Australia: New measures on global tax avoidance – what the shipping industry should watch out for


In recent years there have been a series of catalysts, provoking a raft of new domestic and international law geared at countering perceived tax avoidance. Governments and international organisations have moved at unusual speed to introduce new rules governing the way cross-border transactions and arrangements are taxed. We will look at the measures that are on the horizon and consider how these new rules will impact the shipping industry.


Global or international tax law (the body of tax law that governs the way transactions involving one or more countries are taxed) is comprised of international law, such as double tax treaties concluded between two countries and domestic provisions, such as the UK's own transfer pricing rules.

Historically, countries have had a great degree of autonomy in the way they have taxed international transactions and this has led to mismatches in the way different jurisdictions have treated the same transaction. In some cases, it could even be argued that some countries have adapted their own rules to exploit these differences and encourage transactions to take place through their jurisdiction.

Broadly speaking, international tax laws have the goal of allocating taxing rights, in respect of particular items of income or gains, between two countries that have an interest in a transaction in order to balance the rights of the two countries involved. However, domestic measures often unilaterally protect a country's ability to raise revenue by levying taxes. "Base erosion and profit shifting", or "BEPS" is the term which has been given to describe the way in which multinational groups either shift profits from a jurisdiction where they would be subject to a high tax rate to a jurisdiction that taxes them at a lower rate (or not at all), or they reduce the amount of profit subject to tax in their jurisdiction of operation by making "excessive" payments to reduce their tax base. New international and domestic laws preventing BEPS have now been and will be introduced.

The international nature of the shipping industry means that those entities that own, finance and charter ships will need to be aware of the possible implications of these new rules on their businesses.

OECD and EU action

Since 2012, the Organisation for Economic Co-operation and Development (OECD) has been working on 15 action plans which introduce recommendations for how jurisdictions could implement rules to combat BEPS. The final recommendations on these 15 action plans were published in October 2015. Additionally, in the last few months, the OECD has published further guidance and draft guidance which deals with some of these 15 action plans. These are now to be implemented by the relevant countries.

Separately, the EU published in January 2016 a draft directive that recommends minimum standards for EU member states in relation to various tax avoidance techniques. These overlap to some extent with the OECD BEPS proposals, although there are some other recommendations that are specific to the way EU member states should implement their own domestic tax rules on cross-border transactions.

The OECD action plans are:

Intra-group arrangements and permanent establishments

A number of the action plans above are aimed at the way multinational groups are structured. In particular, the measures under Action 2, Action 3, and Actions 7-10, which in the main relate to transfer pricing between group entities or allocating profits to group entities in lower tax jurisdictions are likely to be important.

Domestic rules dealing with transfer pricing which require an adjustment to reflect arms' length terms are already in force in most jurisdictions. However, the BEPS proposals go further by aiming to align transfer pricing outcomes with value creation which will include looking at allocating profits in line with the chain of value created within the group. Revised draft guidance was published on 4 July 2016 which discusses how "transactional profit splits" will be applied in order to achieve this aim. Broadly, the "transactional profit split method" looks at the effect that transactions, which are or would be subject to transfer pricing, have on profits by deducing what the profits would have been for the transacting entities if the deal had been on arm's length terms. As there is value in both the capital invested in vessels and the marketing, vessel management and operation of vessels, the allocation of this value may be contentious, particularly given that different entities will potentially benefit depending on the function they have.

The new measures in relation to the attribution of profits to permanent establishments (PEs) in order to prevent the artificial avoidance of PE status (Action 7) will also potentially impact the shipping industry. Whilst shipping profits are generally protected by double tax treaties, these measures could still be relevant where activities are split between high and low tax jurisdictions, for example, where the owners of vessels are based in a different jurisdiction to the entities which deal with chartering and managing the vessels. Additional draft guidance was also published in relation to these measures on 4 July 2016 which included further discussion of dependent agent PEs (DAPEs) where a non-resident carries on a business in a relevant country via a dependent agent and PEs arising under Article 5(1) of the Model Tax Convention to which the Article 5(4) exemptions do not apply.

Shipping finance

Where an owner of a vessel is based in a jurisdiction that imposes withholding tax on outbound payments, Action 6 is likely to become relevant. The specific recommendations under Action 6 are that double taxation treaties should contain either a limitation on benefits article or a "main purpose" article. This will result in further scrutiny of the structures and jurisdictions used in chartering vessels. Those who are party to transactions which relate to shipping may, therefore, want to include provisions ensuring flexibility in the event that measures are introduced to deal with this. Additionally, parties should consider using contractual protections in the event that there is a transfer of the business to a party with less substance than the initial parties to the transaction. These potential new measures are particularly relevant to the shipping industry as it is common for owners to be based in one jurisdiction, with the chartering of the vessel being managed from an office in another jurisdiction.

Additionally, entities involved in the shipping industry will need to look out for the rules that will be introduced under Action 4. This action point will restrict interest deductions where they exceed a certain percentage (likely to be 30%) of earnings before interest, taxes, depreciation, and amortization (EBITDA). The rules are likely to be complex, but it is worth noting that in May 2016 the UK announced that it will proceed with such a restriction in April 2017. These rules are, therefore, beginning to be introduced and are likely to have an impact on those involved in the shipping industry. It will be important to monitor these rules as they are likely to be introduced on a jurisdiction-by-jurisdiction basis and hence involve a degree of inconsistency in their implementation.


Whilst many measures are yet to be implemented, some jurisdictions have already introduced rules to deal with BEPS; therefore, those involved with transactions that could be affected should begin to undertake a risk assessment of the transactions and structures that are most likely to be affected and consider putting effective contingency plans in place.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions