Multinational corporations. Exotic offshore locations. A complex industry sector. Shipping has all the ingredients to excite those looking for tax avoidance headlines, yet it has largely escaped the negative publicity that has damaged other sectors. However, this may not always be the case. Shipping is different. The system of tonnage tax means that well-established tax planning opportunities do not easily apply, leading to the suggestion that transfer pricing is less relevant than in many other industries. This reasoning may be flawed, however, or may at least be increasingly outdated. Shipping businesses should consider whether they are protected against the risk of reputational damage. Transfer pricing rules have changed in many countries and shipping groups are progressively being risk-assessed by tax authorities.

Tonnage tax and other shipping tax regimes render transfer pricing less of an issue, but here are a few examples that pose real risks for shipping.

1. Transactions that involve services. For example, management or other services subcontracted or recharged between group companies. Are your arrangements properly documented and do they reflect commercial reality?

2. Are loans or funding between group companies on an arm’s-length basis?
Does the split of taxable profits between entities and countries reflect the economic substance of the business?

3. If the answer to any of these questions is ‘no’, it is recommended that a review is undertaken given the shipping sector is coming under greater scrutiny. If the transfer pricing rules are not properly complied with, there could be time-consuming HMRC enquiries, interest on unpaid tax and penalties based on unpaid tax.