TC00110 Spowage & Ors v Revenue & Customs [2009] UKFTT 142 (TC) (18 June 2009)

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Cite as: [2009] STI 2349, [2009] UKFTT 142 (TC), [2009] SFTD 393

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    Spowage & Ors v Revenue & Customs [2009] UKFTT 142 (TC) (18 June 2009)
    INCOME TAX/CORPORATION TAX
    Exemptions and reliefs

    [2009] UKFTT 142 (TC)

    TC00110
    Appeal number SC 3050-52/2007
    Seafarers' earnings; ship; offshore installation; whether vessels offshore installations; Mineral Workings (Offshore Installations) Act 1971 sections 1 and 12; Income and Corporation Taxes Act 1988 section 192A, 837C; Income Tax (Earnings and Pensions) Act 2003 sections 378-385; Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995, regulation 3(1)(a)(c)&(d) & (2)(d)&(e)
    FIRST-TIER TRIBUNAL

    TAX CHAMBER
    DAVID SPOWAGE, ALEXANDER FINLAYSON, MICHAEL ALLAN Appellants
    AND BRIAN ELEY

    - and -

    THE COMMISSIONERS FOR HER MAJESTY'S
    REVENUE AND CUSTOMS Respondents

    TRIBUNAL: J GORDON REID QC, F.C.I.Arb (Judge)

    Sitting in public in Edinburgh on 3rd, 4th, 5th and 6th March 2009

    John Brinsmead-Stockham, barrister (of the English Bar) instructed by Allan MacDonald, Tax Services (North) Ltd, Accountants for the Appellants

    Jonathan Brodie, Advocate, instructed by Ian Mowat, Solicitor, HM Revenue and Customs for the Respondents

    © CROWN COPYRIGHT 2009


     

    DECISION

    Introduction

  1. These four appeals all relate to entitlement to what is known as seafarers' earnings deduction or foreign earnings deduction. The Tax years in question are 2001 to 2004 inclusive. The facts relate to the following vessels, namely Safe Britannia, Safe Caledonia and Safe Lancia. The principal question is whether these vessels were offshore installations for the purposes of the relevant legislation.
  2. A hearing took place at Edinburgh on 3rd, 4th, 5th, and 6th March 2009. The Appellants were represented by John Brinsmead- Stockham, barrister ( of the English Bar) on the instructions of Tax Services (North) Ltd. Mr Brinsmead-Stockham led the evidence of Edward Hukill, and Roger Wilneff. Jonathan Brodie, Advocate, appeared on behalf of the Respondents ("HMRC") on the instructions of Ian Mowat, of the HMRC solicitors office Edinburgh. No evidence was led on behalf of HMRC.
  3. The parties produced joint bundles of documents A small quantity of that material was considered at the Hearing. There was no dispute about the authenticity, or where appropriate, the transmission and receipt of those documents. Some of these documents were in Spanish, accompanied by translations. After brief discussion, some additional documents were allowed to be lodged at the commencement of the Hearing. A comprehensive Statement of Agreed Facts was also produced.
  4. There are a number of appeals in the background. Their success or failure depends in large measure, if not entirely, on the status of these vessels during various periods. In these circumstances, the Tribunal has been asked and is willing to provide a Decision in principle. I do not consider it necessary to direct that these appeals be classified as lead cases within the meaning of Rule 18 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009
  5. Legislative Background

  6. A 100% deduction is available under Schedule E in relation to employment as a seafarer. The deduction applies to general earnings in a tax year in which the taxpayer is ordinarily resident in the UK. The duties must be performed wholly or partly outside the UK. Employment as a seafarer is an employment consisting of the performance of duties on a ship or of such duties and others incidental to them. A ship does not include an offshore installation.
  7. For the tax years 2001, 2002 and 2003, the tax legislation when using the phrase offshore installation relied upon the definition contained in Health and Safety legislation. For the tax year 2004, fiscal legislation contained its own definition of offshore installation, but which drew heavily on the health and safety legislation
  8. Extracts from the relevant legislation are appended to this Decision. In summary, section 192A of the Income and Corporation Taxes Act 1988 made provision for the deduction, where the seafarer's duties were performed on a ship wholly or partly outside the United Kingdom. Ship did not include an offshore installation. Offshore installation was defined by reference to the Mineral Workings (Offshore Installations) Act 1971, section 12. That section, in turn, defined offshore installation by reference to the Offshore Installation and Pipeline Works (Management and Administration ) Regulations 1995 SI 1995/738. Paragraph 3(2)(e) of these regulations was amended with effect from 17/9/02 by the Offshore Safety (Miscellaneous Amendments) Regulations 2002 SI/2175, regulation 2(2)(c).
  9. For the Tax Year 2003/4, the principal provision is to be found in section 378 of the Income Tax (Earnings and Pensions) Act 2003. The definition of seafarer and ship are to be found in sections 384 and 385 respectively. Seafarer is again defined by reference to the performance of duties on a ship. Ship again excluded offshore installation which is once more defined by reference to the 1971 Act, and the 1995 Regulations as amended in 2002.
  10. For the tax year 2004/5, the principal provisions are still to be found in the 2003 Act, However section 385 was amended by the Finance Act 2004 section 143, and Schedule 27 paragraph 14. The effect was to define offshore installation not by reference to the health and safety legislation but by reference to section 837C of the 1988 Act which was inserted by section 146 of and Schedule 27 to the Finance Act 2004.
  11. Issues
  12. The issues in this appeal concern the activities of the three vessels, the Safe Lancia, the Safe Britannia and the Safe Caledonia. Between them, the four Appellants worked on these vessels during the years of assessment commencing 6/4/01, 6/4/02, 6/4/03 and 6/4/04. One of the Appellants was added at a late stage to ensure that all years of assessment were covered.
  13. By the end of the Hearing, it had been agreed that for the whole of the year of assessment commencing 6/4/01 and 6/4/02, the Safe Lancia and the Safe Britannia were offshore installations within the meaning of the relevant legislation. There was limited agreement in relation to the status of these two vessels for part of the year of assessment commencing 6/4/03. The same concession was made in respect of the Safe Caledonia for the year of assessment commencing 6/4/01, but not for the whole of the year of assessment commencing 6/4/02. It was conceded by the Appellants that for the year of assessment commencing 6/4/03 the Safe Caledonia was an offshore installation. No issue arose in connection with the status of the Safe Caledonia for the year of assessment commencing 6/4/04.
  14. The issues remaining to be determined in these appeals are the status of the Safe Caledonia for part of the year of assessment commencing 6/4/02, and (ii) the status of the Safe Lancia and the Safe Britannia when operating under contracts entered into in 2003.
  15. Facts
  16. The following facts were set out in a Statement of Agreed Facts produced by the parties:-
  17. "Introduction

    1. These appeals concern the availability of the foreign earnings deduction for seafarers/the seafarers' earnings deduction ("the deduction"), in respect of income tax. The appeals are concerned with the years of assessment to income tax ending 5 April 2002 ("2001/02"), 5 April 2003 ("2002/03"), 5 April 2004 ("2003/04") and 5 April 2005 ("2004/05"). The period 6 April 2001 – 5 April 2005 is referred to hereafter as "the relevant period."
    2. The Appellants, between them, worked on three vessels during the relevant period: the "Safe Lancia", "Safe Britannia" and "Safe Caledonia."

    3. The relevant statutory taxation provisions are:

    (i) Income and Corporation Taxes Act 1988 ("TA 1988") section 192A for 2001/02 and 2002/03.
    (ii) Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003") sections 378-385 for 2003/04 and 2004/05.

    4. The only issue raised by these appeals is whether the Appellants are prevented from claiming the deduction by reason of performing their duties on an "offshore installation" for the purposes of TA 1988 s.192A(3) and ITEPA 2003 s.385.
    5. A number of other appeals are dependant upon the status of the vessels during the relevant period. It has been agreed with the Respondents ("HMRC") that these appeals will constitute representative appeals as to the status of the vessels for the periods of time that each of the Appellants were employed on the vessels. For example, Michael Allan was employed on the Safe Britannia throughout 2002/03, 2003/04 and 2004/05, and so the Tribunal's determination of the status of the Safe Britannia for those years of assessment is agreed to determine the status of the vessel for those years of assessment in respect of the appeals of other individuals employed on that vessel during those periods.
    A. The Appellants

    Mr David Spowage ("DS")

    6. HMRC amended DS' self-assessments to income tax for 2001/02, 2002/03 and 2003/04. In 2001/02 and 2003/04 HMRC wholly disallowed the deduction. In 2002/03 HMRC partially disallowed the deduction, allowing it only for a period during which the Safe Caledonia was situated in a shipyard in Olen, Norway.
    7. As a result of the amendments, HMRC maintain that DS' liability to income tax was increased by the following amounts in each year of assessment (excluding interest):

    2001/02: £11,240.40
    2002/03: £7,582.20
    2003/04: £3,621.76
    8. DS appealed the amendments, in time, on the basis that he was entitled to the deduction, in full, in all three years of assessment and that the amendments should be set aside.

    9. Throughout the years of assessment to which DS' appeals relate he was employed as an electrical engineer on the vessel Safe Caledonia, save for the period 4th – 20th July 2001 when he worked on the vessel Safe Britannia.
    Mr Alexander Finlayson ("AF")

    10. HMRC amended AF's self-assessments to income tax for 2001/02, 2002/03 and 2003/04. In 2001/02 and 2003/04 HMRC wholly disallowed the deduction. In 2002/03 HMRC partially disallowed the deduction, allowing it only for a period during which the Safe Caledonia was situated in a shipyard in Olen, Norway.
    11. As a result of the amendments HMRC maintain that AF's liability to income tax was increased by the following amounts in each year of assessment (excluding interest):

    2001/02: £7,564.00
    2002/03: £5,999.60
    2003/04: £8,242.00
    12. AF appealed, in time, on the basis that he was entitled to the deduction, in full, in all three years of assessment and that the amendments should be set aside.

    13. Throughout the years of assessments to which AF's appeals relate he was employed as bosun on the vessel Safe Lancia until September 2002 and thereafter on the vessel Safe Caledonia.

    Mr Michael Allan ("MA")

    14. HMRC amended MA's self-assessments to income tax for 2002/03, 2003/04 and 2004/05. HMRC wholly disallowed the deduction for each year.
    15. As a result of the amendments HMRC maintain that MA's liability to income tax was increased by the following amounts in each year of assessment (excluding interest):

    2002/03: £13,367.76
    2003/04: £10,762.42
    2004/05: £10,768.30
    16. MA appealed, in time, on the basis that he was entitled to the deduction in full in all three years of assessment and that the amendments should be set aside.
    17. Throughout the years of assessment to which MA's appeals relate he was employed as first engineer on the vessel Safe Britannia.

    Mr Brian Eley ("BE")

    18. HMRC amended BE's self assessments to income tax for 2002/3, 2003/4 and 2004/5. HMRC wholly disallowed the deduction for each year.
    19. BE appealed, in time, on the basis that he was entitled to the deduction in full in all three years of assessment and that the amendments should be set aside.
    20. Throughout the years of assessment to which MA's appeals relate he was employed as first engineer on the vessel Safe Lancia.

    B. The Vessels

    General

    21. All three of the vessels which are the subject of these appeals are semi-submersible units. Each is comprised of a platform supported by a minimum of four columns sitting on hulls which are ballasted below the water-surface allowing the vessels to float in a stable manner. The facilities available on the platforms have been subject to change during the course of the relevant period. Nonetheless, at all times each of the vessels offered accommodation berths, office space, storage areas, workshops and two cranes.

    22. All of the vessels were registered in the Isle of Man throughout the relevant period but were registered in Singapore from January 2006 onwards.

    The companies involved with the operation of the vessels in the Bay of Campeche

    23. Throughout the relevant period the vessels were owned by the Prosafe group of companies ("Prosafe"). Prosafe is based in Norway. Prosafe issued annual company reports for the years 2001, 2002, 2003, 2004 and 2005.

    24. All of the operations performed by the vessels in the Bay of Campeche, during the relevant period, were in respect of oil production platforms owned and operated by Petróleos Mexicanos ("PEMEX"), Mexico's state-owned petroleum company.

