As the world reduces its reliance on fossil fuels, there becomes an ever-increased demand for energy that is derived from renewable sources. One sector we have seen a significant increase in businesses working in is the offshore windfarm industry including both the operation of windfarms and the provision of services to allow these windfarms to operate. The increase in offshore windfarms is a global theme with many countries moving away from traditional energy sources and looking for a more sustainable supply.
In our experience, when assisting clients working overseas on offshore windfarms, we have seen that the tax implications associated with these activities can be complex. Each individual country has their own domestic laws and regulations in place that are required to be analysed to determine the taxable implications of the work that is being undertaken. In addition to this for UK companies who are undertaking work overseas, the UK has double tax treaties signed with over 100 countries worldwide. It is therefore important that the relevant treaty is analysed as protection is often available to the non-resident company.
In practice, double tax treaties are often updated infrequently and in many instances these treaties do not reflect the current state of affairs. Where companies are working overseas in the oil and gas industry it is common that these treaties have offshore articles in them which make it very easy for companies to create a permanent establishment in the overseas location. This results in them being liable to overseas taxes and various filing requirements.
The wording in these treaties is often designed around the oil and gas industry, however it can be vague and it is often not clear whether other types of work like offshore windfarms would fall under the relevant offshore articles, or whether they would revert to the normal rules. In situations where there is ambiguity regarding the interpretation of the relevant treaty or the domestic legislation, AAB would always recommend that advice is sought from an in-country advisor who can provide advice based on their local knowledge of how the relevant tax authorities are likely to interpret the taxation implications of the work that is being carried out. This has the effect of ensuring that our clients have additional reassurance of what liabilities they are likely to be exposed to and enables their tenders to be priced accordingly if there is likely to be any additional tax costs.
AAB have experiencing of assisting clients who are either currently working overseas or plan to work overseas in the future and we also have access to a network of affiliate firms to allow us to provide practical and proactive advice. This ensures that our clients are fully aware of the potential tax implications that will arise with the work that is being carried out and minimises the exposure to any unexpected tax liabilities. In addition to this AAB can help to ensure that our clients comply with all the tax filings that are required when work is carried out overseas to prevent penalties for failure to comply.
By Helen Brown, International Tax Director at AAB
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