Tax Exemption for the International Oil Pollution and Supplementary Funds

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A decisin made on 10 December 2014:

Decision Reference: MD-E-2014-0123
Decision Summary Title :	Tax Exemption for the International Oil Pollution and Supplementary Funds		Date of Decision Summary:	3 December 2014
Decision Summary Author:	Registrar of Shipping		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	n/a
Written Report Title :	Approval of tax exemption		Date of Written Report:	3 December 2014
Written Report Author:	Registrar of Shipping		Written Report : Public or Exempt?	Public
Subject: Tax Exemption for the International Oil Pollution and Supplementary Funds
Decision(s): The Minister decided to request the Minister for Treasury and Resources to approve a tax exemption to apply to the international Oil Pollution Fund and Supplementary Fund in the event that any of the income, assets and property of these funds were to be based in Jersey and therefore to be subject to Jersey income tax GST or Customs Duties.
Reason(s) for Decision: The draft Shipping (Oil Pollution) (Liability and Compensation) (Jersey) Law 201- has been under development for some time. Inter alia, it aims to improve the financial funding available to the Island in the event of a major oil spill in Jersey waters or a spill that affects Jersey waters. If passed by the States it will give recognition to these Funds as legal persons and a stipulation of the associated international agreement is that such Funds should be exempt from tax. Before a tax exemption clause is inserted, the Minister wishes to have the approval of the Minister for Treasury and Resources.
Resource Implications: Because the Funds are not expected to set up a presence in the Island, the measure will have no material effect. Hence, there are no new financial, property, ICT or human resources issues arising.
Action required: The Minister for Treasury and Resources is asked to approve the tax exemptions as described in the attached report.
Signature: Senator L.J.Farnham		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Tax Exemption for the International Oil Pollution and Supplementary Funds

Report - Tax Exemption for the Oil Pollution Compensation and Supplementary Funds

Background

The draft Law will enable the States to continue to give effect to the International Convention on Civil Liability for Oil Pollution Damage 1992 (“the Liability Convention”) and the International Convention for Compensation for Oil Pollution Damage 1992 (“the Fund Convention”). Importantly, it will also enable Jersey to give effect to the international protocol in 2003 to the Fund Convention (the protocol itself being known as “the Supplementary Fund Protocol”).

The Conventions regulate liability and provide for compensation for damage caused by oil pollution. They are currently implemented in Jersey by a United Kingdom Order-in-Council that has been extended to the Islands – the Merchant Shipping (Oil Pollution) (Jersey) Order 1997.

Additionally, the Supplementary Fund Protocol provides for a scheme for a very valuable supplementation of the 1992 Fund. It seeks to ensure that adequate compensation is available for victims of oil pollution damage and to alleviate the effects of any shortfall of funds available under the Fund Convention.

As the Supplementary Fund Protocol will be new to Jersey, discussion took place with United Kingdom officials to ensure that if the States seek ratification of the Protocol on behalf of the Island this would be supported by the UK. Agreement has been reached on this with one exception, that being that the draft law had not included a tax exemption clause for the funds. This exemption is required by the Article 34 of the Convention concerned.

Exemption from taxes

Various exemptions from liability for income tax, GST or Customs duties are already in legislation. When these are of a general nature affecting a group of persons, these may appear in the relevant generic tax law.

However, it is more normal for tax provisions relating to an international Convention to be put into the legislation dealing with implementation of the Convention itself. Examples include the Organisation for Economic Co-operation and Development (Immunities and Privileges) (Jersey) Regulations 1999 and the Privileges and Immunities (Diplomatic, Consular etc) (Jersey) Law 1998, the latter giving effect to the Vienna Convention on diplomatic relations. These reflect similar provisions in UK legislation and in particular the UK legislation which gave effect to the relevant Funds. This is an effective and easily ascertainable way in which to satisfy the international community that the exemptions have indeed been applied in law.

Drafting advice has been taken from the Law Draftsman. The recommendation is that the following exemptions should be inserted in the draft Shipping (Oil Pollution) (Liability and Compensation) (Jersey) Law 201 -

(1) All income, assets and property of the Fund and Supplementary Fund should be exempt from income tax.

(2) Subject to compliance with such conditions as the Agent of the Impôts may determine, goods imported or exported by or behalf of the Fund or Supplementary Fund for the purpose of exercising any of their functions under this Law would be exempt from duties and taxes on their importation or exportation, as the case may be.

(3) Provision should be made for refund of GST on sales wherever possible.

Financial Risk

The Funds are currently established in London. Their everyday business is carried out from that base and further details on their work in distributing compensation internationally can be found at www.iopcfunds.org

For these Jersey tax exemption provisions to be utilised, one of the Funds would have to establish itself in the Island. This is a very unlikely contingency but in theory the Fund or the Supplementary Fund could need to base itself in Jersey in order to deal with an oil catastrophe in or adjacent to Jersey waters. Even in the event of such a catastrophe, the Funds may carry on much of if not all of their work from London. This is because their principle work is to provide compensation for oil pollution damage, not to be involved with the prevention or clean-up itself.

This means that the tax exemptions sought are a legal necessity to satisfy the requirements of compliance with the Convention. They do not represent a loss of income to the Treasury.

The much more significant risk is that of failing to approve these exemptions with the resultant failure of the Island to be able to ask the United Kingdom to ratify the Protocol relating to the Supplementary Fund. Ratification is required for the Island to have the very significant additional protection and access to compensation that membership of the Fund confers.

Recommendation

It is recommended that the Minister for Economic Development:

Seeks the agreement of the Treasury and Resources Minister for the inclusion of the exemptions in the way described above and as advised by the Law Draftsman;

Lodges for debate the draft law as soon as the necessary formalities are complete.

EDD/Maritime Compliance

October 2014