    25. For all times during which the vessels were operating in the Bay of Campeche the contractual structure under which they operated was the same. This is outlined at paragraphs 26-30.
    26. The vessels were taken on a bareboat charter from Prosafe by Interpetrol Ltd ("Interpetrol") a company resident in the Cayman Islands. Interpetrol did not play any active role in the management of the vessels.
    27. Ocean Oil Construction and Services, S.A.R.L ("Ocean Oil") chartered the vessels on identical terms from Interpetrol. Ocean Oil's business was initially based in the UK and owned by Ocean Oil Construction and Services Ltd. The business was sold to the Luxembourg company in November 2004 and remained there throughout the remainder of the relevant period. Ocean Oil was responsible for sourcing vessels meeting the specifications required by PEMEX, for arranging any modifications to the vessels and for mobilising the vessels to the Bay of Campeche. Ocean Oil also employed all of the vessels' non-Mexican crew-members, including the Appellants, from 2004 onwards, prior to which the crew-members were employed by Interpetrol Ltd.

    28. The vessels were chartered from Ocean Oil by Cotemar S.A. de C.V. ("Cotemar"). Cotemar was resident in Mexico throughout the relevant period. Cotemar was the designated legal operator and manager of the vessels in the Bay of Campeche. Cotemar would contract with PEMEX to provide the vessels, and to perform the services required by PEMEX. Such contracts were the result of a process of competitive tenders. Cotemar employed all the Mexican crew-members and the catering staff on the vessels at all times during which the vessels were located in the Bay of Campeche, during the relevant period.

    29. Navigare International, Inc ("Navigare") was an oilfields service company throughout the relevant period, providing consultancy services to companies operating within the Bay of Campeche. In particular, Navigare, was contracted by Ocean Oil to procure equipment for the vessels and to identify and interview suitably qualified crew members for the vessels (who would then be employed on the vessels, initially by Interpetrol Ltd and then by Ocean Oil).
    30. The operation of the vessels in the Bay of Campeche was a collaborative effort between Cotemar, Ocean Oil and Navigare.

    Oil production in the Cantarell oil field

    31. The Cantarell oil field ("the Cantarell field") is located in the Bay of Campeche, Mexico. The Cantarell field is made up of five major fields: Akal (by far the largest), Nohoch, Chac, Kutz and Sihil and is a relatively new oil field, discovered in 1976. The fields in which the vessels operated were in active production throughout the relevant period.

    32. During the relevant period there were approximately 160 platforms within the Cantarell field . This total consisted of 13 major production complexes and a number of other satellite platforms. The major complexes were made up of a number of linked platforms which housed, amongst other things: separation equipment; gas compression equipment; transmission stations; electrical generator plants; processing plants; drilling platforms and habitation units for production workers.
    C. Safe Caledonia
    33. The Safe Caledonia was built in or around 1982 as a semi-submersible accommodation/service vessel.
    34. The vessel served in the North Sea, prior to being moved to the Bay of Campeche in early 2001. Whilst in the North Sea she provided accommodation services (which included the provision of accommodation berths, recreation and food). Her use was described as being that of a "flotel" (i.e. a floating hotel.)

    35. The vessel was moved to the Bay of Campeche to operate under a contract with Kellogg, Brown & Root ("KBR") (an engineering firm based in the USA). Under the contract Cotemar was to provide the Safe Caledonia in order to assist KBR in respect of a major project to install two further platforms at the Akal-C production complex. It was a condition of the contract with Cotemar that prior to its arrival in the Cantarell field the Safe Caledonia would be upgraded to a dynamic positioning ("DP") system.[1] This would allow it to remain in position without the use of anchors.
    36. Prosafe paid for, arranged and oversaw the upgrade of the Safe Caledonia to DP and the vessel was reclassified as operating on DP1 by Det Norske Veritas ("DNV") (i.e. the Norwegian maritime classification society.)[2]
    37. The contract between Cotemar and KBR began on 5 February 2001 and ended on 18 November 2001. The Safe Caledonia was then immediately chartered by PEMEX directly (as the result of a competitive public tender) to perform exactly the same role. The charter between Cotemar and PEMEX ran from 18 November 2001 until 12 May 2002. During the period of time that the Safe Caledonia was in the Cantarell field the vessel was used to provide maintenance/construction services and accommodation services.
    38. The contract between Cotemar and PEMEX for use of the Safe Caledonia ended on 12 May 2002. At that time the Safe Caledonia was taken off-hire and moved to Vera Cruz, Mexico, where it was taken aboard the Mighty Servant 1 (a heavy-lift ship) which was used to transport it to the Coast Centre Base ("CCB") at Agnotes, Bergen, Norway. The vessel arrived at the CCB in mid-June 2002. During the transportation of the vessel from Mexico, a number of maintenance projects were undertaken including: the removal of the galley and toilets and the stripping down of the main engines. During the transportation of the Safe Caledonia it was fully manned with marine crew.
    39. The vessel remained in the CCB until 7 July 2002. Whilst it was located in the CCB the vessel was disabled and underwent a complete shipyard repair, this included: the rebuilding of the galley; the overhaul of the engines; the repair of the ballast pipelines, and the removal and replacement of two propulsion thrusters and 6 mooring wires.
    40. On the 7 July the vessel left the CCB in order to operate under a contract with Statoil Hydro. Service under this contract was in connection with the Sigyn satellite development and Sleipner West compression project. The contract began on 9 July 2002 and ended on 15 November 2002.
    41. At the end of the Sleipner contract the vessel was taken off-hire and moved to the WestCon shipyard in Olen, Norway. The vessel remained in the shipyard until 11 December 2002. Whilst in the shipyard further maintenance projects were completed in respect of the vessel: two thrusters were removed and replaced; the gangway pedestal and access were extended; four mooring wires were replaced and the vessel's systems and pipework were overhauled.
    42. On 11 December 2002 the vessel left Olen and began travelling to East Timor. The vessel was towed via Las Palmas, Gran Canaria and Durban, South Africa. At Durban a new air-conditioning system, deck generators and refrigeration plants were loaded onto the vessel. During the remainder of the journey the vessel's engines were disabled to allow the installation of the new air-conditioning system. In addition, a new on-board fire smothering system was installed.
    43. The vessel arrived in the sea off East Timor in early May 2003 and began to operate under a contract with Conoco Phillips on 1 July 2003. This contract continued until 18 April 2004.
    44. After the completion of the contract with Conoco Phillips the Safe Caledonia was towed to the Bonga field, off the coast of Nigeria. The vessel began this journey on 20 April 2004, travelling via Cape Town, South Africa and arrived at the Bonga field on 17 June 2004.
    45. Whilst being towed the vessel was disabled due to the shutting down of its main generators. The period of transfer to the Bonga field was used to undertake further upgrade and maintenance work. The water cooling system and the fuel oil system were stripped down and the vessel was upgraded to a DP2 system. During this time the vessel was incapable of providing power or propulsion or of undertaking navigation. A number of its anchor wires were also removed.

    46. The vessel was towed to Nigeria via Cape Town, where the vessel's gangway was replaced and equipment for the completion of the DP2 upgrade was loaded onto the vessel.
    47. The vessel operated in support of a Floating Production Storage and Offloading vessel ("FPSO") whilst in the Bonga field. The Safe Caledonia began to operate in the field on 3 July 2004 and continued to operate there for the remainder of the relevant period.
    D. Safe Lancia
    48. The Safe Lancia was built in or around 1982 as a semi-submersible accommodation/service vessel.
    49. The Safe Lancia was moved to the Cantarell field in April 1998. She was provided by Cotemar to PEMEX. At that time the Safe Lancia provided purely flotel services. It was conventionally moored using anchors. Prior to July 2003, she was moored with a ten point wire winch mooring system.
    50. The Safe Lancia continued to operate as a flotel in the Cantarell field until 27 June 2003. Extensions of the original charter began on: 1 June 2000, 1 August 2001, 1 August 2002, 12 October 2002 and 7 May 2003.
    51. Cotemar entered into a contract with PEMEX on 14 April 2003 (having won the contract on 19 March 2003 as the result of a public tendering process) for the provision of services described as "Reconditioning of platforms and processing centers in offshore installations with the support of a semisubmersible platform (CA)." Cotemar was required to provide the Safe Lancia to perform the services under the contract. The contract provided for commencement on 17 October 2003 and termination on 31 December 2007. The said contract was in the same terms to that under which the Safe Britannia operated during the period from October 2003 to December 2007, as referred to below.
    52. Prior to the start of the contract, modifications to the vessel were required in order to meet the specifications provided for by PEMEX. The modifications to the Safe Lancia cost $19,153,560 and were funded by Prosafe, who recouped their investment through an increased daily charter rate over the course of the contract. The modifications were arranged and overseen by Ocean Oil and Navigare.
    53. In order to effect the modifications, the Safe Lancia was taken off-hire for a period of approximately 4 months. The vessel was taken off-hire from 27 June – 29 October 2003 and moved out of the Bay of Campeche to Port Arthur, Texas where the vessel was kept in wet dock. During this period the vessel was upgraded. The work was carried out by Signal International (the owners and operators of the dock) and a series of independent contractors.

    54. The Safe Lancia commenced operations under said contract on 29 October 2003. She was allocated to operate in the Abkatum complex, a major complex within the Cantarell field. She continued to operate under this contract for the remainder of the relevant period. She was subsequently awarded a further five year contract in similar terms.
    E. Safe Britannia
    55. The Safe Britannia was built in or around 1980 as a semi-submersible accommodation/service vessel. Prior to moving to the Cantarell field the Safe Britannia was chartered for use at Statfjord in the Norwegian sector for 90 days in the second quarter of 2001.
    56. The Safe Britannia moved to the Cantarell field in late 2001. Cotemar subsequently operated the vessel and was responsible for the provision of purely flotel services to PEMEX. Cotemar's initial contract for the provision of flotel services ran from 17 October 2001 to 8 October 2002. This contract was extended so that it ran until 17 July 2003 and was then further extended to 31 August 2003.
    57. On 10 March 2003, Cotemar entered into a contract with PEMEX for the provision of services described as "Reconditioning of platforms and processing centers in offshore installations with the support of a semisubmersible platform (CA)." Cotemar was required to provide the Safe Britannia to perform the services required under the contract.[3] The contract was to run from 3 October 2003 – 31 December 2007. The said contract was in the same terms as that under which the Safe Lancia operated during the period October 2003 – December 2007, as referred to above.
    58. In order to meet the technical specification requirements prescribed by PEMEX the Safe Britannia was taken off-hire from 31 August – 3 October 2003. The vessel was taken out of the Bay of Campeche and moved to a mooring off-shore at Corpus Christi/Brownesville, Texas. During this time a number of modifications were made to the vessel. The work was performed by Signal International along with a number of other subcontractors.
    59. The modifications were funded by Prosafe, who recouped their investment though an increased daily charter rate over the course of the contract. The upgrades to the vessel cost $1,860,738 and increased the value of the vessel from approximately $75 million to approximately $80 million.
    60. The Safe Britannia commenced operations under said contract on 3 October 2003. She was allocated to operate in the Akal complex, a major complex within the Cantarell field. She was subsequently awarded a further five year contract in similar terms.
    F. Miscellaneous
    61. A meeting took place on 15 March 2005 at the Prosafe Office in Aberdeen attended by, amongst others, Mr John Reid of Prosafe and Ms Laura Pinkerton and Ms Sharon Campbell, officers of HMRC. Prosafe personnel made a presentation concerning the company and its vessels. Copies of the slides used in the presentation were provided to the HMRC officers. A minute of the meeting was kept and thereafter signed by Mr Reid and Ms Campbell. Ms Pinkerton was provided, by Prosafe, with: copies of the presentation slides; a booklet of Prosafe vessel specifications; a standard bareboat charter relating to the Safe Britannia; a standard bareboat charter relating to the Safe Lancia and information relating to the MSV Regalia."

