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Moore Stephens Urges Consistent

Maritime Activity Reports, Inc.

March 5, 2004

Approach to Shipping Taxation Moore Stephens said it is important the UK government does not introduce changes in next week's Budget which would adversely affect the UK shipping sector. Noting that UK shipping is in a positive mood after years of decline, Moore Stephens says that positive moves must not followed by negative ones, particularly given the long-term nature of shipping investment.

The government's pre-Budget report last December contained no specific proposals that might disadvantage the shipping industry. But Sue Bill, tax partner at Moore Stephens, warns, "There are a number of proposed changes to UK corporation tax rules under discussion which would adversely affect UK shipping.

"Capital allowances may in future be available to the lessee rather than the lessor for certain types of leases. Under the current rules, the capital allowances available to a lessor are reflected in lower rentals charged to the lessee, resulting in real savings to the lessee. Under the proposed changes, capital allowances would be available to the lessee instead. For lessees with a surfeit of allowances, which is common in the shipping industry due to the large capital cost of ships, or those within the UK tonnage tax regime, these allowances would be unusable.

"Tax relief for depreciation on ships may be available based on depreciation charged in a company's accounts, instead of the current system of capital allowances. In the majority of cases, this would mean that tax relief for the capital cost of ships would be available later. It would also mean the effective withdrawal of the UK shipping industry's special concessions relating to capital allowances on ships, which afford flexibility in connection with free or postponed ships allowances, and the ability to defer balancing charges on ships.

"Capital gains may be taxable based on amounts recognized in a company's accounts. This could mean that shipowning companies revaluing their ships would be taxable on the revaluation. It would also mean that indexation allowance and rollover relief for capital gains on ships would no longer be available."

Increasing numbers of ships are now being managed and controlled from the UK, and registered there, following the introduction of government measures such as the tonnage tax system. But, says Sue Bill, "The proposed changes will affect all companies, and it is likely that the effect on the shipping sector has not been considered.

"The government needs to have a consistent approach and, in view of the long-term nature of shipping investment, it is important that it does not make drastic changes which would adversely affect the UK shipping sector. If this means there is nothing in the Budget affecting shipping, then that is the best course."

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