Tax Update Shipping & Offshore - November 2025
Dear reader,
While I was preparing this November 2025 update I happened to come across the recent press release on the website of Dolphin Drilling:
Dolphin Drilling AS (OSE: DDRIL) ("Dolphin") today confirms that His Majesty’s Revenue and Customs (“HMRC”) in the UK and the Company has reached a position in respect of the outstanding corporation tax liability of GBP 12.2 million, where the Company will repay its debt to HMRC over a period until April 30, 2026. This liability relates to a legacy claim dismissed by the UK Supreme Court on 24 June 2025. Dolphin Drilling is committed to meeting its financial obligations and continuing to focus on its operational and strategic priorities.
Interesting I thought and also concluded that I must have missed this decision during the summertime. I had a look and the case revolved around whether Dolphin could fully deduct the costs of leasing a support vessel, the Borgsten Dolphin, from an associated company based outside the UK.
The main issue was how the vessel was used. The Borgsten Dolphin wasn’t just a technical support ship; it also provided living quarters for workers on the Dunbar oil platform in the North Sea. Dolphin argued that the accommodation was only a minor part of the vessel’s role, and that the main purpose was to support drilling operations. If that were true, they could avoid a cap on how much of the lease cost they could deduct from their UK tax bill.
However, HMRC saw things differently. They pointed out that providing accommodation was a significant and independent use of the vessel—so much so that extra berths were added specifically for this purpose, and Total (the oil company) paid for these upgrades. In HMRC’s view, this meant the vessel’s accommodation role wasn’t just incidental or secondary.
The Supreme Court agreed with HMRC. The judges said that if providing accommodation is an important and separate function of a vessel—even if it’s not the only one—then the special tax cap applies. As a result, Dolphin Drilling couldn’t deduct the full lease payments, leading to a higher tax bill.
This ruling is a win for HMRC and clarifies the rules for oil and gas companies operating in UK waters. It sends a clear message: if a support vessel is used significantly for accommodation, companies can’t sidestep the tax cap by claiming that’s just a side benefit!
Hope you enjoy the other updates and cases as well!
Please reach out if you have any questions/remarks to your KPMG contact. Within KPMG specialists around the world focus on this specific industry.
Ernst-Jan Bioch
Content
1. India
2. Lithuania
3. United Nations
5. CJEU
5. Brazil-Netherlands
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1. India
Summary of Supreme Court Case: 2025 INSC 1247 – Pride Foramer S.A. v. Commissioner of Income Tax & Anr.
Background:
Pride Foramer S.A., a French non-resident company engaged in oil drilling, had a contract with ONGC in India from 1983 to 1993. After the contract ended, there was a gap until a new contract was awarded in 1998 (formalized in 1999). During the intervening years (Assessment Years 1996-97, 1997-98, 1999-2000), the company maintained business correspondences and submitted bids but had no active contract or office in India.
Key Issue:
Whether the company was "carrying on business" in India during these years, entitling it to deduct business expenses under Section 37(1) and carry forward unabsorbed depreciation under Section 32(2) of the Income Tax Act.
Lower Authorities’ Findings:
- Assessing Officer & CIT (Appeals): Disallowed deductions, holding the company was not carrying on business in India during the relevant years.
- ITAT: Reversed this, holding a temporary lull does not mean cessation of business, and allowed the deductions.
- High Court: Overturned ITAT, stating that without a contract or office in India, the company was not carrying on business.
Supreme Court’s Analysis & Decision:
The Supreme Court held that a mere lull or temporary discontinuance does not amount to cessation of business if the intention to continue exists, as evidenced by ongoing correspondences and bids. The existence of a permanent establishment or office in India is not a prerequisite for a non-resident company to be considered as carrying on business in India under the Income Tax Act. The Court found that the company’s actions (correspondence, bidding, etc.) showed a clear intention to continue business activities in India. The restrictive interpretation by the High Court was rejected as inconsistent with modern business realities and India’s commitment to facilitating cross-border business.
Conclusion:
The Supreme Court allowed the appeal, set aside the High Court’s order, and restored the ITAT’s decision. The company was entitled to claim business expenditure deductions and carry forward unabsorbed depreciation for the relevant years.
Read the here the full case.
2. Lithuania
Seeks to extend it’s tonnage tax regime
On 20 October 2025, Lithuania’s Ministry of Transport and Communications announced changes to the Corporate Profit Tax Law (No. IX‑675), prolonging the availability of the tonnage tax regime—a fixed-rate profit taxation approach—for shipping companies.