  18. I make the following additional findings of fact:-
  19. Safe Lancia
    62. Between 1/1/03 and 26/6/03, the vessel was the subject of a bare boat charter between its owners Prosafe Offshore AS and Interpetrol Ltd (of the Caymen Islands.[4] Clause 5 of the Standard Bareboat Charter conditions provide that the vessel was to be employed as a Maintenance Accommodation Vessel. There was an express obligation not to make any structural changes to the vessel or to change its machinery.[5] During this period the vessel operated as a flotel.
    63. Before commencing the 2003 Contract (referred to in paragraph 51 above), the Safe Lancia underwent a significant upgrade. Between about 9/5/03 and 8/7/03 the Safe Lancia was off-hire and anchored in the Bay of Campeche for major overhaul of its equipment. It left Mexico for Texas on or about 8/7/03 where it spent some three months. It was upgraded to Class II DP or its equivalent (referred to in some of the documents as DP2 DNV[6]) It was also upgraded to FiFi II[7]. The upgrade also included new engines, a new crane with increased maximum load from 40 tonnes to 60 tonnes, a new fabrication shop, and enhanced workshop facilities. Additional warehousing capacity was also provided. The deck was strengthened to support a load of 5 tonnes/m2. Only 2 tonnes/m2 would be required for a flotel. These major modifications altered the character of the vessel. None of these modifications would have been required to enable it to continue to operate asa flotel
    64. When it did begin the 2003 Contract on or about 17/10/03, the vessel still provided accommodation and accommodation related services for a variety of personnel. Nevertheless, its purpose and deployment under the 2003 Contract was essentially as part of a maintenance and construction programme. The scope of the work under the Contract confirms that the main purpose and the deployment of the vessel was inspection, testing , maintenance, installation, on-board fabrication work, the transfer of materials, diving support, and anti-corrosion work. It moved regularly, if not continuously, between the different installations. The crew were either marine crew or construction personnel.
    65. The 2003 Contract is in substantially the same terms as the contract entered into in 2003 (the "2003 SB Contract") in relation to the Safe Britannia referred to above in paragraph 57 above and referred to in more detail in paragraphs 73 to 81 below.
    66. The Safe Lancia's work prior to 28th June 2003 involved or included the provision of some workshop, construction and project management facilities for the installation of numerous new platforms in the Cantarell Field with a diverse range of personnel permanently resident on board.[8] The differences in its operation under the 2003 Contract compared with its operation as an accommodation vessel were significant. In particular, the Safe Lancia was, under the 2003 Contract, permanently in DP mode and moved more or less continuously between different installations. All personnel were either marine crew or construction personnel. Its daily rate was much higher. It carried a large inventory of machinery, equipment and replacement parts. It no longer provided power or sanitation for the production platforms. The contractual chain of its relationship with Pemex was different.
    67. From about October 2003 onwards many of the workers who were resident on the Safe Lancia worked on the vessel carrying out fabrication work. From time to time they worked on other installations to instal or repair items of plant and machinery. A standard flotel would not be able to provide the services provided by this vessel under the 2003 Contract. Moreover, workers accommodated there would not, in general at least, work on a flotel; they would work on a production platform.
    68. The Safe Lancia is likely to continue be or to be available for use as a construction support vessel throughout the remainder of its working life.
    69. Exhibit 3 to Mr Hukill's witness statement, to which he deponed or spoke in evidence, contains inter alia a series of photographs depicting a wide range of work undertaken by the Safe Lancia under the 2003 Contract. These photographs depict inter alia, operations relating to the pre-treatment of metal prior to fabrication, assembly and painting, general fabrication and construction work, the transfer of equipment to another semi-submersible platform, the construction of a new diving support platform on the Safe Lancia, the replacement of a flare tip, the construction of a storage rack and its installation on the Abkatum platform.
    70. Folder C contains Log Book entries for the Safe Lancia for the period between 29/10/03 to 30/4/05. There is a pro forma sheet for each day headed Deck Log. The form contains sections for the following information:- location, weather (including temperature, visibility, wave size, swell, roll, pitch, heave and gangway movement), anchor information (tension in tonnes and wire out in metres), supply vessel operations, loading and unloading, gangway report, thruster report , bulk materials report relating to itemssuch as fuel oil fresh water, quantity used, transferred loaded and made, and quantities remaining. There is a box for personnel on board divided into Cotemar, Charterer, Pemex, catering and contract crew; there is a box for helicopter movemens and box for various pieces of information about deck and other loads (described as a stability summary). There is also a section for a summary of the vessel's movements. A cursory examination of these sheets indicates that they have been completed in some detail. In summary, an analysis of the Logs reveals that in the 550 days covered, on about 339 days the vessel was moved from one location to another, on about 123 days when the vessel's gangway was connected to an installation, it was static, and on about 83 days it was moving around a particular location. Between 22/6/04 and 30/4/05 it was static on only 31 days.
    71. In summary, while operating as a maintenance and construction support vessel, the Safe Lancia provided a variety of services to the production platforms within the Bay of Campeche. In particular, the vessel was from time to time used to lift plant and machinery into position on the platforms; to allow on-board fabrication and construction; to provide workshop, sandblasting and storage facitlities; to provide a base for diving support operations and for fire-fighting and emergency response operations. It also accommodated maintenance and construction workers.
    72. The activities of the Safe Lancia from 29/10/03 did not involve the exploitation of mineral resources. It was not engaged in well work-overs; it was not used to extract or store mineral resources; nor did it carry out any work relating maintenance or repair or replacement of wellhead valves or structures; it was not used mainly for the provision of accommodation.
    Safe Britannia
    73. The contract referred to in paragraph 57 above (the "2003 SB Contract") contained detailed terms including general and detailed specifications. Clause 1[9] identified the purpose of the contract, namely to inspect, rehabilitate, recondition and modify the marine installations to preserve and increase their safety and efficiency, as well as provided the support work jobs required by the operative branches to increase and maintain the production levels required by Pemex in the Gulf of Mexico. Clause II provided that the scope of the work involved the following activities:- inspection, rehabilitation, Maintenance, correcting anomalies, dismantling, relocating machinery and equipment, modifying and repairing the structural (sic), process, power, instrumentation and control, industrial safety, environmental protection, auxiliary service, ductwork and "monobuoy" systems that integrate the general offshore petroleum extraction facilties in the Gulf of Mexico.
    74. Generally, the Contractor had to execute the work jobs required to provide the rehabilitation and maintenance of the marine installations and preserve production process continuity. The contractor was also required to provide the necessary support in cases of urgency, emergency and/or contingency that may arise.
    75. Annexes to the 2003 SB Contract provided, by specification, the standards which the Safe Britannia had to meet. Annex B set out general procedures for works. By Clause 3.1, Pemex were to appoint a supervisor to coordinate all specifications for the works to be undertaken. The Contractor was to appoint an on-board representative and a technical or administrative representative. By Clause 3.2, Pemex was to indicate the numbers of staff and the quantity of equipment which the Contractor was required to have on the Safe Britannia. This was subject to amendment from time to time (Clause 3.3). Provision was made for meeting Pemex's requirements in relation to staff, equipment and location within a specified period (Clause 3.8).
    76. The detailed specifications set out the nature of the work required under the 2003 SB Contract. It included[10] general and detailed visual inspection, non-destructive testing, metrology and survey requirements for surface and underwater equipment relating to inter alia platform structures (superstructure and substructure), underwater pipes; risers; process pipework and pressurised tanks, process systems, drilling equipment, power systems, instrumentation and control systems and safety and environmental protection systems. Other work included the reconditioning, repair, replacement, modificiation, installation, restoration, maintenance, assembly, disassembly, and removal of a wide range of specified structures and components.[11]
    77. The Detailed specifications also referred to the preparation of field engineering work, the details of what that entailed in terms of diagrams, plans, planning and the preparation of work schedules. Support services (to stimulate and maintain well production at a constant level) were also set out. These included the preparation for and installation of structures such as cranes for manoeuvring and handling equipment, and diving operations
    78. Annex B-1 of the Detailed Specifications page 4 of 22[12] required the Contractor to have personnel available with a wide range of skills in particular specialities such as welding, diving, instrumentation, anticorrosive protection, crane operation, technical engineers, project management, safety and quality control. At page 9 of the same Annex the Contract required the Contractor to have a computer system to cope with the magnitude and complexity of the information required for the administration and control of the work described in the contract.
    79. When the Safe Britannia was in dry dock or having repairs carried out or when its anchorage or propeller/thrusters systems malfunctioned, no charge could be made for its time.[13] Throughout the contract, the Contractor had to have certain specified resources available. These included[14] the provision of personnel, machinery, equipment, materials and supplies. The main crane is described as a basic part of the operation of the vessel.[15] The vessel was considered to be out of operation if the crane was out of service and this affected scheduled operations. If the vessel is removed from the work site due to adverse weather conditions caused by the approach of a hurricaine in the Gulf of Mexico, then Pemex do not require to pay for the vessel during such period when the vessel removes the gangplank until the gangplank is re-installed at the worksite or a new site.[16]
    80. Detailed provision is made for payment for diving equipment and operations[17] and the provision of materials within a specified period.
    81. In a further part of the 2003 SB Contract, detailed provision is made for the specification of the vessel itself rather than the personnel and facilities and services it must be capable of providing. These include requirements relating to Dynamic Positioning (DP II) which is sufficient to undertake maintenance and construction work , surface diving and the ability to operate in wave conditions of up to 12 feet and in wind of up to 45 knots, a particular anchoring system, a particular size of crane with particular reach (60 tonnes with a vertical reach of 65m above sea-level); a specified deck load capacity (60 tonnes); fire-fighting equipment (FiFi-II).[18] Storage capacity was another matter which was the subject of express stipulation.[19] The vessel had to be fitted out in such a way that it included areas for the storage of materials and sundry equipment such as instruments, (and) structural equipment. There had to be areas for welding equipment and paint, and diving equipment. There also had to an enclosed storage area of at least 200m2, a workshop area, an area set aside for cleaing work, and sandblasting, and a handling area.[20]
    82. The modifications referred to in paragraphs 58 and 59 above made no material change to the vessel's ability to provide accommodation, recreation or dining facilities.
    83. Between about April 2003 and April 2004, the daily average personnel on board was 711, and the daily average working on platforms was 193.[21] By June 2005 the total number was 789, of which 169 were marine crew and about 593 were construction crew, with the rest occupying a variety of positions.
    84. Much of the work undertaken by the Safe Britannia was carried out at the Akal complex.
    85. A standard flotel would not be able to provide the services provided by this vessel under the 2003 SB Contract
    86. In 2007, a further contract was entered into between Cotemar and Pemex in relation to provision of maintenance and support work in the Bay of Campeche. One of the requirements was that the vessel should be able to accommodate 450 persons for Pemex, pus crew and service and administrative personell.[22] The tender documents contained very detailed requirements along similar lines to those described above in relation to the 2003 SB Contract.
    87. The Safe Britannia is likely to continue be or to be available for use as a construction support vessel throughout the remainder of its working life.
    88. Exhibit 3 to Mr Hukill's witness statement, to which he deponed or spoke in evidence, contains inter alia a series of photographs depicting a wide range of work undertaken by the Safe Britannia under its 2003 Contract. These photographs depict inter alia, operations relating to the assembly and lifting of a crane onto the Akal C-2 platform, the installation of a propane gas tank on the same platform, the removal of a flare tip at Akal -J, the fabrication of pipework to be fitted into the pipework at the Akal C complex, the delivery and securing in place of a laboratory on the Akal C-3 platform. In relation to much if not all of these operations fabrication, construction and or assembly work was carried out on the Safe Britannia. Some of these photographs illustrate the extensive range of plant and equipment kept on board the Safe Britannia such as welding machines, winches and scaffolding.
    89. In summary, while operating as a maintenance and construction support vessel, the Safe Britannia provided a variety of services to the production platforms within the Bay of Campeche. In particular, the vessel was from time to time used to lift plant and machinery into position on the platforms; to allow on-board fabrication and construction; to provide workshop, sandblasting and storage facilities; to provide a base for diving support operations and for fire-fighting and emergency response operations. It also accommodated maintenance and construction workers.
    90. The activities of the Safe Britannia from 3/10/03 did not involve the exploitation of mineral resources. It was not engaged in well work-overs; it was not used to extract or store mineral resources; nor did it carry out any work relating maintenance or repair or replacement of wellhead valves or structures; it was not used mainly for the provision of accommodation.
    Safe Caledonia
