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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: offshore installations and ships: Torr and Others v CIR (Pride of South America)

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 relating to the meaning of “offshore installation” in the context of Seafarers’ Earnings Deduction (SED). See EIM33110 for details concerning the case of CIR v Langley and see 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 based on similar facts, a decision of the Special Commissioners may be regarded as an useful indicator of the way in which the Courts might interpret the legislation.

Torr and Others v CIR (SpC00679)

This decision was published on 14 January 2008.

Mr Torr and four other appellants worked on the Pride South America (PSA), a self propelled, dynamically positioned, semi-submersible vessel designed as a mobile offshore drilling unit (MODU). In the period concerned in the appeals the PSA had been involved only in well workover and support operations. It had not carried out any drilling operations.

Lloyd’s Register of Shipping defines a “workover” vessel as a vessel that worked over a well to install, refurbish and perform sub-sea completion work on wells but could not enter the well for extraction purposes. A “support vessel” is defined as one involved in operations other than workover, such as diving, crane operations, heavy lifts and construction.

In broad terms, the Special Commissioner found that the activities of the PSA could be described as the repair of non functioning equipment. A well had to be killed (temporarily shut down) when the PSA carried out its operations. In the years under appeal, the PSA carried out its workover and support operations at between 18 - 26 different locations in each year.

The appellants put forward two principal contentions to demonstrate that the PSA was not an offshore installation (EIM33102) and, as it was capable of movement across water (EIM33101), it must therefore be a ship -

  • the PSA was not involved in the exploitation of mineral resources by means of a well as it did not extract oil from below the sea bed because when it performed its operations the well had to be temporarily shut down, and
  • when the PSA performed its operations it was not standing or stationed because it was not wholly static or anchored - it was held in place by dynamic positioning which allowed for some limited movement.

The Special Commissioner held on the first point that mineral resources do not cease to be exploited when a well has to be temporarily shut down for repairs. The well workover and support operations formed part of the process of exploiting mineral resources.

On the second point, the Special Commissioner held that it was “absurd” to suggest a vessel can be stationed only by anchors or hawsers, neither of which can be used in deep waters. He found that a vessel can be clearly “stationed” in deep waters if held in position by dynamic positioning, which at least has the effect of making the ship “substantially stationary”, which is sufficient to meet the statutory definition of “standing or stationed” for an offshore installation.

Consequently as the PSA was involved in exploitation of mineral resources by means of a well whilst standing or stationed in any waters, the Special Commissioner held that the PSA was an offshore installation. As it was not a ship the claims to SED failed. The decision was not appealed.