The United States Internal Revenue Service (IRS) is aggressively targeting vessel owners located outside the US whose vessels operated on the Outer Continental Shelf (OCS) in the Gulf of Mexico over the last 10 years.
Target companies include subsea construction specialists in Aberdeen, which is regarded as the global headquarters for a number of large brands.
According to Shawn O’Brien, a partner at Houston law firm Jackson Walker LLP, about a year ago, the IRS sent letters to several hundred non-US vessel owners that it believes have operated on the OCS over the last decade.
The IRS letter requests the non-US vessel owner file US tax returns and pay any tax and interest due, or provide a reason why the non-US vessel owner believes that American tax returns are not required.
O’Brien says that the American taxman has been following up with the non-US vessel owners that have not responded to the request.
“The IRS is taking the position that these vessel owners and their workers operating on the OCS have reportable US taxable income because they are engaged in a US trade or business while on the OCS,” said O’Brien.
“The US taxing jurisdiction is extremely broad for personal services that relate to the ‘exploration and exploitation’ of natural resources. Those non-US vessel owners performing personal services on the OCS that relate to the “exploration and exploitation” of natural resources are considered to be within the US taxing jurisdiction.
“Consequently, the IRS contends that these non-US vessel owners and their workers have obligations to file US tax returns and pay the US taxes due on amounts earned from these offshore services.
“Furthermore, the IRS contends that the US companies that hired and paid these non-US vessel owners should have withheld and remitted to the IRS 30% of the amounts paid to the non-US vessel owners.”
It turns out that the IRS is using US Coast Guard and State Department records to find out what vessels have been operating on the OCS. They include:
Contractors that perform services such as seismographic testing, drilling, repair and salvage work.
Supply vessels that transport supplies and personnel between US ports and offshore installations.
Bareboat or time charter of non-US-registered vessels.
O’Brien warns too that the IRS not only wants to inflict substantial tax demands, it has signaled its intent to assert a variety of penalties against these vessel owners, their workers, and the US companies that hire them.
Bearing in mind the effort made to bring foreign vessels into the US Gulf, especially at the time of this year’s Macondo well blow-out or indeed major hurricanes of recent times, he says those involved should be doubly alert.
“Any non-US vessel owner which operated on the OCS in assisting with the clean-up after Hurricanes Katrina or Rita, or with the clean-up repairs from the British Petroleum oil spill should consult a US tax adviser to determine whether they have US tax reporting responsibilities,” said O’Brien.
“Now is the time to address any issues because the IRS has the information through US Coast Guard and US State Department records to find non compliant vessel owners.