    91. This vessel was upgraded in about 2000. A principal feature of this work was the upgrade to DP1. The work was initiated at the request of Cotemar to enable the vessel to provide support services in the Bay of Campeche where the vessel was required to work at multiple locations.[23] It has accommodation for about 550 personnel, deck and warehousing facilities; machine and welding shop, office accommodation and craneage capacity of up to 50 tons.
    92. During the period between 12/5/02 and mid June 2002, when the vessel was being transported on the back of the Mighty Servant 1 heavy lift ship, the vessel was under repair. It was not operating or performing its normal function under any contract.
    93. Numerous repair and maintenance projects were carried out. The vessel was, however, fully manned by the marine crew but could not carry out normal operations. When it arrived at the shipyard in Norway, the galley was rebuilt, the engines overhauled, and a twenty year periodic survey carried out for ship classification purposes.
    General and Miscellaneous
    94. Between about 1995 and 2001 Pemex contracted with operators to provide specialist vessels to work in the Cantarell field. Such vessels had limited accommodation capacity. Semi-submersibles were provided for use as flotels. These vessels provided accommodation, food and recreation. Generally, no construction work was carried out on these vessels; they were not used for heavy lifting operations. They were usually moored using anchors and were stationed a safe distance from the oil production platforms. Pemex determined who would be accommodated on these vessels. The workers would be transported from the flotels to their place of work on a production platform.
    95. By about 2001, Pemex had changed its policy in relation to the best method of maintaining the oil production infrastructure in the Cantarell field in the light of its successful experience with the Safe Caledonia. They realised that semi-submersible vessels could undertake a wide range of maintenance activities on long term contracts (usually five years). This led to contracts involving the Safe Lancia and the Safe Britannia.
    96. The complexes and platforms at which the vessels were deployed during the periods of the 2003 Contract and the 2003 SB Contract remained in operation during those periods except insofar as it might be necessary for any particular item of work to be carried out. No actual occasion occurred in which production ceased because of the operations of any one or more of the three vessels under discussion was spoken to in evidence. It was thus not generally necessary for the well to be killed to enable any of the three vessels to carry out the range of activities described above
    97. There is no substantive difference in the nature of the works provided for under either 2003 Contract. Most of the various types of work specified in the 2003 Contracts was actually carried out from time to time under these contracts. In contrast to the 2003 Contracts described in detail above, the tender documents in folder A/12, which relate to a vessel named Jupiter 1, are for a contract for food and hotel services with the support of international platforms. The provision of accommodation services is not limited to accommodation solely and can include recreation, dining, office space, workshop space, storage space, construction and some maintenance services.
    98. The layout and details of the contract relating to the Jupiter 1 contract are materially different from the 2003 contracts relating to the Safe Lancia and the Safe Britannia. At the forefront of the terms and conditions is the obligation to provide food services on board of the Quarter' platform in a careful, efficient, considerate, proactive, professional manner and.........in compliance with the norms and regulations used for health and hand hygene control in handling and preparation of foods in fixed establishments. The documents specify how the food is to be packaged, prohibit alcohol and drugs, lay down rules for the refrigeration and storage of food, and appear to equiparate the obligations to the provision of hotel services, referring to cleaning services, the supply of bed linen, towels, soap and the like. The documents also set forth requirements relating to the accommodation (air conditioning, lighting etc). The documents require the provision of a minimum of 500 beds, the provision of office accommodation, TV rooms, a gym, multi use rooms, workshops, a cranes of no less than 12 tonnes. The type of magazines, books and board games to be made available are specified. A movie theatre is to be provided and again the categories of DVD are specified. Provision is made in the contract for crane lifting capacity. This relates to the transfer of food and spare parts all for use on the Jupiter
    99. The Jupiter 1 contract was similar to the contracts under which the Safe Lancia and the Safe Britannia operated prior to October 2003
    100. Folder A/18 contains the Minute of the meeting dated 15/3/05 referred to in paragraph 61 above.
    101. All three vessels (Lancia, Britannia and Caledonia) are registered with the Singapore Registry of Ships dated 21/6/06 as accommodation rigs
    102. Under the 2003 Contracts relating to the Safe Lancia and the Safe Britannia, Cotemar SA d CV assumed a greater role than in the earlier contracts. They were the designated operator of all three vessels throughout their time in the Bay of Campeche, Gulf of Mexico. The vessels were provided with an assembly of maintenance worker, engineers and administrators/project managers all employed by Cotemar. Pemex informed them of its requirements and Cotemar undertook responsibility for carrying out those requirements. The vessels were, in effect, floating toolboxes, which were moved around to where they were needed to carry out work of maintenance and/or construction. A wide range of services was supplied including engineering, estimating, surveying, inspecting, testing, procurement and installation, on-board fabrication, warehousing, diving support services ( in connection with surface diving ), firefighting and emergency services and specialist lifting services. None of these services was directly related to the extraction of the mineral resources from the wells. No work on Christmas trees or other plant or equipment in or at the well-head. These vessels were not involved in well work-overs. Generally, their work was remote from actual oil extraction and/or processing. They were involved in the replacement of some equipment such as oil conveyance pipes/separator, tanks and flare stack tips. However, steel replacement and corrosion prevention work accounted for about 65% of their work
    103. The Daily Charter rate for a flotel was about $29,000 a day in October 2003 for a Prosafe vessel. The Daily Charter rate for the Safe Lancia from 1/1/04 was $42,071 and for the Safe Britannia it was $43,785.
    104. In their Annual Report for 2004 the Prosafe Group promote themselves as the leading owner and operator of semi-submersible accommodation and service rigs. References to the Safe Lancia and Safe Britannia in official registers and documents and other literature from October 2003 as accommodation vessels and later is incorrect. Prosafe has continued to describe the vessels as accommodation vessels in its promotional material and official documentation. All this probably has arisen through failure to bring these documents and records up to date.
    105. In 1995, the Health and Safety Executive issued guidance on the Offshore Installation and Pipeline Works (Management and Administration) Regulations 1995. The Guide provides inter alia as follows:-
    Activities of offshore installations
    15 Regulation 3(1) describes an offshore installation as a structure used for a number of activities related to the exploitation of oil and gas resources in "relevant waters". (I.e. UK waters – see paragraph 29 for a fuller explanation). A structure must carry out at least one of the following activities to be regarded as a an offshore installation:
    Exploring includes activities carried out by mobile offshore drilling units. Exploitation includes activities carried out by fixed and floating production platforms and floating storage units. Exploitation other than by a well, such as dredging for sand and gravel or exploration for such a purpose, is not included.
    ....................
    17 To be an offshore installation, not only must a structure be undertaking an activity in regulation 3(1), but it also must be "standing or stationed" for the purpose. The term "standing or stationed" indicates a degree of permanence. The following vessels are not considered normally to be "standing or stationed", because of the transient nature of their work:
    18 Other vessels and structures which undertake activities listed in regulation 3(1), but are more permanent and therefore do not fall within the definition of "offshore installation" include
    21 However, apart from regulation 5, these Regulations do not apply (because regulation 4 excludes offshore installations in transit) until it reaches its working station prior to operating or being constructed there.
    When does an installation cease to be an offshore installation?
    22 A structure ceases to be an offshore installation or ceases to be subject to the legal requirements applying to "offshore installations" when:
    Structures which are not offshore installations
    26 Regulation 3(2) specifies a number of things which are not offshore installations. These are:-
    29 The Regulations apply in "relevant waters" as defined in regulation 2(2). These waters comprise:
    Offshore record
    63 The offshore record must be kept either on the offshore installation concerned or, if that is not appropriate, at a suitable place nearby, such as an adjacent installation or vessel (e.g. during construction). Where two offshore installations are engaged in combined operations, the record will need to be kept for each installation showing those persons who are currently on or working from the installation. In such circumstances the managers of both offshore installations will meed to co-operate to ensure that the records are kept accurately, particularly where individuals may travel frequently between the installations. "Working from" an offshore installation inthis context would mean that a person is considered part of the complement for one installation but may temporarily be working on the other installation. Records do not have to be retained offshore of individuals who are no lonber on or working from the installation.
    106. The second edition of the same Guide, published in 2002, provides inter alia as follows:-
    15 ......................................
    Exploring includes activities carried out by mobile offshore drilling units. Exploitation includes activities carried out by fixed and floating production platforms, well service vessels (WSVs) and floating storage units. Exploitation other than by a well, such as dredging for sand and gravel or exploration for such a purpose, is not included.
    Standing or stationed
    18 To be an offshore installation, not only must a structure or vessel be undertaking an activity in regulation 3(1), but it also must be "standing or stationed" for the purpose. The term "standing or stationed" indicates a degree of permanence. The following vessels are not considered normally to be "standing or stationed", because of the transient nature of their work:
    When does an installation cease to be an offshore installation?
    27 A structure ceases to be an offshore installation and therefore ceases to be subject to the legal requirements applying to offshore installations when:
    28 If the change in activity is not permanent, then the definition as an installation continues to apply. For example, if a WSV attracts installation status, but then undertakes a diving support role, it remains an installation, unless it ceases permanently to undertake the activities of an installation (see paragraph 100 on certificates of exemption).
    107. In August 1998, the Health and Safety Executive issued Operations Notice 43, which was headed Classification of Specialist support vessels providing accommodation as "offshore installations". Paragraphs 4-9 of the Notice provide as follows:-
    4 This new guidance has been prepared in consultation with the main industry bodies.
    Specialist support vessel
    5 In cases where a specialist support vessel is used to provide:
    (a) a specialist support role, such as heavy lift or diving support;
    (b) at the same time, accommodation for personnel who work on or from the vessel;
    the vessel's main purpose may be considered to be either heavy lift or diving support respectively. In these circumstances the specialist vessel is not considered to be an offshore installation.
    6 Where such a vessel is used mainly for the provision of accommodation in support of an installation, then the specialist vessel would be an offshore installation.
    7 Factors which should be examined in order to determine whether a specialist vessel is used "mainly for the provision of accommodation" include:
    (a) the total planned duration of the vessel at the site;
    (b) the number of days to be spent on the "specialist" operations (including on-site preparation and tidying up);
    (c) the number of days to be spent providing accommodation for personnel who are not directly associated with the specialist operations;
    (d) the number of people resident on the vessel as crew members and personnel directly associated with the specialist operations; and
    (e) the ratio of the value between that part of the contract for the provision of the specialist function and that part for provision of accommodation.
    8 It is a matter of fact and balance in each case whether a specialist support vessel is considered to be an installation on the basis that it is used mainly for the provision of accommodation. Prior to engaging in contracts to provide specialist support and accommodation, specialist vessel owners and installation operators should consider the factors listed in the preceding paragraphs to determine the need for an operational safety case for the specialist vessel and the need for a combined operations safety case. To assist duty holders, HSE is willing to undertake the assessment of safety cases for specialist vessels which would enable them to engage in contracts where the "main" use may be the provision of accommodation.
    9 A specialist support vessel would cease to be an offshore installation when it reverted to its specialist activities. Paragraph 22 in the HSE Guide to MAR (see paragraph 12) gives further details.
    108. Oil constitutes a mineral resource for the purposes of Regulation 3 of the 1995 Regulations section 837C of the 1988 Act.
    Submissions
  20. Both counsel produced detailed written submissions. What follows in this section gives but a flavour of the main arguments advanced.
  21. Appellants
  22. Counsel for the Appellants in a concise and detailed analysis submitted a number of different grounds to support the argument that the vessels were excepted from being offshore installations for various periods during the relevant years of assessment. In summary, he submitted that (I) the Safe Lancia and the Safe Britannia were excepted from being offshore installations for the periods in which they ceased or ceased to operate as flotels and instead operated as maintenance and construction support vessels; (II) these vessels were excepted as they had not been standing or stationed for the periods during which they operated as maintenance and construction support vessels; (iii) during the period between 12/5/02 and 7/7/02 the Safe Caledonia was taken out of use; it was not then operating under a contract for use; it was initially being transported to Bergen; it was the subject of various maintenance projects, and (III) all three vessels were excepted for the periods during which they were taken out of use during the relevant years of assessment.
  23. The Appellants reserved the right to contend, in any further appeal, that prior to 6/4/04 the vessels were not offshore installations for any period during which they were not within relevant waters as defined in the 1995 Regulations. They recognised that there was binding Court of Session authority contrary to the Appellants' contention (Palmer v HMRC 2006 SC 464). This argument was not discussed in any detail before me but I note that the issue relating to the possible statutory confusion between controlled waters and relevant waters is also discussed in Langley at paragraphs 14, 15, 18, and 29-32
