“In recent years, an increased number of foreign vessels have applied to enter and work in the OCS (Outer Continental Shelf),” wrote Keith M. Jones, IRS industry director of natural resources and construction, in a directive to field officers last week. “Our analysis indicates that a significant number of foreign vessels permitted to work in the OCS do not comply with U.S. filing requirements.”
The Offshore Marine Services Association (OMSA), which represents U.S.-flag service vessel interests in the offshore industry, praised the IRS for taking up this issue.
“This confirms something we have suspected for a long time — that many of the foreign vessels that work off the U.S. coast on mineral leases granted by the U.S. government and reap benefits of America’s offshore oil and gas sector have not been paying U.S. taxes,” said OMSA President Ken Wells in a statement.
“It is more important than ever for the IRS to close in on foreign companies that have been sidestepping their U.S. tax obligations,” he said.
The IRS identified three types of activity in its directive:
' Contractors that perform services on the OCS, such as seismographic testing, drilling, repair and salvage work.
' Vessel operators that transport supplies and personnel between U.S. ports and locations on the OCS.
' Owners and/or operators of foreign-registered vessels that bareboat or time charter to persons who are engaged in activities related to offshore exploration and exploitation.
Wells said under IRS guidance, if a foreign vessel doesn’t pay taxes on work done here in the United States, the charterer of the vessel must pay the IRS a 30 percent withholding to cover taxes that should have been paid.
“There have simply been too many instances in which foreign vessels were able to significantly undercut the rates offered by U.S. vessels,” he said. “Clearly, if the foreign boats are able to start out with a 30 percent beneficial cost differential that makes it hard for Americans to compete.”
Wells also urged the IRS to look into whether foreign vessel operators are making the proper income tax withholdings for foreign laborers who work in the offshore sector.
The IRS announcement comes at the heels of the recent announcement by Customs and Border Protection that it’s reviewing a number of agency rulings which have allowed foreign vessels to carry a substantial amount of cargo to offshore projects and whether there are violations of the Jones Act occurring.
“We see the two initiatives as linked,” Wells said. “Not only do we believe these vessels have been carrying cargo that only U.S. vessels should carry, but now we find out they are cheating our country out of tax revenue as well.”
