Mark Nisbett

Written by: Mark Nisbett and Jim Burberry

Mark Nisbett

Partner

Space taxation: the next generation of tax legislation?

  • October 2017
  • 4 minutes

The government has yet again shown its support for the UK space industry at the start of World Space Week, announcing a £50m cash injection for the Science Programme at the Defence Science and Technology laboratory (Dstl) to support ongoing innovation projects.

This funding follows the government’s Space Industry Bill which was set out in the Queen’s Speech earlier this year and looks to continue the growth of the UK’s £13.7bn space industry to its £40bn target by 2030. It is estimated that the market for small satellite launch and sub-orbital flight alone could be worth more than £25bn globally over the next 20 years, so positioning the UK as a leader in the commercial space industry could significantly boost the wider economy.

Which leads on to a very interesting question, if the commercial space launch and sub-orbital industry booms in the UK how will it be taxed, and could sub-orbital ‘exports’ highlight a future VAT loophole? 

If you compare the space industry to the North Sea oil and gas sector, the government realised that huge amounts of profits were being made offshore so it brought in the Petroleum Revenue Tax to ensure a ‘fairer share of profits for the nation’, which at its peak brought in billions for the Treasury. So, it’s likely that we could see future legislation to tax profits made in space.

For example, if a business started to mine minerals from the Moon, Mars or an Asteroid that business should pay tax, but when? On the extraction; on the sale of the asset; or the repatriation of the asset back to earth orbit or wherever else it’s going. And, also to which tax authority? To the country from where the initial craft was launched or where the company that operates it is located? And once crafts are built in space there will be further complexity.

In addition, we have seen recent examples of the ownership of commercial aircrafts being transferred in international airspace, therefore avoiding any transactional tax of the agreement.

Could this type of transaction be extended when the technology allows to other sales of goods, which could be taken from Earth, traded in space, and then returned to Earth under new ownership – highlighting a potential future VAT loophole for UK and European businesses, as VAT is not charged on exports out of the EU.

Much of space law is currently based around maritime law but will that remain the most appropriate base? At a time of significant change to both the space sector and international tax legislation, it seems appropriate to make sure that the accounting and tax legislation is coordinated, efficient and effective for a new generation of businesses as they explore new frontiers.

When new markets open up entrepreneurs are quick to exploit them, and HMRC and relevant legislation is often behind the curve, most recently seen with the digital economy. As momentum builds, could the space industry present the next taxation challenge for the UK and global tax authorities?

Written by Mark Nisbett, partner and space sector expert and Jim Burberry, VAT partner.

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