  24. HMRC
  25. HMRC's main arguments were that (i) all three vessels served as accommodation vessels with service facilities in addition (Clark v Perks 2001 2 Lloyds Rep 431 paragraph 43, Addison v Denholm Ship Management (UK) Ltd 1997 ICR 770 at 776). Further services have been provided in connection with the exploration and exploitation of mineral resources by means of a well (Langley v HMRC 2007 Spc 00642), (ii) cessation of use within Regulation 3(2) (d) of the 1995 Regulations connotes permanent cessation of specified uses; however he accepted and adopted the approach to ceased permanently advanced by Mr Brinsmead- Stockham, namely a cessation of a use that is both lasting (i.e. not merely temporary), and is combined with the lack of a fixed intention to use the vessel in such a matter again; and (iii) the vessels were stationed in areas of active exploitation and exploration (Torr v HMRC 2008 Spc 00679). Mr Brodie proposed a number of additional findings of fact (some of which I have incorporated into this Decision).
  26. Mr Brodie invited me to take a purposive approach to the legislation (Lister v Forth Dry Dock & Engineering Co Ltd 1989 SC 96 and 1990 1 AC 546, at 558,559 and 577. He emphasised the origins of the 1995 Regulations and their health and safety purpose under reference to Directive 89/391/EEC and Directive 92/91/EEC. These provisions should not be construed differently in fiscal context and no substantive change was made by section 837C of the 1988 Act particularly in relation to the definition of offshore installation, which should be given a wide construction. Thus, he argued it covered work associated with the extraction of the mineral, that is to say the whole range of work from birth to death; the work need not be confined to the direct working of the mineral. Thus, work of maintenance, repair and improvement are included.
  27. Relevant waters in Regulation 3(1)(a) of the 1995 Regulations meant any waters (Palmer v HMRC 2006 SC 464, ).
  28. Discussion
    Issues of Interpretation
  29. There are a number of issues of interpretation which it is convenient to deal with discretely. The first is whether the word ceased in Regulation 3(2)(d) of the 1995 Regulations means "cease permanently". A related issue is the meaning to be given to the phrase ceased permanently as used in section 837C of the 1988 Act.
  30. In my opinion the word ceased in Regulation 3(2)(d) of the 1995 Regulations does not mean permanent cessation as HMRC contended. In the first place, the word permanently is nowhere to be found in paragraph 3(2)(d), or its predecessor (1971 Act section 12(1) as inserted by paragraph 11 of Schedule 3 to the Oil and Gas (Enterprise) Act 1982), unlike its successor provision in section 837C(3)(a) of the 1988 Act. Nor is it necessary to imply the addition of the word permanently. What then, does ceased connote in the present statutory context? The ordinary dictionary meaning of to cease is to stop, discontinue or desist from. The change from doing to not doing may or may not last forever but I can see no reason why cessation must be permanent. It may be temporary or permanent. However, it is not, in the present context, necessary to imply that the cessation must be forever.
  31. The HMRC contention that ceased means ceased permanently has a number of practical difficulties. If permanent cessation depends on intention as they maintain, it is difficult to see how such an interpretation could be applied in a practical way. For example one may cease doing something with the intention of never doing it again. Six months later one may form the intention of doing so again
  32. Reference has been made to the HSE Guidance both first and second editions. Although I find it unnecessary to rely on such contemporanea exposito, it seems to be a legitimate aid to statutory interpretation (See Bennion on Statutory Interpretation 5th Edition page 702). The first edition, being contemporaneous, and being an official statement of the relevant government department, is more likely to reflect what was intended at the time the 1995 Regulations were promulgated. Paragraphs 22 and 26 of the First Edition do not mention the need for everlasting cessation or emphasise permanence. Paragraph 27 of the Second Edition introduces the word permanently. There does not appear to be any warrant for such a gloss. Reliance on such guidance may raise difficult issues of whether an updating construction should be given and whether the statutory provision in question is an ongoing Act or a fixed-time Act as discussed in Bennion at pages 889 et seq. I was not addressed on these matters and do not propose to consider them further.
  33. Ultimately the question is whether the structure has stopped carrying out an activity which falls within Regulation 3(1), which is a question of fact. As originally enacted, there may have been some overlap between Regulation 3(2)(d) and (e).
  34. The second issue of interpretation is the proper meaning to be given to section 837C(3)(a) of the 1988 Act (ceased permanently). Counsel for HMRC submitted that the new provision did not effect any substantive change. However, he adopted the Appellants' interpretation which was that the phrase be construed to require a cessation of use (within section 837C(2)) that is both lasting (i.e. not merely temporary) and is combined with the lack of a fixed intention to use the vessel in such a manner again.
  35. The resolution of the issue on that view becomes a question of fact and degree. Cessation should be a straightforward question of fact. The lack of fixed intention may be less straightforward depending on the circumstances, but leaves room for a broad sensible assessment to be made on all the available evidence. That seems to me to be a reasonably satisfactory solution. The possible alternatives seem less conducive to a fair result. Thus, to assert that the phrase requires a fixed intention never to be used as described in subsection (2) or that the vessel be rendered physically incapable of such use ever again would be an impractical and unjustifiably narrow interpretations. I therefore agree that the interpretation which both counsel advanced is the correct one. Some additional support for this view is to be found in C&EC v Help the Aged 1997 STC 406 and Henriksen v Grafton 1942 KB 184 which I discuss below, and the Oxford English Dictionary which refers to among other words abiding, enduring, lasting, persistent, opposed to temporary. The presence or lack of appropriate intention affects the nature of cessation, temporary or not temporary.
  36. The third issue of interpretation relates to Regulation 3(1)(d) of the 1995 Regulations (use for accommodation). Actual or future use from time to time is a question of fact. The word mainly requires a closer analysis of the purpose and deployment or future deployment of the structure. Both counsel suggested the matter was ultimately one of impression having regard to all the circumstances. A structure providing flotel services will fall within the sub-section. A structure providing a specialist service such as heavy lifting but also providing accommodation would probably fall outwith the sub-section (for what it may be worth, see the Health and Safety Guide first edition paragraph 15 quoted above). There was not much difference between counsel in their approach. I agree with counsel for HMRC who acknowledged that where reliance is placed on Regulation 3(1)(d) there had to be a separate structure falling within the provisions of Regulation 3(1)(a)(b) or (c). The persons for whom accommodation is provide must work on or from that separate structure; that is to say that separate structure must be the base from which they work. Some support for that view is found in (i) Regulation 21 which uses the same language (work on or from) to focus on the structure where the employee's activities are carried on; (ii) paragraph 63 of the first Edition of the Guidance which refers to employees working from one installation (engaged in combined activities with another installation) which meant that the employee was part of the complement of employees of one installation although he was temporarily working on the other installation, and (iii) HSE Operations Notice 43, paragraph 5(b) refers to providing accommodation for "personnel who work on or from the vessel".
  37. The fourth issue of interpretation relates to the phrase for the exploitation, or exploration with a view to exploitation, of mineral resources by means of a well in Regulation 3(1)(a) of the 1995 Regulations and what is substantially the same expression in section 837C(2)(a) of the 1988 Act. Counsel for HMRC submitted that the phrase should be given a wide construction as the overall purpose is to promote the health and safety of workers. While that may be true of the 1995 Regulations it cannot be the purpose of section 837C(2)(a). It was argued that the phrase should include construction maintenance and repair, and more generally, that which furthers or maintains the exploitation. Reliance was placed on Torr, the Oxford English Dictionary, the diverse uses specified in Regulation 3(1). It was also pointed out that well was an excepted structure in terms of Regulation 3(2)(b).
  38. There are three aspects to the interpretation of this phrase, namely use, exploitation and by means of a well. The word use connotes a physical activity in which the structure is engaged. Sub paragraphs (b) and (c) also focus on physical use. The word exploitation seems to have in mind the productive working of the structure, that is to say use in a manner which it is hoped will be profitable. By means of a well emphasises the manner of exploitation of the mineral resource. It would extend to extraction, storage and processing of the oil or gas but not to conveying it away by means of a pipe which is dealt with in Regulation 3(1)(c) (the conveyance of things by means of a pipe). Nor does it extend to the activities of maintenance and repair. To include those activities would be to substitute in connection with for the word for i.e. the indirect for the direct (c.f. regulation 2 of the 1995 Regulations where that phrase is used in the definition of associated structure).
  39. The fifth issue of interpretation relates to the phrase standing or stationed. This issue hardly arises given the findings of fact in relation to and the roving nature of the activities of the Safe Lancia and the Safe Britannia. Standing suggests something different from floating, such as relying for stability to a material extent on the sea-bed. Stationed suggests that the structure is largely static. The definition of installation in the Oil and Gas (Enterprise) Act 2002 section 24 (substituting a new section 1 of the Mineral Workings (Offshore Installations) Act 1971), which refers to a floating structure maintained on a station, is at least consistent with this. The HSE Guide, first edition, paragraph 17 refers to a degree of permanence which is again consistent with the structure being largely static. To interpret the phrase as meaning substantially stationary (as was done in Torr- see below) focuses on the static nature of the structure; one might ask is the structure in substance stationary? However, in substance and substantially are flexible words and leave much scope for divergence of view. Ultimately, the question must be one of fact and degree. Here, on the facts agreed and found, the answer to the question is not borderline at all. It is therefore perhaps unwise to introduce additional vague words into the statutory language.
  40. The sixth issue of interpretation relates to the phrase taken out of use in Regulation 3(2)(e) of the 1995 Regulations in its unamended form. This issue applies to the circumstances relating to the Safe Caledonia between the period 12/5/02 and 7/7/02. This phrase can only mean that the structure has stopped performing the function it was in use to perform and is not performing any other function. In the present appeals, this raises relatively straightforward questions of fact, as to which I refer to agreed findings 38 to 40 and the additional findings (91 to 93) which I have made.
  41. Authorities
  42. The principal authorities to which I was referred were Torr v HMRC 2008 Spc 00679, Langley v HMRC 2007 Spc 00642, Clark v Perks 2001 EWCA Civ 1228, C7CE v Help the Aged 1997 STC 406, and Henriksen v Grafton Hotel Ltd 1942 2 KB 184.
  43. Torr concerned foreign earnings deductions for seafarers. The issue was whether the vessel in question (the Pride South America) was a structure used while standing or stationed in relevant waters for the explotation of mineral resources within the meaning of Regulation 3(1)(a) of the 1995 Regulations. It was an agreed fact in that appeal that the Pride South America was originally designed as an offshore drilling unit but in the periods in question operated as a workover/support vessel carryingout well workover operations. It was also found as fact that (i) in its present state it could not be used for drilling, (ii) it had functions other than workover namely diving, crane operations including heavy lifts, and pipe laying, (iii) it could install, refurbish and perform sub-sea completion work on wells but could not enter the pressure confines of the well due to the limitations of its equipment, (iv) the work it had undertaken included platform refurbishment, installation of sub-sea manifolds, sub-sea Xmas tree installation and repair, cleaning sea-bed flow lines and Xmas trees of hydrates and similar substances, the construction of sub-sea manifolds, the construction of accommodation on platforms and the replacement of pressure vessels, (v) the Pride South America could not be used when the oil was flowing as it was not appropriately equipped; when its attendance was required, the well was killed (ie the flow was temporarily halted); (vi) it did not recover or store hydrocarbons and was not engaged in oil field exploration,; however it did carry out work down a well which had been killed by pumping a heavy liquid into the well, (vii) it went from field to field within the Campos Basin which was a very large area of oilfields about 100 miles from Rio de Janeiro; sometimes leaving one job to deal with a more important one elsewhere, (viii) its longest single job was 28 days, its recorded history showing 18 movements in one period of a year, and 24 and 26 in other years, and (ix) when working on an X-mas tree Pride South America was connected to the tree by a pipe and maintained in position directly above the tree by dynamic positioning.
  44. The arguments which the Special Commissioner had to consider were essentially whether (a) the vessel was being used while standing or stationed in relevant waters, and (b) the vessel was engaged in the exploitation of mineral resources. The Special Commissioner, who dismissed the appeals, concluded that (i) there was no substantive difference in the law for each of the years 2002/3, 2003/4 and 2004/5 (paragraphs 51 and 52), (ii) exploitation referred to physical rather than economic exploitation, the extraction of the crude oil from under the sea bed; and this involved the use of a structure (paragraph 43); (iii) exploitation covered repair work when the field was in production notwithstanding the fact that the field had to be temporarily killed (paragraph 48).
  45. The latter conclusion was based upon the view that the mineral resources did not cease to be exploited merely because a well was killed to enable corrective action to be taken and that there was no logic in applying the 1995 Regulations when the structure was in use during normal operations but not when remedial work was being carried out. In reaching this conclusion, I presume the Special Commissioner was influenced by the nature of activities carried out by the Pride South America.
