April 20 - International accountant and shipping adviser Moore Stephens issued a warning to ship owners and operators to check carefully the financial, tax and jurisdictional implications of participating in shipping pool arrangements.
Shipping pools have been increasing in popularity in the heavy lift and multipurpose shipping sector. They can take a variety of forms, such as incorporated entities, partnerships, joint ventures or other types of agreement.
"Shipping pools can be an attractive option, particularly in difficult markets and during periods of economic uncertainty," said shipping partner Michael Simms. "Interest in the concept generally is increasing as a way to leverage money and maximise economies of scale. But while it might make good commercial sense for like-minded shipping interests to pool their resources to mutual advantage, traps may lie in wait for the unwary..
Simms said that tax-friendly offshore jurisdictions have been a natural fit for many shipping pools, but an increasing focus on tax transparency, and proper governance and reporting procedures could be a catalyst for change.
"The existing structure of shipping pools established in offshore jurisdictions is unlikely to change, but it would be reasonable to expect the members of any new pool arrangements to at least consider the option of establishing the pool in a more traditional jurisdiction," he said.
"A move towards greater corporatisation of shipping pools, which may grant access to trade finance solutions, might be a viable option for many owners, provided the terms of entry and exit are acceptable."
Moore Stephens said it has advised on a number of pool agreements in the past 12 months and there are a number of tax issues to consider when setting up, amending or joining a pool.
In the case of a new pool, it will be necessary to consider the tax position of each entity within the pool structure. Other important considerations include the terms of the pool agreement itself, the status of the pool under competition law, the effectiveness of the marketing strategy, and the way pool accounts are prepared and submitted.
"Shipping pools have clear advantages for some. But it is a challenging market, and one subject to increasingly stringent evaluation. It would be a mistake to just dive in without careful consideration," Simms concluded.