Non-Residents Working on the UK Continental Shelf: Double Taxation Agreements - Treaties with an Offshore Activities Article - Example 1
Example 1 - Norway
The UK/Norway Double Taxation Agreement [SI2000\3247] is an example of the third type mentioned at OT41530. OT41540 & OT41550 refer to some of the limits placed by treaties on the additional taxing opportunities provided by CTA09\S1313, ITTOIA05\S874 and ITEPA03\41 and the purpose of an “Offshore Activities Article” is to remove at least some of those obstacles.
Article 23, the Offshore Activities Article, applies “notwithstanding any other provision” of the treaty (Para 1) i.e. it overrides other provisions.
“Offshore activities” for the purposes of Article 23 are those activities which are carried on offshore in connection with the exploration or exploitation of the seabed and subsoil and their natural resources situated in “the UK” (on an “extended definition”) [Article 3(1)(a) and (e) and 23(1)].
Article 23(3) provides that a “resident of” Norway who carries on “offshore activities” in “the UK” (on an “extended definition”) is deemed:
- In the case of an enterprise, to be carrying on business through a UK permanent establishment - even though it has no physical presence of any kind on the UK mainland.
- In the case of an individual providing services of an independent character, to be performing those services from a fixed base in the UK.
Thus there is no need to identify an actual permanent establishment under Article 5 for taxing rights to apply.
The deeming provisions however do not apply if
- the activities are covered by the “30 day de minimis time rule”, that is those carried on for 30 days or less in aggregate in any 12 month period [Paragraph 5(a)]. Working periods carried on by related enterprises are aggregated [Paragraph 5(a)(i)] or
- the profits are derived from the operation of ships or aircraft which at the time of the performance of the relevant activities, are designed primarily for the purpose of transporting supplies or personnel or for towing or anchor handling.
But the deeming provisions would still apply during any period in which a ship or aircraft is contracted to be used mainly for purposes other than to transport supplies or personnel to or between places where offshore activities are being carried on, or for purposes other than towing or anchor handling.
De minimis time rule - example 1
A Norwegian resident offshore contractor carries on a 25 day activity during December 2005 and does not return to the UKCS until 18 months later.
Profits from the 25 days activity would not be taxable in the UK.
De minimis time rule - example 2
The same Norwegian resident offshore contractor returned to the UKCS in 2006 and carried on a 10-day offshore activity in November of that year. Both periods would fall outside the de minimis exemption in the treaty because the aggregate 30 day period within 12 months had been exceeded. As a consequence profits from the 25 days activity as well as the 10 days activity would be taxable in the UK.
A list of treaties containing an Offshore Activities Article can be viewed at OT41530 and three further examples of commonly used treaties are mentioned at OT41570 & OT41580. The actual terms of these Articles may differ significantly one from another and it is necessary to consult the relevant treaty before reaching any conclusions.