  46. On the second argument, the Special Commissioner was satisfied that when dynamically positioned the vessel was stationed. He was of the opinion that standing clearly envisaged a ship being substantially stationary (paragraph 50). However, he did not comment on his findings as to the numerous movements undertaken by the vessel in the course of its duties and how that might affect the application of the phrase standing or stationed.
  47. The facts in Torr show that the activities of the Pride South America were closely associated in a physical sense with the production of the mineral resources. The Special Commissioner founded particularly on its activities when an oil well was killed. These included working down the well, pumping heavy liquid into the well, removal of X-mas trees and the construction of manifolds. None of these activities was carried out by any of the vessels under consideration in the instant appeals.
  48. The issue in Langley was whether the vessel on which the Appellant performed his duties was a ship. That vessel was a self propelled oil drilling rig. It was desgined to perate, not in the North Sea, but in the calmer waters around Africa. Following its construction it was taken out of dry dock; thrusters were attached which enabled the vessel to move under its own power. Sea trials were carried out, following its construction, and the vessel then sailed to Egyptian waters. There, it began drilling and later underwent renovation because there was, at the time, no further drilling work available. It was accepted in Langley that when the vessel was on station near Egypt the vessel could not be a ship; it was also accepted that when the vessel was taken out of use for major refurbishment (after use as a drilling rig), it ceased to be an offshore installation. There was a further concession by HMRC in that case that the structure became a ship when the thrusters were attached to it so that it could move under its own power. The Special Commissioner concluded that (i) the structure became a ship once it could operate under its own power, (ii) the rig was an offshore installation, (iii) it could not be an excepted structure until it had first been brought into use as a drilling rig, (iii) the structure was to be used while stationed in any waters for exploitation or exploration with a view to exploitation of mineral resources by means of a well within Regulation 3(1) of the 1995 Regulations; this part of the statutory test was satisfied at all times, (iv) Regulation 3(2)(d) did not apply to the period before the rig had been brought into use as a rig because the paragraph contemplates cessation after such use, followed by some other use, (v) the structure was an offshore installation throughout the whole period until, having once been used as a rig it was taken out of use
  49. Langley was cited by Mr Brinsmead-Stockham to support the argument that the 1995 Regulations did not require a vessel to cease permanently to be used for any of the purposes in regulation 3(1). While it is true that the Special Commissioner made no mention of a requirement for permanent cessation, no such argument appears to have been raised (see the contentions of parties recorded at paragraphs 18 and 19). The point was not apparently before him. In my view, little can be taken from that case as the facts were materially different from the present appeals.
  50. In Perks v Clark 2001 EWCA Civ 1228, the question was whether two mobile oil-drilling rigs were offshore installations. Each rig, referred to as a jack-up rig had a floating hull and retractable legs; when carrying out drilling, the legs stood on the sea bed and the hull was jacked up clear of the water; neither rig had a rudder, motive power or any form of propulsive thrusters and had to be towed from place to place, or transported piggy-back style on a cargo vessel. The General Commissioners found that these rigs were ships, and that the taxpayers' earnings were from employment as seafarers. On appeal to the High Court, the decision was reversed (paragraph 27). In the Court of Appeal it was held that the judge was wrong to conclude that whether the facts found by the Commissioners brought the case within the meaning of ship was a question of law (paragraphs 18 and 37). The Court of Appeal reviewed a number of authorities on the question whether a particular vessel was a ship and observed that the authorities showed that so long as navigation was a significant part of the function of the structure in question, the mere fact that it was incidental to some more specialised function, such as dredging, or the provision of accommodation, did not take it outside the definition; navigation did not necessarily connote anything more than movement across water; the function of conveying persons and and cargo from place to place was not an essential characteristic. While there may be an issue of degree, the question was for the fact finding tribunal. Here it had not been shown that the Tribunal had erred in law (paragraph 47, 61, 68); the Commissioners' decision was restored.
  51. Again, the background facts were quite different from the present appeals, and I have not found the decision to be of much assistance in resolving the very different arguments which I have heard.
  52. In Help the Aged, a VAT zero-rating case, one of the issues was whether vehicles supplied to certain charities had been substantially and permanently adapted for the safe carriage of a handicapped person in a wheelchair. The VAT Tribunal held that they had been so adapted and that the supply fell within the zero-rating provisions. On appeal by the Commissioners, Lightman J considered an argument that the vehicle had to be so adapted that the area earmarked for the wheelchair was not capable of being converted into a seat for a passenger and that convertibility was incompatible with permanence. In rejecting the argument and dismissing the appeal on this and other grounds, Lightman J held that permanent meant lasting or intended to last or function indefinitely; irreversibility was not a necessary ingredient.
  53. One must be cautious about applying the interpretation of a word or phrase in one statute to an entirely different statutory context where the same word or phrase is used. However, it can be seen that, for what it may be worth, the interpretation of ceased permanently in section 837C(3)(a) set out above is consistent Lightman J's approach. It is also consistent with the ordinary meaning of permanent set forth in the Oxford English Dictionary, namely continuing or designed to continue or last indefinitely without change; abiding, enduring, lasting, persistent; opposed to temporary.
  54. Henriksen concerned the computation of the profits of tenants of a licensed hotel. The issue was whether payment to the landlord of what was described as the monopoly value attributable to the grant of a licence was of the nature of a revenue payment and therefore deductible. That value was measured by reference to the difference in value of the premises with and without the benefit of the licence. The Court of Appeal held that what was being paid for had a permanent quality, albeit for the duration of the licence (page 192), even although its permanence was short-lived as it was conditioned by the length of the licence. The court concluded that the payment was similar to a payment of a premium for the grant of a lease and expenditure on improvements to be made as a condition of the grant of the licence. The right acquired had enough durability to be treated as a capital asset. The word permanent was a relative term and was not synonymous with everlasting (page 196). The result was that the payment was held to be capital in nature and therefore non-deductible for the purposes of computing profits.
  55. The main point to be taken from this case is the view that permanent does not or at least need not mean everlasting. This view is consistent with the other cases on this topic and the approach the parties have taken to the phrase ceased permanently in section 837C(3)(a) of the 1988 Act.
  56. In Addison, the Employment Appeal Tribunal held that flotels were ships within the meaning of Regulation 2(2) of the Transfer of Undertakings (Protection of Employment) Regulations 1981. However, I consider it would be unwise to rely on anything said in that case on that or any other issue because the statutory provisions and context are materially different from the statutory provisions and context of the present appeals. Itr would be an over-simplification to say that Addison was of assistance because the general background was the off shore oil industry.
  57. I have not found it necessary to examine in detail the other authorities to which reference was made.
  58. Evidence
  59. Only two witnesses gave evidence. Edmund Huckill, President of Navigare International Inc, Covington, Louisiana. Navigare and Roger Wayne Wilneff, Special Projects manager for Navigare. I found them both to be reliable and credible. Much of the Statement of Agreed Facts produced by the parties is taken from the written statements of these witnesses. I found both to be generally reliable and credible. There was no significant challenge to their reliability or credibility. Mr Wilneff was well placed to speak to the activities of all three vessels as he was responsible for supervising the daily operations of the three vessels for the periods during which they operated in the Bay of Campeche in the Gulf of Mexico.
  60. Having regard to the Agreed Statement of Facts, the additional primary findings of fact which I have made, and the proper construction of the relevant statutory provisions, it seems to me that there is overwhelming evidence which establishes on a balance of probabilities that (i) while operating under the 2003 Contracts the Safe Lancia and the Safe Britannia were not operating as flotels; they were not being used mainly for the provision of accommodation, (ii) rather, they were and were being used as multi-purpose maintenance and construction support vessels, (iii) while operating as such multi-purpose vessels they were not standing or stationed in any waters for any significant periods but were regularly of not more or less constantly moving around the Cantarell oilfield from location to location; their role is best described as roving,particularly when one bears in mind the ad hoc nature of their duties including responsibilities in situations of emergency and (iv) in doing so these vessels were not engaged in the exploitation (or exploration with a view to exploitation) of mineral resources by means of a well.
  61. Having regard to the Agreed Statement of Facts, the additional primary findings of fact which I have made, and the proper construction of the relevant statutory provisions, it seems to me that there is overwhelming evidence which establishes on a balance of probabilities that the Safe Caledonia was taken out of use throughout the period between mid June 2002 and 7/7/02.
  62. I summarise my conclusions as follows:-
  63. Safe Lancia Period 2001/2002
    1. No findings need be made as the Appellants concede[25] that the vessel was an offshore installation during this period.
    Safe Lancia Period 2002/2003
    2. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Lancia Period 2003/2004
    3. For the period between 6/4/03 and 27/6/03 no findings need be made as the Appellants concede that the vessel was an offshore installation during that period.
    4. For the period between 28/6/03 and 12/10/03 no findings need be made as HMRC concede that the vessel was not an offshore installation by reason of the application of Regulation 3(2)(e) of the 1995 Regulations
    5. For the period between 13/10/03 and 28/10/03 the parties agree that the status of the Safe Lancia falls to be determined by reference to its status during the period between 29/10/03 and 5/4/03.
    6. During the period between 29/10/03 and 5/4/04, the vessel had ceased to be used for any of the purposes specified in Regulation 3(1) of the 1995 Regulations. Throughout that period the vessel was excepted from being an offshore installation by reason of Regulation 3(2)(d) of the 1995 Regulations. It was not being used for the exploitation of mineral resources by means of a well. The vessel was used as a multi-purpose maintenance and construction support vessel. Throughout this period, the Safe Lancia was a ship.
    Safe Lancia Period 2004/05
    7. For the period between 6/4/04 and 5/4/05, the vessel was used as a multi-purpose maintenance and construction support vessel and was not an offshore installation by reason of section 837C(3) of the 1988 Act It was not being used for the exploitation of mineral resources by means of a well. The vessel was used as a multi-purpose maintenance and construction support vessel. Throughout this period, the Safe Lancia was a ship.
    Safe Britannia Period 6/4/01 to 5/4/02
    8. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Britannia Period 6/4/02 to 5/4/03
    9. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Britannia Period 6/4/03 to 5/4/04
    10. For the period 6/4/03 to 31/8/03, no findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    11. For the period between 1/9/03 and 27/9/03, no findings need be made as the Respondents concede that the vessel was not an offshore installation during this period.
    12. For the period between 28/9/03 and 2/10/03, the parties have agreed that the status of the vessel will be the same as its status during the period between 3/10/03 and 5/4/03. According during the period between 28/9/03 and 2/10/03 the vessel was not an offshore installation. It was a ship.
    13. For the period between 3/10/03 and 5/4/04, the vessel had ceased to be used for any of the purposes specified in Regulation 3(1) of the 1995 Regulations. Throughout that period the vessel was excepted from being an offshore installation by reason of Regulation 3(2)(d) of the 1995 Regulations. It was not being used for the exploitation of mineral resources by means of a well. The vessel was used as a multi-purpose maintenance and construction support vessel. Throughout this period, the Safe Britannia was a ship.
    Safe Britannia Period 6/4/04 to 5/4/05
    14. For the period between 6/4/04 to 5/4/05, the vessel was used as a multi-purpose maintenance and construction support vessel and was not an offshore installation by reason of section 837C(3) of the 1988 Act It was not being used for the exploitation of mineral resources by means of a well. the vessel was used as a multi-purpose maintenance and construction support vessel. Throughout this period, the Safe Britannia was a ship.
    Safe Caledonia Period 6/4/01 to 5/4/02
    15. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Caledonia Period 6/4/02 to 11/5/02
    16. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Caledonia Period 12/5/02 to 18/6/02
    17. The vessel was taken out of use during this period within the meaning of Regulation3(2)(e) of the 1995 Regulations. The vessel was not an offshore installation during any part of this period
    Safe Caledonia Period 19/6/02 to 7/7/02
    18. No findings need be made as the Respondents concede that the vessel was not an offshore installation during this period.
    Safe Caledonia Period 8/7/02 to 14/11/02
    19. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Caledonia Period 15/11/02 to 11/12/02
    20. No findings need be made as the Respondents concede that the vessel was not an offshore installation during this period. During this period the vessel was in a shipyard in Olen, Norway and had therefore been taken out of use within the meaning of Regulation 3(2)(e) of the 1995 Regulations.
    Safe Caledonia Period 12/12/02 to 5/4/03
    21. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Safe Caledonia Period 6/4/03 to 5/4/04
    22. No findings need be made as the Appellants concede that the vessel was an offshore installation during this period.
    Result
  64. The result of this decision in principle is that the Appellants have been successful. I leave it to parties to calculate the fiscal consequences for the Appellants.
  65. Should either party wish to make any application to the Tribunal in relation to expenses, I direct that they make and intimate any such application in writing within twenty eight days of the release of this Decision.
  66. J GORDON REID QC, F.C.I.Arb

