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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: offshore installations and ships: CIR v Langley

Section 1001 ITA 2007

Two Special Commissioners’ decisions published in late 2007 and early 2008 and a decision of the First-Tier Tribunal (Tax) published in June 2009, provide useful guidance in relation to the meaning of “offshore installation” in the context of Seafarers’ Earnings Deduction (SED). Details concerning Torr and Others v CIR are at EIM33111 and at EIM33112 for details relating to the case of Spowage and Others v CIR.

Commissioners’ decisions do not establish a legal precedent but in the absence of a decision of the Courts on similar facts, a decision by the Special Commissioners may be regarded as an useful indicator of the way in which the Courts might interpret the legislation.

CIR v Langley (SpC00642)

This decision was published in October 2007.

Between 1999 - 2004 the appellant carried out duties on a self propelled oil drilling rig. In that period the rig was constructed in a shipyard in France and subsequently underwent sea trials, before moving to its first working site off Egypt, where it commenced a period of drilling for oil. Finally it was renovated whilst there was no immediate contract for further drilling.

The appellant argued that once the vessel was floated from the dry dock in the shipyard it became a ship, as it was capable of navigation (it could not power itself at this point). The appellant also contended that this status continued throughout its sea trials and when it was in transit to its first drilling site. Once drilling commenced the appellant accepted that it became an offshore installation.

The Special Commissioner decided that the rig was a structure which was to be used while standing in any waters for the purpose of exploitation of mineral resources by means of a well. As its sole use once in operation was to perform a relevant use (see EIM33103) it was intended to be put to this use from the outset of its construction. Consequently the vessel was an offshore installation, and therefore precluded from being a ship, for the entire period of its construction, sea trials, transit to drilling site and drilling operations, until it was taken out of use for refurbishment.

During the refit it was not put to a relevant use and, as it was otherwise capable of movement across water, it became a ship for the purposes of SED.