Moore Stephens calls for caution before entering pools

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Forming pools is a well-known and shared strategy for struggling shipping companies. However, there are risks and the need to check implications carefully, global advisory Moore Stephens says.

Shipping partner Michael Simms warns in a recent announcement ship owners and operators[ds_preview] to be aware of financial, tax and jurisdictional implications of participating in shipping pool arrangements.

»Shipping pools can be an attractive option, particularly in difficult markets and during periods of economic uncertainty. 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«, he said.

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Pools can take a variety of forms, from incorporated entities or partnerships to joint-ventures and other forms of agreement. The jurisdiction in which the pool is established is of primary importance, since it will have fundamental tax and reporting implications, it was declared.

Simms added, »Historically, tax-friendly offshore jurisdictions have been a natural fit for many shipping pools, but the recent increased focus on general tax transparency and on proper governance and reporting procedures may serve as a catalyst for change in this regard. 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.«

For him, 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 says, it has advised on a number of pool agreements during the past 12 months. There were a range 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.«