    TRIBUNAL JUDGE
    RELEASE DATE: 18 June 2009

    APPENDIX

    Relevant Legislation for Tax Years 2001/2 and 2002/3:-

    Income and Corporation Taxes Act 1988

    192A Foreign earnings deduction for seafarers

    (1) Where in any year of assessment—

    (a) the duties of an employment as a seafarer are performed wholly or partly outside the United Kingdom, and
    (b) any of those duties are performed in the course of a qualifying period (within the meaning of Schedule 12) which falls wholly or partly in that year and consists of at least 365 days,

    then, in charging tax under Case I of Schedule E on the amount of the emoluments from that employment attributable to that period, or to so much of it as falls in that year of assessment, there shall be allowed a deduction equal to the whole of that amount.

    (2) In subsection (1) employment "as a seafarer" means an employment consisting of the performance of duties on a ship (or of such duties and others incidental to them).

    (3) For the purposes of this section a "ship" does not include—

    (a) any offshore installation within the meaning of the Mineral Workings (Offshore Installations) Act 1971, or
    (b) what would be such an installation if the references in that Act to controlled waters were to any waters.

    (4) Schedule 12 has effect for the purpose of supplementing this section.

    [Schedule 12 is not relevant for present purposes]

    Mineral Workings (Offshore Installations Act 1971

    12 Interpretation
    (1)     In this Act, unless the context otherwise requires—
    "the 1995 Regulations" means the Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995;
    "controlled waters" means—
    (a)     tidal waters and parts of the sea in or adjacent to Great Britain up to the seaward limits of territorial waters; and
    (b)     any area designated by order under section 1(7) of the Continental Shelf Act 1964;
    . . .......
    "installation manager" has the meaning given by regulation 2(1) of the 1995 Regulations;
    .........
    "offshore installation" has the same meaning as in regulation 3 of the 1995 Regulations;
    "owner", in relation to an offshore installation, means the person who is, in relation to the installation, the duty holder as defined by regulation 2(1) of the 1995 Regulations in relation to that installation;
    "prescribed" means prescribed by regulations under this Act,
    ............................................

    Offshore Installation and Pipeline Works (Management and Administration) Regulation 1995 SI 1995/738

    2 Interpretation
    ......................
    "associated structure" means, in relation to an offshore installation, a vessel, aircraft or hovercraft attendant on the installation or any floating structure used in connection with the installation;
    .................
  67. "offshore installation" shall be construed in accordance with regulation 3;
  68. 3 Meaning of "offshore installation"
    (1)     Subject to the provisions of this regulation, in these Regulations the expression "offshore installation" means a structure which is, or is to be, or has been used, while standing or stationed in relevant waters, or on the foreshore or other land intermittently covered with water—
    (a)     for the exploitation, or exploration with a view to exploitation, of mineral resources by means of a well;
    (b)     for the storage of gas in or under the shore or bed of relevant waters or the recovery of gas so stored;
    (c)     for the conveyance of things by means of a pipe; or
    (d)     mainly for the provision of accommodation for persons who work on or from a structure falling within any of the provisions of this paragraph,
    [together with any supplementary unit which is ordinarily connected to it or any part of it (including those parts described in paragraph (3) below) and all of the connections].
    (2)     [Any reference in paragraph (1) to a structure or unit does not include]—
    (a)     a structure which is connected with dry land by a permanent structure providing access at all times and for all purposes;
    (b)     a well;
    (c)     a structure or device which does not project above the sea at any state of the tide;
    (d)     a structure which has ceased to be used for any of the purposes specified in paragraph (1), and has since been used for a purpose not so specified;
    (e) a mobile structure which has been taken out of use and is not for the time being intended to be used for any of the purposes specified in paragraph (1); and
    [From 17/9/02 paragraph (e) provided as follows:-
    (e)     a mobile structure which has been taken out of use and is not yet being moved with a view to its being used for any of the purposes specified in paragraph (1)]; and
    (f)     any part of a pipeline.
    (3)     For the purposes of these Regulations there shall be deemed to be part of an offshore installation—
    (a)     any well for the time being connected to it by pipe or cable;
    (b)     such part of any pipeline connected to it as is within 500 metres of any part of its main structure;
    (c)     any apparatus or works which are situated—
    (i)     on or affixed to its main structure; or
    (ii)     wholly or partly within 500 metres of any part of its main structure and associated with a pipe or system of pipes connected to any part of that installation.
    (4)     Where two or more structures are, or are to be, connected permanently above the sea at high tide they shall for the purposes of these Regulations be deemed to comprise a single offshore installation.
    ...............................................

    Offshore Safety (Miscellaneous Amendments) Regulations 2002 SI 2002/2175

    1 Citation, commencement and interpretation
    (1)     These Regulations may be cited as the Offshore Safety (Miscellaneous Amendments) Regulations 2002 and shall come into force on 17th September 2002.
    (2)     References in these Regulations to the "Management Regulations" are to the Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995.
    2 Amendment of the Management Regulations
    .....................
    (2)     Regulation 3 of the Management Regulations shall be amended—
    (a)     .......................
    (c)     in sub-paragraph (e) of paragraph (2), by substituting the words "yet being moved with a view to its being" for the words "for the time being intended to be".
    3 Amendment of other enactments
    The reference to regulation 3 of the Management Regulations in—
    (a)     the definition of "installation" in—
    (i)     paragraph (1) of regulation 2 of the Offshore Installations (Safety Case) Regulations 1992;
    (ii)     paragraph (1) of regulation 2 of the Offshore Installations (Prevention of Fire and Explosion, and Emergency Response) Regulations 1995; and
    (iii)     paragraph (1) of regulation 2 of the Offshore Installations and Wells (Design and Construction, etc) Regulations 1996; and
    (b)     the definition of "offshore installation" in—
    (i)     section 12(1) of the Mineral Workings (Offshore Installations) Act 1971; and
    (ii)     regulation 2 of the Offshore Installations and Pipeline Works (First-Aid) Regulations 1989,
    shall be construed as a reference to regulation 3 of the Management Regulations as amended by these Regulations.

    Relevant Legislation for Tax Year 2003/4

    Income Tax (Earnings and Pensions) Act 2003

    378 Deduction from seafarers' earnings: eligibility
    (1) A deduction is allowed from earnings from an employment as a seafarer if—
    (a) the earnings are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK),
    (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.
    (2) In this Chapter "eligible period" means a period consisting of at least 365 days which is either—
    (a) a period of consecutive days of absence from the United Kingdom, or
    (b) a combined period.
    (3) A combined period is a period—
    (a) at least half of the days in which are days of absence from the United Kingdom, and
    (b) which consists of 3 consecutive periods, A, B and C, where—
    A is a period of consecutive days of absence from the United Kingdom or a period which is itself a combined period,
    B is a period of not more than 183 days, and
    C is a period of consecutive days of absence from the United Kingdom.
    (4) For this purpose a person is only regarded as being absent from the United Kingdom on any day if absent at the end of the day.
    379 Calculating the deduction
    (1) The deduction under section 378—
    (a) is allowed from the amount of the earnings from the employment attributable to the eligible period, and
    (b) is equal to that amount.
    (2) Earnings from the employment for a period of leave immediately after the eligible period are to be regarded as earnings attributable to the eligible period if or to the extent that they are earnings for the tax year in which the eligible period ends.
    (3) This section is subject to section 380 (limit on deduction where UK duties etc make amount unreasonable).
    380 Limit on deduction where UK duties etc make amount unreasonable
    (1) If—
    (a) section 378 (deduction from seafarers' earnings: eligibility) applies to earnings for a tax year, and
    (b) in the tax year the employee performs some of the duties of the employment as a seafarer or of any associated employments in the United Kingdom,
    the amount of earnings in respect of which the deduction under this Chapter is allowed is subject to the following limitation.
    (2) The amount is restricted to the proportion of the aggregate earnings for that year from the employment as a seafarer and all associated employments that is reasonable having regard to—
    (a) the nature of and time devoted to the duties performed outside and in the United Kingdom, and
    (b) all other relevant circumstances.
    (3) In this section "associated employments" means employments with the same employer or with associated employers.
    (4) The same rules for determining whether employers are associated apply for the purposes of this section as apply for section 24(4) (limit on chargeable overseas earnings where duties of associated employment performed in UK) (see section 24(5)).
    381 Taking account of other deductions
    For the purposes of sections 379 and 380, the amount of the earnings from an employment for a tax year is the amount remaining after any deductions under—
    (a) section 232 (giving effect to mileage allowance relief),
    (b) Chapter 2, 3, 4 or 5 of this Part,
    (c) section 592(7) of ICTA (contributions to exempt approved schemes),
    (d) section 594(1) of ICTA (contributions to exempt statutory schemes), and
    (e) section 262 of CAA 2001 (capital allowances to be given effect by treating them as deductions from earnings).
    382 Duties on board ship
    (1) Duties which a person performs on a ship engaged—
    (a) on a voyage beginning or ending outside the United Kingdom (but excluding any part of it beginning and ending in the United Kingdom), or
    (b) on a part beginning or ending outside the United Kingdom of any other voyage,
    are treated as performed outside the United Kingdom for the purposes of this Chapter.
    (2) Duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom are treated for the purposes of this Chapter as performed in the United Kingdom.
    (3) For the purposes of subsection (1) the areas designated under section 1(7) of the Continental Shelf Act 1964 (c 29) are treated as part of the United Kingdom.
    (4) Subsection (1) applies despite anything to the contrary in section 40 (duties on board vessel or aircraft).
    383 Place of performance of incidental duties
    (1) For the purposes of section 378(1)(b) (deduction from seafarers' earnings: eligibility), duties of an employment as a seafarer which are performed outside the United Kingdom are treated as performed in the United Kingdom if conditions A and B are met.
    (2) Condition A is that in the tax year in which the duties are performed the employment is in substance one whose duties fall to be performed in the United Kingdom.
    (3) Condition B is that the performance of the duties performed outside the United Kingdom is merely incidental to the performance of duties in the United Kingdom.
    (4) Section 39 (duties in UK merely incidental to duties outside UK) does not affect the question—
    (a) where any duties are performed, or
    (b) whether a person is absent from the United Kingdom,
    for the purposes of section 378(1) to (3).
    384 Meaning of employment "as a seafarer"
    (1) 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.
    (2) In this section "Crown employment" means employment under the Crown—
    (a) which is of a public nature, and
    (b) the earnings from which are payable out of the public revenue of the United Kingdom or of Northern Ireland.
    385 Meaning of "ship"
    In this Chapter "ship" does not include—
    (a) any offshore installation within the meaning of the Mineral Workings (Offshore Installations) Act 1971 (c 61), or
    (b) what would be such an installation if the references in that Act to controlled waters were to any waters.
    1995 Regulations as amended by the 2002 Regulations

    See above

    Relevant Legislation for Tax Year 2004/5

    •    See sections 378-384 of the 2003 Act above and

    385 Meaning of "ship"
    In this Chapter "ship" does not include an offshore installation.

    Finance Act 2004

    146 Meaning of "offshore installation"

    Schedule 27 to this Act (which makes amendments relating to the meaning of "offshore installation") has effect.

