Thirty days offshore, and the usual thresholds stop applying

Tax arising from energy activity in another country's waters, governed by its own treaty provision. Article 21 applies where activities happen offshore in connection with exploring or exploiting the sea bed, the subsoil and their natural resources.

So the subject matter stays narrow while the effect runs wide. It covers a specific kind of work and then displaces the rest of the treaty for it. So check the work first.

Because it says so in its opening words. The article applies notwithstanding any other provision of the convention, which puts it ahead of the general permanent establishment rules and the employment rules alike. So it says, in the opening words.

That ordering matters more than anything else here. Checking the usual article and stopping there produces a confident answer to a question nobody asked. Both governments publish the convention and its supporting documents. Order matters here.

So establish first whether the work is offshore energy activity. Everything downstream depends on that single classification.

So read this article first and the others afterwards. That order is the opposite of the one most checklists use.

The article treats an enterprise carrying on exploration or exploitation activities in the other country as carrying on business there through a permanent establishment. It needs no office, no fixed place and no agent. So the usual test is simply skipped.

That deeming is the whole mechanism. Instead of asking whether your activity looks like a taxable presence, the article simply declares one. After that, no judgement call is left.

Our guide to permanent establishment covers how the ordinary test works. This article bypasses it.

The article never asks about vessels, which surprises people used to thinking in terms of fixed places. It asks instead whether the enterprise carries on exploration or exploitation activities in that country.

So the asset matters far less than the activity. A chartered vessel, a jack-up or a crew working on somebody else's platform all raise exactly the same question. Ask what the crew did.

Exploration activities escape the deeming where they run for no more than 30 days in aggregate within any twelve-month period. That is the only relief the article offers a company. That is the only relief.

Read the word exploration carefully. The threshold names exploration activities, and exploitation activities do not appear in it anywhere.

So a company producing from a field has a deemed presence from the start. The short-visit idea simply does not extend to that side of the work. So count early.

Still, the relief is a real one for genuine survey work. A short campaign that stays inside the limit creates nothing at all.

Any period of twelve months, which is a rolling measure rather than an accounting year. The article asks whether the activities exceed 30 days in aggregate within any such period. It rolls.

So two short campaigns either side of a year end can combine. The question is never what a single financial year shows, and a company counting that way will reach the wrong answer.

So test each new mobilisation against every window it touches. One campaign can open several of them at once.

This is the provision that catches structured arrangements. Take an enterprise carrying on exploration alongside an associated enterprise doing substantially similar exploration there. The article then treats the first as carrying on all of the second's activities too.

One carve-out applies within that. The addition leaves out activities the other enterprise carries on at the same time as your own. One carve-out survives.

So splitting a campaign across two group companies does not halve the count. The article anticipated exactly that. So splitting work fails.

Keep the other company's dates alongside your own. You cannot run the count without them.

A control test, and a familiar one at that. Two enterprises count as associated where one participates directly or indirectly in the management, control or capital of the other, which is deliberately broad language.

Common ownership counts as well. The same persons participating directly or indirectly in both enterprises brings them inside the definition. Still, ownership itself is not required.

So sister companies under a shared parent fall inside this definition, even though neither owns any part of the other.

They get their own rule, with its own clock. The other country may tax salaries and similar pay from employment on exploration or exploitation activities there. Its reach extends only so far as the duties actually happen offshore in that country.

An exemption then follows for short periods. That country cannot tax the pay where the employment runs to no more than 30 days in aggregate within any twelve-month period. Thirty days, not one hundred and eighty-three.

So the familiar 183-day figure has no application to this work. In our practice that substitution is the single most common error on offshore crews.

Location limits the employment rule, and that limit works in the employee's favour. The other country may tax the pay only so far as the duties actually happen offshore there.

So onshore time in that country sits outside this particular provision. A worker splitting time between a rig and a shore base needs the two tracked separately. Track the two apart.

Work unconnected with exploring or exploiting the sea bed and its resources. A vessel chartered for something else is not brought in merely because it is at sea. Being at sea is not enough.

The geography matters too. The activities must relate to the sea bed, subsoil and natural resources situated in that country, rather than to offshore work generally. Crucially, geography matters too.

So the classification question deserves care at tender stage. It decides which article governs everything that follows.

The ordinary consequences of having one, which are considerable. Profits attributable to the establishment fall within the other country's taxing rights, and a return follows. Then a return follows.

For a company that usually means Form 1120-F, reporting on a net basis after deductions. Our guide to filing protectively covers the position where the analysis is uncertain.

Underneath it sits effectively connected income, which decides what the return must include.

Expect the filing obligation to outlast the campaign. A presence deemed for a single season still produces a return.

The article speaks of a period or periods not exceeding 30 days in aggregate, which points at elapsed time rather than at shifts worked. It does not describe working days or billable days anywhere.

So a campaign running across a month counts that month, whatever the rotation pattern. Build the count from vessel and personnel movements rather than from timesheets. So count elapsed time.

Where exploration work sits near the line, the shape of the programme starts to matter. The article measures aggregate days across any rolling twelve months, so the gap between campaigns counts as much as their length. Gaps count as much as days.

So model the calendar before fixing mobilisation dates. US tax on offshore work is one of the few areas where a scheduling decision changes the tax answer outright.

Because the ordinary tests fit it badly. A drilling campaign has no office, no fixed place of business in the usual sense, and may move repeatedly across a licence area. Typically, rigs move.

Left to the general article, substantial activity could generate no taxable presence at all. The deeming provision closes that, and the 30-day threshold keeps genuinely brief survey work outside it.

That design explains the thresholds too. They mark the line between a survey and an operation.

Take an illustrative case. A British seismic survey company spends 22 days on a US exploration licence, and a sister company spends a further 15 days on substantially similar work there. In short, two companies, one count.

Neither exceeds 30 days alone. But the association rule adds the sister company's activities to the first, taking the total to 37 days. So the total is what matters.

Unless those periods overlapped in time, the total breaches the threshold and the article deems a permanent establishment. One contract, two companies, and the count was never going to be separate.

Notice that neither company did anything unusual. The arithmetic simply was never theirs to do separately.

The commonest is applying the general permanent establishment article and never reaching this one. It overrides that article expressly. Overall, this article wins.

The second is extending the 30-day threshold to exploitation. The threshold names exploration alone. Exploitation has no floor.

After those comes the 183-day habit on crew. Offshore employment runs on 30 days, which is a very different planning problem.

A fourth is counting working days instead of elapsed ones. The article speaks of periods rather than shifts.

First we classify the activity, because exploration and exploitation lead to completely different answers under the same article. Then we build the day count across rolling periods and across associated companies.

We also separate the crew position from the company one, since they run on different tests. Start with our treaty relief service, or reach us through our contact page.