Seafarer’s Earnings Deduction – European Commission threatens to take UK to European Court of JusticeWednesday, June 30th, 2010
The Seafarers’ Earnings Deduction (section 40 of the Income Tax (Earnings and Pensions) Act 2003) can provide 100% UK tax relief on earnings from carrying out duties as a seafarer wholly or partly outside the UK. One of the qualifying conditions for the deduction is that the claimant must be ordinarily resident in the UK.
In December 2009, the Pre-Budget Report announced that, to ensure that these provisions are compatible with the EU treaty, this qualifying condition would be extended so that seafarers who are EU or EEA residents can claim the deduction on their earnings as a seafarer that are liable to UK income tax. However, the statutory change was not included in the Finance Act 2010 as a result of the General Election.
On 22 June, the Coalition government’s 2010 Budget announced that the adjustments will now be made by means of the coming Finance (No. 2) Act 2010. Two days later, and apparently in ignorance of the government’s intentions, the European Commission issued a press release that formally asked the UK to make this very change within two months or risk referral to the European Court of Justice.
In explanation, the Commission considers the existing condition to be discriminatory and that seafarers who are subject to the UK income tax but not resident in the UK should be treated the same as UK residents, under the EU right to the free movement of workers within the EU.
Is there a communication problem here, or is the Labour government and now the Coalition government resisting this requirement behind the scenes?
Direct taxation: Commission formally requests the United Kingdom to amend income tax rules for seafarers