0% VAT rate no longer applicable to offshore jack-up drilling rigs
The 0% VAT rate does not apply to the supply, lease, maintenance or provision of offshore jackup drilling rigs. This follows from a judgment of the European Court of Justice (‘ECJ’) of 20 June 2019 (please find the Dutch version of the judgment here (the English version is not yet available)). In the Dutch energy practice the 0% VAT rate is currently frequently applied on the aforementioned activities. However, due to the outcome of this case, from now on, the 21% VAT rate must be applied more often.
The 0% VAT rate
The 0% VAT rate is applicable to supplies to ‘vessels used for navigation on the high seas’, used for industrial activities. According to the ECJ the wording ‘used for navigation’ means that an installation should at least mainly or for the most part be put into action for navigation on the sea. Since jackup drilling rigs are only predominantly in stationary position, the ECJ ruled that these jackup drilling rigs cannot be regarded as vessels for the application of the 0% VAT rate.
In the Dutch offshore energy practice the 0% VAT rate is currently applied in most cases. Often, the supplier holds a written statement of his recipient (usually the owner, operator or user of the rig) stating that it concerns a sea-going vessel used for industrial activities taking place mainly on high seas.
What does this mean for you?
For the Dutch offshore energy market, the ECJ ruling will have large VAT compliance consequences. Following the judgment, owners, operators and users of offshore jackup drilling rigs will in future be confronted with (deductible) VAT on expenses relating to usage and maintenance of these rigs. For suppliers it is recommended to check whether and with respect to which supplies relating to such drilling rigs they will need to charge VAT.
We recommend to check what the consequences of this judgment will be for your business.
If you have any questions regarding the draft bill or if you require assistance in drafting a reaction to the consulted draft bill, please do not hesitate to contact your trusted adviser or Bart Heijnen or Carolijne Koornstra-Sturm.
Follow our Showcase Page on LinkedIn for updates on new EnergyBits.
BartHeijnenSenior associate Tax adviser
Bart Heijnen, tax adviser, has been working in the Indirect Tax practice of Loyens & Loeff since 2008. He works exclusively in this area, providing practical solutions to client’s indirect tax questions, issues and structures.T: +31 20 578 53 77 M: +31 651 01 89 99 E: firstname.lastname@example.org