On 7 July 2020, Bermuda’s Minister of Finance issued the final Revised Guidance Notes in relation to the Economic Substance Act 2018 (the “Act”). The Revised Guidance Notes provide sector-specific guidance for a number of relevant activities within scope of the Act. The sector-specific guidance for the shipping sector is as follows:
An entity will be carrying on the Relevant Activity of “shipping” if it engages in any of the following activities involving the operation of a ship anywhere in the world other than in the territorial waters of Bermuda:
The above listed activities will constitute the Relevant Activity of “shipping” only if carried on by an entity in conjunction with the operation of a ship. Where any of the above activities are carried on by an entity but do not involve the operation of a ship, the entity will not be carrying on shipping. For example, a crew management company that does not itself operate ships will not be carrying on shipping. Similarly, a travel agent selling passenger tickets, but which does not itself operate a ship will also not be carrying on shipping.
Where a ship is chartered, the question of whether the ship owner or the entity chartering the ship (or both) is carrying on shipping (and the shipping Core Income Generating Activities (CIGA) being carried on by either of them) may be determined by the terms of the relevant charter party.
Example: A shipowner (“ShipCo”) charters the ship that it owns to another entity (“CharterCo”) on a bareboat basis. CharterCo operates the ship in its international cargo transport business. ShipCo will generally not be carrying on shipping, because it does not operate the ship.1 CharterCo is operating the ship and will be carrying on shipping because it is transporting goods for a charge in connection with its operation of the ship.
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Bermuda Issues Final Economic Substance Guidance Notes for Shipping Sector
1A bareboat charter may constitute the Relevant Activity of “financing and leasing” if, for example, the terms of the bareboat charter constitute a finance lease.