”, and refers to its turret as being “geostationary”, suggesting that it remained in this period in one fixed place. The Appellant said in his evidence that the ship manoeuvred to a degree depending on the weather , but the Tribunal is not satisfied that the ship did more than weathervane around the geostationary turret, as described in the factsheet. In any event, in Gouldson at [14] it was held that “‘stationed’ does not require a vessel to be fixed rigidly in one immoveable position, but allows of minor movement in relation to a fixed point”, and in Torr at [50] it was held to be sufficient that a ship is “ substantially stationary ”. On the evidence, the Tribunal finds that at the times material to this appeal, the Nkossa II was either “standing” or “stationed” in the waters of the N’Kossa field within the meaning of s 1001(4) ITA 2007.55. HMRC was specifically asked to identify the provisions of s 1001(3) ITA 2007 on which they rely. HMRC confirmed that their case is that the Nkossa II was being used “ for the storage of gas in or under the shore or the bed of any waters” within the meaning of s 1001(3)(c). The Tribunal has doubts that this can be correct. HMRC have not pointed to any statutory definitions of the terms used in this provision, or any case law dealing with their interpretation. The word “shore”, on its ordinary meaning, refers to the land at the edge of a body of water. Gas stored on the Nkossa II was clearly not being stored in or under the land adjacent to the sea. Furthermore, gas being stored on a ship floating on the top of the sea is not being stored in or under the seabed, which is at the bottom of the water.56. However, the Tribunal raised with the parties at the hearing the question whether the Nkossa II was being used “ for the purposes of exploiting mineral resources by means of a well ” within the meaning of s 1001(3)(a) ITA 2007.57. Gouldson was concerned with a different statutory provision to s 1001 of the ITA 2007, but which was in materially similar terms (see Gouldson at [5]-[6]). In that case at [15], the Upper Tribunal held that the objective of the provisions restricting the availability of SED “is to deny relief to those who are working on essentially fixed installations used, directly or indirectly , for mineral exploitation” (emphasis added), and that “ The use of the phrase ‘is, is to be, or has been’ makes it clear that an immediate temporal connection with mineral exploitation is unnecessary: the plain purpose of the legislation is to bring within the net of the exclusion any structure with a connection to such exploitation ”.58. On the evidence, the gas stored on the Nkossa II was extracted from a nearby well in the N’Kossa field. The sole purpose of the Nkossa II was to receive, process and store such gas until it could be offloaded to another ship for transport. A document from the onepetro.org website included in the bundle refers to floating storage/offshore units, including specifically the Nkossa II, as “an established alternative to piping product ashore”. The “Sustainability Report 2011” states that FPSOs are used in “frontier offshore regions” as they “do not require a local pipeline infrastructure to export oil”. The Tribunal considers that the act of “ exploiting mineral resources by means of a well ” does not end at the well-head, and that this expression includes the further infrastructure and processing that gets the mineral resources from the well head to the point that it is loaded onto a ship for transport away from the field in which the well is located.59. Such a reading of s 1001(3)(a) does not render redundant the wording of s 1001(3)(e) (“for the conveyance of things by means of a pipe”). Section 1001(3)(e) would apply to a structure which is for the conveyance of things by means of a pipe, regardless of whether or not it has anything at all to do with exploiting mineral resources by means of a well. In cases where there is a structure for the purposes of exploiting mineral resources by means of a well, and where its use involves or includes conveying things by means of a pipe, there may be a certain overlap between s 1001(3)(a) and (e). However, the two provisions do not overlap completely in such a way that one makes the other redundant.60. On the evidence before it, the Tribunal therefore finds that by virtue of s 1001(1) and (3)(a) ITA 2007 , the Nkossa II was at times material to this appeal an offshore installation, and therefore not a ship for purposes of ss 384-385 ITEPA. The Appellant is accordingly not entitled to SED in respect of his earnings while working on the Nkossa II.61. According to the Appellant’s own evidence, in 2010 he was aware that it was at least questionable whether he was entitled to SED in respect of his time on the Nkossa II. He says that