The legislative update amends Article 381, paragraph 5, which outlines the criteria and procedures for utilizing this alternative corporate tax framework.
Shipping companies that wish to benefit from the fixed-rate system are required to inform their local tax office of this decision by the end of the first quarter of the tax period in which they first become eligible.
Under the tonnage tax regime, qualifying maritime businesses determine their corporate tax liability based on the tonnage (carrying capacity) of their vessels, rather than their actual earnings, thereby streamlining tax compliance for the shipping industry. With this extension, eligible companies will be able to continue using the fixed-rate taxation method through 31 December 2036.
These changes are scheduled to come into force on 1 January 2027.
3. United Nations
Decided to delay the adoption of proposed changes to MARPOL Annex VI
On 17 October 2025, the UN’s International Maritime Organization (IMO) deferred a decision on draft amendments to MARPOL Annex VI that would introduce the IMO Net-Zero Framework—an unprecedented global carbon tax for shipping—after the United States objected to the proposal.
The US had previously warned that the Framework, designed to cut greenhouse gas emissions from ships, would unfairly increase costs for American businesses and consumers. As a result, the Marine Environment Protection Committee (MEPC) postponed further discussion for a year, with talks set to resume in 2026.
Meanwhile, the Intersessional Working Group on ship GHG emissions will continue developing implementation guidelines. The Net-Zero Framework, initially approved in principle in April 2025, would form a new chapter in the revised MARPOL Annex VI, which regulates air pollution from ships and covers nearly all of the world’s merchant fleet.
You can read it all here.
4. CJEU
Dismisses taxpayer’s (Fugro) appeal on the EU Minimum Tax Directive challenge
On October 30, 2025, the Court of Justice of the European Union (CJEU) dismissed an appeal (C-146/24 P) challenging Council Directive (EU) 2022/2523, known as the EU Minimum Tax Directive. The case was brought by a Dutch multinational subject to the Dutch tonnage tax regime, which argued that the Directive’s rules on the exclusion of shipping income conflicted with existing national tonnage tax benefits and lacked transitional protections for existing beneficiaries.
The General Court had previously rejected the challenge, finding that the company was not “individually concerned” by the Directive as required under Article 263 TFEU to bring an annulment action. The CJEU upheld this decision, ruling that simply being affected by changes to a favorable tax regime does not grant an acquired right or legal standing to challenge the Directive. The appeal was therefore dismissed. See here for a more extensive summary by KPMG’s EU Tax Centre or an article of Bloomberg on this topic here. The SBIE for mobile assets is still under discussion.
5. Brazil-Netherlands
Tax treaty and MLI
On 20 October 2025, the OECD announced that Brazil signed the Multilateral Instrument (MLI). The signing of the MLI by Brazil raises the question if and to what extent this could have consequences for the tax treaty between Brazil and the Netherlands. This question is set out below. Please do not hesitate to reach out if you would have any follow-up questions.
In general terms, the signing of the MLI does not in and of itself have consequences for the tax treaty between Brazil and the Netherlands. In order for the MLI to have consequences for the treaty, two cumulative conditions need to be fulfilled. The first condition is that Brazil must ratify the MLI in order for the MLI to be able to enter into force for Brazil. Whereas it is difficult to predict how long ratification will take, prior research (based on data as at 19 October 2022) indicates that ratification takes, on average, more than two years. The second condition is that the Netherlands would have to notify the tax treaty with Brazil as a covered tax agreement. In the absence of such a notification, the tax treaty would not be a covered tax treaty and could not be affected by the MLI. Although there is no guidance in this respect, we consider it likely that the Netherlands would notify the treaty, especially if Brazil were to have ratified the MLI.
If it the two conditions would be fulfilled and the MLI would become effective in relation to the tax treaty between Brazil and the Netherlands, the most relevant consequences seem to be as follows:
- Mutual agreement corporate tie-breaker instead of place of effective management corporate tie-breaker;
- Switch-over provision applicable for Dutch residents. Based on this switch-over, the Netherlands would no longer be required to exempt income derived from Brazil that is also exempt by Brazil as a result of the application of the tax treaty. This is particularly relevant for disregarded permanent establishments of Dutch residents whose income is currently exempt in the Netherlands.
- A principal purposes test. Brazil has indicated that it does intend to adopt a limitation on benefits provision, in addition to or in replacement of the principal purpose test, through bilateral negotiation. In the meantime, however, a principal purpose test would become applicable.
- No mandatory arbitration in connection with mutual agreement procedures.
We will closely monitor the developments from both a Brazilian and Dutch tax perspective.
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