    SCHEDULE 27 Meaning of "Offshore Installation"

    Section 146

    Part 1 The New Definition

    1
    In Part 19 of the Taxes Act 1988 (supplemental provisions), after section 837B insert—
    "837C Meaning of "offshore installation"

    ..............................................

    2
    In section 832 (1) of the Taxes Act 1988 (interpretation of the Tax Acts) at the appropriate place insert—
    ""offshore installation" has the meaning given by section 837C;".
    3
    Subject to the following provisions of this Schedule, paragraphs 1 and 2 have effect—
    (a)     for the purposes of income tax and capital gains tax, for the year 2004–05 and subsequent years of assessment;
    (b)     for the purposes of corporation tax, for accounting periods ending on or after 1st April 2004.

    Income and Corporation Taxes Act 1988

    837C Meaning of "offshore installation"
    (1) For the purposes of the 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.
    (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—
    (i)     standing in any waters,
    (ii)     stationed (by whatever means) in any waters, or
    (iii)     standing on the foreshore or other land intermittently covered with water.
    (3) But a structure is not an offshore installation if—
    (a)     it has ceased permanently to be put to a use specified in subsection (2),
    (b)     it is not, and is not to be, put to any other use specified in subsection (2), and
    (c)     since ceasing permanently to be put to a use specified in subsection (2) it has been put to a use which is not so specified.
    (4) In this section "structure" includes a ship or other vessel.
    (5) The Treasury may make provision by regulations as to the meaning of "offshore installation" for the purposes of the Tax Acts.
    (6) The regulations may—
    (a)     add to, amend or repeal subsections (1) to (4) or any provision of those subsections;
    (b)     make different provision for different purposes;
    (c)     include incidental, consequential, supplemental, saving or transitional provisions.]1
    (1)     For the purposes of the 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.
    (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—
    (i)     standing in any waters,
    (ii)     stationed (by whatever means) in any waters, or
    (iii)     standing on the foreshore or other land intermittently covered with water.
    (3)     But a structure is not an offshore installation if—
    (a)     it has ceased permanently to be put to a use specified in subsection (2),
    (b)     it is not, and is not to be, put to any other use specified in subsection (2), and
    (c)     since ceasing permanently to be put to a use specified in subsection (2) it has been put to a use which is not so specified.
    (4)     In this section "structure" includes a ship or other vessel.
    (5)     The Treasury may make provision by regulations as to the meaning of "offshore installation" for the purposes of the Tax Acts.
    (6)     The regulations may—
    (a)     add to, amend or repeal subsections (1) to (4) or any provision of those subsections;
    (b)     make different provision for different purposes;
    (c)     include incidental, consequential, supplemental, saving or transitional provisions."

    ADDITIONAL STATUTORY MATERIALS

    Sections 1 and 12 of the 1971 Act as originally enacted:-

    1.—(l) This Act shall apply to the underwater exploitation and underwater exploration of mineral resources-

    (a) in or under the shore or bed of waters to which this Act applies, other than inland waters, and

    (b) in or under the bed of such inland waters as may for the time being be specified for the purposes of this paragraph by Order in Council.

    (2) In this Act—

    (a) "waters to which this Act applies" means the waters in or adjacent to the United Kingdom up to the seaward limits of territorial waters, and the waters in any designated

    area within the meaning of the Continental Shelf Act 1964,

    (b) "inland waters" means waters within the United Kingdom, other than estuaries and tidal rivers.

    (3) For purposes of this Act "underwater exploitation" or "underwater exploration" means exploitation or explorationfrom or by means of any floating or other installation which Is maintained in the water, or on the foreshore or other land intermittently covered with water, and is not connected with dry land by a permanent structure providing access at all times and for all purposes; and, subject to the provisions of section 12 of this Act, in this Act—

    (a) "exploration" means exploration with a view to exploitation; and

    (b) "offshore installation" means any installation which is maintained, or is intended to be established, for underwater exploitation or exploration to which this Act applies.

    (4) The power of making Orders in Council under this section shall include power to vary or revoke any Order in Councilmade under this section.

    Interpretation. 12.—(1) In this Act, unless the context otherwise requires—

    .........................................................

    "offshore installation" has the meaning given by section

    1(3) of this Act, but subject to subsections (2)[26] and (3)

    below,

    .............................................................................

    (3) References in this Act to an installation do not include an installation which at the relevant time consists exclusively of a pipe-line, whether or not any part of it previously formed part of an offshore installation.

    Oil and Gas (Enterprise) Act 1982 as originally enacted

    24. For section 1 of the Mineral Workings (Offshore Installations) Act 1971. (in this Act referred to as "the 1971 Act ")

    there shall be substituted the following section—

    1.—(1) This Act shall apply to any activity mentioned in subsection (2) below which is carried on from, by means of or on an installation which is maintained in the water, or on the foreshore or otherland intermittently covered with water, and is not connected with dry land by a permanent structure providing access at all times and for all purposes.

    (2) The activities referred to in subsection (1) above

    are—

    (a) the exploitation or exploration of mineral resources in or under the shore or bed of controlled waters;

    (b) the storage of gas in or under the shore or bed of controlled waters or the recoveryof gas so stored;

    (c) the conveyance of things by means of a pipe, or system of pipes, constructed or placed on, in or under the shore or bed of controlled waters ; and

    (d) the provision of accommodation for persons who work on or from, an installation which is or has been maintained, or is intended to be established, for the carrying on of an activity falling within paragraph (b) or

    (c) above or this paragraph.

    (3) Her Majesty may by Order in Council providethat, in such cases a nd subject to such exceptions and modifications as may be prescribed by theOrder, this Act shall have effect as if—

    (a) any reference to controlled waters included a reference to waters in any area specified under section 22(5) of the Oil and Gas (Enterprise) Act 1982; and

    (b) in relation to installations which are or have been maintained, or are intended tobe established, in controlled waters, anyreference in subsection (2) above to controlled waters included a reference to waters in a foreign sector of the continental shelf which are adjacent to such waters.

    (4) In this Act—

    'controlled waters' means—

    (a) tidal waters and parts of the sea in or adjacent to the United Kingdom up to the seaward limits of territorial waters;

    (b) waters in any area designated undersection 1(7) of the Continental Shelf Act 1964; and

    (c) such inland waters as may for the time being be specified for the purposes of this paragraph by Order in Council;

    'foreign sector of the continental shelf' means an area which is outside the territorial waters of any state and within which rights are exercisable by a state other than the United Kingdom with respect to the sea bed and subsoil and their natural resources;

    'offshore installation' means any installation which is or has been maintained, or is intended to be established, for the carrying on of any activity to which this Act applies.

    (5) In this section—

    'exploration' means exploration with a viewto exploitation;

    'inland waters' means waters within the United Kingdom other than tidal waters and parts of the sea;

    'installation' includes—

    (a) any floating structure or device maintained on a station by whatever

    means; and

    (b) in such cases and subject to such exceptions as may be prescribed by Order in Council, any apparatus or works which are by virtue of section 33 of the Petroleum and Submarine Pipe-lines Act 1975 to be treated as associated with a pipe or system of pipes for the purposes of Part III of that Act,

    but, subject to paragraph (b) above, does not include any part of a pipe-line withinthe meaning of that section;

    'modifications' includes additions, omissions

    and alterations.

    (6) The fact that an installation has been maintained for the carrying on of an activity falling within subsection (2) above shall be disregarded for the purposes of this section if, since it was so maintained, the installation—

    (a) has been outside controlled waters or, where it was. so maintained in a part of a foreign sector of the continental shelf adjacent tothose waters, the area consisting of thosewaters and that part; or

    (b) has been maintained for the carrying on ofan activity not falling within that subsection.

    (7) Orders in Council made under this section maybe varied or revoked by a subsequent Order so made; and any statutory instrument containing an

    Order under subsection (3) above shall be subject to annulment in pursuance of a resolution of eitherHouse of Parliament."

  69. .—(1) ...The enactments specified in Schedule 3 to this Act shall have effect subject to the amendments specified in that Schedule(being minor amendments or amendments consequential on the proceeding provisions of this Act)
  70. (2) The enactments specified in Schedule 4 to this Act are

    hereby repealed to the extent specified in the third column of

    that Schedule.

    Section 37. SCHEDULE 3

    MINOR CONSEQUENTIAL AMENDMENTS

    ..........................

    The Mineral Workings (Offshore Installations) Act 1971

    ............................

    8. In sections 3(4), 4(1), 6(1) and 9(2) of that Act, for the words "waters to which this Act applies ", wherever they occur, there shall be substituted the words "controlled waters ".

    9. In section 5(2) of that Act (masters of offshore installations, further provisions) for the words "an installation" there shall be substituted the words "an offshore installation ".

    10. In section 6(2) of that Act (safety regulations) the word "and" immediately following paragraph (c) shall be omitted and after that paragraph there shall be inserted the following paragraph—

    "(cc) vessels on which accommodation is provided for persons

    who work on or from installations, and ".

    11 .—(1) In subsection (1) of section 12 of that Act (interpretation)—

    (a) for the definition of "concession owner" there shall be

    substituted the following definition—

    "'controlled waters' has the meaning given by section

    1(4) of this Act,";

    (b) after the definition of "designated area" there shall be inserted the following definition—

    "'foreign sector of the continental shelf' has the meaning given by section 1(4) of this Act,";

    (c) for the definition of "offshore installation" there shall be substituted the following definition—

    "'offshore installation' has the meaning given by section 1(4) of this Act," ; and

    (d) the definitions of "underwater exploitation" and "underwater exploration" shall be omitted.

    SCHEDULE 4

    The Mineral Workings

    (Offshore Installations)

    Act 1971.

Note 1   DP is a computer controlled system which automatically maintains a vessel’s position and heading by using her own propellers and thrusters. Position reference sensors, combined with wind sensors, motion sensors and gyro compasses, provide information to the computer pertaining to the vessel's position and the magnitude and direction of environmental forces affecting its position.    [Back]

Note 2   Different levels of DP are available. DP1 allows the vessel to maintain position without the use of anchors as outlined above. DP2 ensures that even if there is a failure of one of the systems used for the DP operations this will not affect the vessel’s position keeping.    [Back]

Note 3   Cotemar won the contract on 13 February 2003 as the result of a public tendering process.    [Back]

Note 4   Folder A/4    [Back]

Note 5   Folder A/5, Clause 9(d)     [Back]

Note 6   Folder A/5    [Back]

Note 7   A fire-fighting standard    [Back]

Note 8   Folder A/13, letter dated 29/7/04 from Cotemar    [Back]

Note 9   Exhibit B page 1 of 14; Folder A/1/13    [Back]

Note 10   Annex B-1page 1 of 29; Folder A/1/42    [Back]

Note 11   FolderA/42-43    [Back]

Note 12   Folder A/45    [Back]

Note 13   Annex B-1 page 13 of 22; Folder A/1/54    [Back]

Note 14   Annex B-1 page 14 of 22; Folder A/1/55    [Back]

Note 15   Annex B-1 page 17 of 22; Folder A/1/58    [Back]

Note 16   Annex B-1 page 17 of 22; Folder A/1/58    [Back]

Note 17   Annex B-1 page 18 of 22; Folder A/1/59    [Back]

Note 18   Annex E pages 1 and 3 of 10; Folder A/1/80 &82    [Back]

Note 19   Annex E page 10 of 10; folder A/1/86    [Back]

Note 20   Annex E page 10 of 10,; foldr A/1/86-7    [Back]

Note 21   Folder A/25 letter from Cotemar 18/8/004    [Back]

Note 22   Folder A/11/54    [Back]

Note 23   Prosafe letter r 28/5/08; Folder A/9Fo    [Back]

Note 24   This is a reference to the 1995 Regulations.    [Back]

Note 25   All the Appellants’ concessions are subject any argument they might make on appeal in relation to the soundness of the decision in Palmer.    [Back]

Note 26   Sub-section (2) is not relevant    [Back]


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