A London tax tribunal has ruled in favour of an appeal in a test case over the use of a UK tax lease by Japanese shipower K Line and its associates to fund two LNG carriers.
In his decision on the case heard before the UK’s First-Tier Tribunal (Tax) in the High Court during September, judge Edward Sadler allowed an April 2009 appeal by financier Lloyds TSB Equipment Leasing (No 1) (LEL1). The appeal was made against an amendment made to LEL1’s corporation tax self-assessment form for the year ended 30 September 2006 by UK revenue body Her Majesty’s Revenue and Customs.
Justice Sadler concluded that K Line Europe’s (K-Euro) chartering arrangements regarding the 142,612-cbm Arctic Discoverer and 140,000-cbm Arctic Voyager (both built 2006) was for commercial benefit and the development of its business strategy and not for obtaining capital allowances.
HMRC, which first challenged LEL1 on the tax lease in 2005, contended there had been a plan by two non-UK resident parties to use a foreign tax lease in relation to the financing structure on the two LNG carriers.
The ships were contracted to serve Statoil’s Snohvit LNG project and financed through a UK tax lease arranged in 2002.
Ships qualifying for UK tax leases have to be “strategically and commercially managed” in the UK.
The operator of the ship, which is the party eligible under the tax-lease requirements, must either own or charter the vessel.
HMRC has 56 days to lodge an appeal against the ruling.
