IRS Targets Non-U.S. Vessel Owners in Gulf of Mexico Shawn O’Brien Jackson Walker L.L.P. (713) IRS Targets Non-U.S. Vessel Owners in Gulf of Mexico Shawn O’Brien Jackson Walker L.L.P. (713)

2 IRS International Enforcement Effort  Foreign Financial Accounts Held by U.S. Persons  U.S. Activity of Non U.S. Persons  U.S. Permanent Establishments by Foreign Companies  Transfer Pricing of Inter-Company Transactions of Multi-National Companies  Foreign Financial Accounts Held by U.S. Persons  U.S. Activity of Non U.S. Persons  U.S. Permanent Establishments by Foreign Companies  Transfer Pricing of Inter-Company Transactions of Multi-National Companies

3 IRS Targets Gulf of Mexico

4 IRS Initiative U.S. Outer Continental Shelf Activities  Three Categories of Activities Targeted: (1)Contractors performing seismic, testing, drilling repair and salvage services; (2)Vessel Operators transporting supplies and personnel; and (3)Bareboat or Time Charter vessels.  Three Categories of Activities Targeted: (1)Contractors performing seismic, testing, drilling repair and salvage services; (2)Vessel Operators transporting supplies and personnel; and (3)Bareboat or Time Charter vessels.

5 IRS Research of OCS Activities  U.S. State Department Records – B-1 OCS Visas  U.S. Coast Guard Filings  Internet Sites -  Company Websites  Blogs Tracking Vessel Movement  U.S. State Department Records – B-1 OCS Visas  U.S. Coast Guard Filings  Internet Sites -  Company Websites  Blogs Tracking Vessel Movement

6 U.S. Activity Subject to Tax  Income Tax – Form 1120 F  Payment received for services performed on OCS is considered taxable income under U.S. Internal Revenue Code  Payments to a Foreign company may require withholding by Payor using a Form 1042  Employment Tax – Forms 940 and 941  Foreign Crew compensation taxable  Payor/Employer may be required to withhold  Income Tax – Form 1120 F  Payment received for services performed on OCS is considered taxable income under U.S. Internal Revenue Code  Payments to a Foreign company may require withholding by Payor using a Form 1042  Employment Tax – Forms 940 and 941  Foreign Crew compensation taxable  Payor/Employer may be required to withhold

7 IRS Correspondence  IRS “Soft Letter” Regarding Activities  IRS Information Document Request  Proforma Tax Returns if Non Compliant  IRS “Soft Letter” Regarding Activities  IRS Information Document Request  Proforma Tax Returns if Non Compliant

8 How to Navigate IRS  Do Not Ignore the Issue  Treaty May Lessen the Blow of Taxation  Communicate with IRS Agent Through a Representative  Become Compliant with IRS Filing Requirements  Do Not Ignore the Issue  Treaty May Lessen the Blow of Taxation  Communicate with IRS Agent Through a Representative  Become Compliant with IRS Filing Requirements