The tough approach to Seafarers' Earnings Deduction was taken by HM Revenue & Customs in response to the outcome of an appeal to the tax authorities.

Five seafarers who worked onboard the semi-submersible Pride South America off the coast of Brazil took their claims for entitlement to the concession to the HMRC Commissioners. The men served as master/ISM coordinator, master/DPO, chief mate, chief electrician, second officer and second mate.

The case centred on the issue of whether the vessel could be classed as a ship or an offshore installation whilst conducting well workover operations in the Campos Basin - one of the largest deepwater oilfields in the world.

Built in 1987, Pride South America is a 12,314gt self-propelled, dynamically positioned, semi-submersible vessel, and according to the HMRC, was originally designed as an offshore drilling unit. During the periods of the appeal, Pride South America operated as a workover/support vessel, and the hearing was told that the vessel frequently had to move to conduct different operations - with the work history showing 18 movements in 2002-3, 24 in 2003-4 and 26 in 2004-5.

Work included platform refurbishment and installation of subsea manifolds, subsea Xmas tree installation and recovery, and workover duties such as cleaning seabed flow lines and Xmas trees of hydrates and similar substances.

The Commissioner was told that it was wrong to class the Pride South America as an offshore installation - thus disqualifying the seafarers from SED - because it was acting as a service vessel and was not used while standing or stationed in relevant waters.

However, the Revenue argued that the vessel was being used as an integral part of mineral exploitation and that in order to be 'stationed' a vessel does not have to be totally static (Pride South America had been kept in position by dynamic positioning when work was being carried out).

This argument was accepted by the Special Commissioner, Theodore Wallace, who concluded that 'Pride South America was used for the exploitation of mineral resources, notwithstanding that the wells were killed or shut down while it was being used'.

He also ruled that when the vessel was dynamically positioned, it could be classed as being 'stationed'.

And, in dismissing the appeals, he added: 'While the logic of applying health and safety legislation to persons employed on offshore structures in British waters or the Continental Shelf is clear, the logic of denying foreign earnings deduction to seafarers working on offshore structures in the South Atlantic is not apparent. However, while I have considerable sympathy with the appellants, my duty is to interpret the law as enacted.'

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