his captain informed him that it was a “grey area”, and the Appellant himself says he subsequently called HMRC to confirm the position.62. A major concern of the Appellant appears to be the way in which he says he has been treated by HMRC. According to his evidence, although he was aware in 2010 that this was a “grey area”, his captain told him at the time that he would be entitled to claim SED, and HMRC confirmed to him in a telephone conversation that this was the case. His evidence suggests that HMRC subsequently had a change of heart, and that UK residents on the Nkossa II now pay UK tax and have received a pay rise to compensate for this. However, the Appellant considers that others who claimed SED prior to this change of heart by HMRC are not being pursued by HMRC retrospectively in the way that he is. The Appellant feels that HMRC have shifted the goalposts and are now harassing him.63. Unfortunately for the Appellant, this Tribunal only has jurisdiction to determine the correct application of the tax law to the facts and circumstances of his case. In respect of SED, it has done this in paragraphs 52-60 above. The Tribunal has no general jurisdiction to deal with complaints about the conduct of HMRC. In any event, on the evidence before it, the Tribunal is not able to find that HMRC gave any assurance to the Appellant that he would be entitled to SED, or that HMRC have allowed others in relevantly comparable circumstances to the Appellant to claim SED. The oral evidence given by the Appellant in relation to these matters has not been sufficiently precise or detailed, and HMRC say that they have no record of the claimed conversations with him and his agent. (In fact, an HMRC file note indicates that on 2 October 2014, it was the Appellant himself who informed an HMRC officer in a telephone conversation that two other colleagues on the Nkossa II had successfully submitted SED claims, and that the HMRC officer had responded that “not all returns are checked/enquiries”.) If the Appellant feels that he has a legitimate complaint in relation to the way he has been treated by HMRC, he will need to raise this through a different avenue.64. In his post-hearing written submissions, the Appellant has additionally claimed that the flag State of the Nkossa II should not be conclusive as to whether or not the UK-Danish double taxation agreement applies. The suggestion is that the Appellant should be entitled to relief under that agreement, even though the Nkossa II was registered in the Bahamas rather than Denmark. However, the Appellant has presented no developed arguments or evidence in this respect. From an initial look at that treaty, it does indeed appear that the flag state of the vessel would not have been decisive to its application. It would seem from its Article 15(4) that the Appellant’s pay for his work aboard the Nkossa II would not have been subject to UK income tax if the company “operating the ship” was resident in Denmark, and if the Appellant’s remuneration was subject to income tax in Denmark. However, apart from anything else, there was no evidence or argument that the Appellant’s pay was subject to income tax in Denmark. There was also no evidence that the particular company “operating the ship” at the time was resident in Denmark, it being noted that even if the vessel was at the time operated by Maersk (which is in fact unclear, given that it is said to have been “on charter” to Total), that would not mean that it was necessarily operated by the Maersk parent company, as opposed to a subsidiary company that may or may not have been resident in Denmark.65. The Tribunal is also satisfied that HMRC, for purposes of s 29 TMA, made a “discovery” that the Appellant was not entitled to SED in relation to his employment on the Nkossa II. His 2011-12 tax return indicated in the white space that he worked that year on the Maersk Traveller, and did not mention the Nkossa II. His 2010-11 tax return stated that he was working on the “NK0SSA11”. However, even if this was sufficient identification of the ship, it did not describe the nature of the ship or the use to which it was being put at the time. For purposes of TMA s 29(5) and (6), the question is not whether the inspector would have been aware that there had been an understatement of tax if the inspector had undertaken his or her own investigations into the use to which the Nkossa II was being put, but whether the inspector would have been aware of the understatement of tax from the information contained in the return itself. The inspector would not have been.66. The Tribunal is further satisfied that HMRC were correct not to allow SED to be claimed in the Appellant’s 2011-12 tax return in respect of his earnings for work undertaken in the period 1-5 April 2012, at the time he was