On 10 April 2019, Advocate General HOGAN gave its opinion in case C‑291/18 (Grup Servicii Petroliere SA), concerning the VAT exemption for supplies to offshore jackup drilling rigs and the definition of “vessel navigation on the high seas”.
Facts (simplified):
Is an offshore ‘jackup’ drilling rig ‘a vessel used for navigation on the high seas …’? This is the principal question which this Court is now required to answer following a reference from the Curtea de Apel Bucureşti (Court of Appeal, Bucharest, Romania).
In May 2008 GSP sold three offshore jackup drilling rigs, operating in the Black Sea (more precisely, according to the information contained in the request of the referring court, in Romanian territorial waters) to certain Maltese purchasers for the purpose of carrying out drilling activities. Jackup rigs, or self-elevating units, are mobile platforms which consist of a buoyant hull which has been fitted with several movable legs. The existence of the hull enables the drilling unit and all attached machinery to be transported to the proposed drilling site with its legs up and the hull floating on the water. When the rig arrives at the location, the legs are then extended (‘jacked’) into the water. The legs thus anchor the rig on to the sea-bed and the hull platform is then elevated well above the surface of the sea. When the rig is in this extended (or ‘jacked-up’) position it forms a static platform. It is not until the legs are withdrawn at the end of the drilling operation that the hull can float again.
The three rigs at issue are not self-propelled, but manoeuvred by towing. While the Court was also informed at the hearing that the platform supports a crew, that there is a log book and that the platform can be manoeuvred by its engines to deal with ocean currents and sea drift, it would seem that even when floating the platform is transported from location to location by a tugboat.
GSP issued invoices, applying the VAT exemption scheme, in respect of the supply of these platforms. After the sale, GSP continued to operate these platforms in the Black Sea pursuant to the terms of a bare boat charter.
The Romanian tax administration issued a VAT adjustment notice to GSP on the grounds that, although the drilling rigs could be considered as vessels within the meaning of the national legislation and are suitable for unlimited use at sea, they do not navigate during drilling activity but are rather in a parked position: their columns are in a low position and rest on the seabed in order to lift the pontoon (the floating part) above the sea, from a height of some 60 to 70 metres. For the VAT exemption to be applied, they argued, it was necessary to establish that the vessel in question is navigating effectively and predominantly on the high seas.
The Romanian tax administration considered, however, that the evidence showed that the actual and preponderant use of the platforms occurs when they are in a parked position for the purpose of drilling activity and not when they navigate, which is only an activity subsidiary to drilling.
GSP did not agree with this and submitted a complaint against this notice which was rejected by a decision of the Romanian national tax administration.
The Romanian Court of Appeal decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1) Must Article 148 of the VAT Directive be interpreted as meaning that the exemption from value added tax applies, in some circumstances, to the sale of offshore jackup drilling rigs, that is to say, are offshore jackup drilling rigs covered by the term “vessels” within the meaning of that provision of EU law, given that, according to the title of Chapter 7 of that directive, that provision lays down rules governing “exemptions related to international transport”?
(2) If the answer to the first question is in the affirmative, must Article 148(c) of the VAT Directive, in conjunction with Article 148(a) of that directive, be interpreted as meaning that an essential condition for applying the exemption from value added tax to an offshore jackup drilling rig, which has navigated into international waters, is that it must in fact be in a state of movement while it is being used (for commercial/industrial activities), floating or moving at sea from place to place, for a longer period than the period during which it is stationary or immobile, as a result of carrying out drilling activities at sea — that is to say, that navigation must in fact predominate via-à-vis drilling activities?’
Analysis:
Under international law, it is, perhaps, no surprise, for example, that the International Convention for the Prevention of Pollution from Ships (1973) (MARPOL) defined a ship as ‘a vessel of any type whatsoever operating in the marine environment and includes hydrofoil boats, air-cushion vehicles, submersibles, floating craft and fixed or floating platforms’. However, since this convention aims at preventing marine pollution, it is natural that it defined the concept of vessel very widely. In the light of that objective, it is essentially irrelevant whether that pollution came from a fixed platform supporting a drilling rig or from a conventional nautical vessel such as a ship or a boat. That is why, in essence, the MARPOL Convention includes in the definition of the term ‘ship’ fixed or floating platforms of this kind.
Yet the wording of the present Article 148(a) and (c) of the VAT Directive is of some importance. The exemption, after all, is not simply in respect of ‘vessels’ simpliciter, but rather in respect of ‘vessels used for navigation on the high seas’. In this respect the directive employs the same venerable language of notable items of maritime legislation contained in the statute roll of some Member States. The phrase ‘… used for navigation on the high seas …’ is nevertheless an important and, to my mind, a decisive qualification of the word ‘vessel’.
In ordinary language the word ‘vessel’ connotes a craft of some sort which is capable of doing something on the water involving the carriage of persons or goods, irrespective of whether this is done for reward or otherwise or just simply for recreational purposes. Therefore, I rather doubt if a rig of this kind can properly be described as a ‘vessel’ in this sense, since it neither carries persons or goods on the water: it is more in the nature of a large-scale man-made machine structure which, once moved, is affixed to the sea floor for drilling purposes.
While it is true that, as the Court was informed at the hearing, there is a crew on board such a rig and that it has a log book, one might nonetheless observe that a jackup drilling rig seems to lack many of the standard features of a sailing vessel such as a bow or anchors or a rudder. Nor does it seem that they possess any conventional steering mechanism: it appears, for example, there is no wheel-house. Moreover, the rigs at issue are furthermore in the nature of platforms which do not possess any means of self-propulsion.
Yet even if a ‘jackup’ drilling rig may nonetheless properly be regarded as a ‘vessel’, the fact that such a rig may qualify as a ‘vessel’ simpliciter does not mean that it is a vessel ‘used for navigation on the high seas’ as required by Article 148(a) of the VAT Directive.
Opinion:
The Advocate General gives the following opinion:
I propose that the Court answers the questions asked by the Court of Appeal, Bucharest, Romania, that Article 148(c) of the VAT Directive, read in conjunction with Article 148(a) of that directive, must be interpreted as meaning that the exemption laid down in this first provision is not applicable to offshore jackup drilling rigs such as the ones at issue in the main proceedings.
Source: curia.eu
