US authorities investigate foreign flag vessels

The US Internal Revenue Service, in an attempt to collect unpaid taxes, is investigating the US filing compliance of foreign vessel companies and the US companies that hire them to work on the OCS.

Offshore staff

HOUSTON – The US Internal Revenue Service, in an attempt to collect unpaid taxes, is investigating the US filing compliance of foreign vessel companies and the US companies that hire them to work on the OCS. The IRS says an increasing number of foreign vessels have applied to enter into and work on the OCS, and it believes a significant number of them do not comply with US tax requirements such as reporting US income and filing tax returns. Additionally, US companies that hired and paid foreign companies may have a withholding tax requirement of 30% of the amount paid to the foreign companies.

“This is something that we have suspected for a long time – that many of the foreign vessels that work off the US coast on mineral leases have not been paying US taxes,” says Ken Wells, president of Offshore Marine Services Association, Wells cites one example in which a company publically reported that it had to pay the IRS $3.2 million because foreign vessels it chartered had not paid US taxes.

“There have been too many instances in which foreign vessels were able to significantly undercut the rates offered by US vessels,” he adds. Wells says an influx of vessels hit the Gulf of Mexico in 2005 to do clean-up and repair in the aftermath of hurricanes Katina and Rita.

The IRS has mobilized a task force to determine the compliance of the companies in question. Currently, about 200 vessel owners and operators, which sail under more than 30 different flags, have been contacted, according to the IRS. Approximately half of those contacted have responded. The letter requests that the vessel owner file US tax returns and pay any tax and interest due, or provide a reason why the vessel owner believes that US tax returns are not required. The IRS says its goal is for the letter recipients to voluntarily respond. Alternatively, the IRS will consider traditional compliance action.

The IRS directive categorizes foreign taxpayers engaged in exploration related activities on the OCS as the following:
1. Contractors that perform services on the OCS, such as seismographic testing, drilling, repair, and salvage work
2. Vessel operators that transport supplies and personnel between US ports and locations on the OCS
3. Owners and/or operators of foreign-registered vessels that bareboat or time charter to persons engaged in activities related to the exploration for, or exploitation of, natural resources on the OCS.

For more information, visit: http://www.irs.gov/businesses/article/0,,id=214906,00.html.

1/12/2010

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