working on the Maersk Battler. The Appellant’s contract of employment states that he is paid monthly in arrears. His earnings for the period 1-5 April 2012 would thus have been paid at or after the end of April, which was after the 2011-12 tax year had already ended. Any SED in respect of the period 1-5 April 2012 would have fallen to be claimed in the Appellant’s 2012-13 tax return.67. As to the tax paid on the Appellant’s behalf to the tax authorities of the Republic of the Congo, the Tribunal finds as follows.68. A letter from the Appellant’s agent to HMRC dated 17 May 2014 states that “Whilst working on Nkossa II, Mr Lockhart was on charter to ‘Total’ who paid tax for all sea staff whilst in African waters”. A letter from the Appellant’s agent to HMRC dated 2 October 2015 states that “Mr Lockhart’s company Total, pay £4,000 per year local tax in the Congo. We had been under the impression that the Congo tax was paid by Maersk”. These letters can be read as suggesting that the tax was not paid by the Appellant himself, but was paid by either Maersk or Total out of the company’s own funds.69. The Appellant’s payslips are issued by Maersk, suggesting that whether or not he was “under charter” to Total in this period, Maersk remained his employer and he was paid by Maersk. The payslips show payments made to the Appellant in respect of basic pay, travel day payments, leave pay, pool pay, course pay and uniform allowance. They also show deductions from the Appellant’s pay in respect of “pension, own contrib”, travel expenses, medical expenses, and “radio account on boa”. The Tribunal finds it unlikely that the Appellant’s employer would have been deducting Congolese PAYE from the Appellant’s pay without this being indicated in the payslips.70. The Appellant’s contract of employment does not contain any provision dealing expressly with liability for local income tax. If the employer was assuming responsibility for paying, in addition to the Appellant’s salary, the Appellant’s Congolese income tax liability, it would be expected that this would have been included as a term in the contract of employment. It seems unlikely that the employer would pay the Appellant’s Congolese income tax liability if the employer was under no contractual obligation to do so. Similarly, if another company (such as Total) was assuming responsibility for payment of the Appellant’s Congolese income tax liability, it could be expected that this would also be mentioned in the contract of employment.71. The Tribunal therefore finds it more likely than not that the Congolese income tax was paid out of the amounts shown in the payslips as having been paid to the Appellant.72. The Appellant’s evidence was that he paid Congolese income tax annually. On the information before it, that appears plausible. There is nothing in the evidence to suggest that a Congolese PAYE scheme existed and would have applied to a person in the circumstances of the Appellant.73. The Appellant’s evidence was that he paid the Congolese tax to a company manager, who then paid this to the Congolese tax authorities, and received the certificate of confirmation.74. The Tribunal finds it entirely plausible that in circumstances where the Appellant was an expatriate living and working on a ship offshore the Congolese coast, the company he was working for would have undertaken the task of physically getting the payment to the Congolese tax authorities on his behalf. The certificates issued by the Congolese tax authorities indicate that payment was made to them on the Appellant’s behalf by Gas Management (Congo) Ltd, and the Tribunal is satisfied that this company, if not itself the Appellant’s employer, was acting on behalf of Maersk or Total in physically making this payment on behalf of the Appellant.75. Considering the evidence as a whole, the Tribunal finds that although the Appellant’s employer may have physically got the money to the Congolese tax authorities, payment of the tax was in fact made by the Appellant himself out of his own funds, and that the Appellant’s employer did not make any additional payment in respect of Congolese tax above and beyond what it paid the Appellant by way of salary and emoluments. Conclusion76. For the reasons above, this appeal is allowed in part, to the extent indicated in paragraph 75 above. The appeal is otherwise dismissed.77. The assessments will need to be recalculated to give effect to paragraph 75 above. If the parties cannot agree on the correct amount of that recalculation, either party is at liberty to request the Tribunal within 90 days of the date of release of this decision notice to determine the correct amount of the assessments.78. 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. DR CHRISTOPHER STAKER TRIBUNAL JUDGE RELEASE DATE: 13 JULY 2017