Seafarer Taxation: An International Exception
Belgian tax law recently encountered choppy waters when the Antwerp Court of Appeal had to decide whether employment on a pipe-laying vessel qualifies as work aboard a ship ‘operated in international traffic’. This phrase, central to many tax treaties, determines which country can tax seafarers’ income (Decision of 3 December 2024).
Due to the inherently international and mobile nature of maritime work, seafarers are treated differently under most tax treaties. Unlike standard salary taxation, which typically assigns taxing rights to the country of residence, treaties often include special provisions for employment aboard ships operated in ‘international traffic’. These aim to allocate taxing rights to the country where the shipping enterprise is effectively managed (POEM)— reflecting the economic reality of the employment, rather than the crew member’s physical location or tax residency.
In the case at hand, a Belgian tax resident worked as a captain aboard a former cargo ship repurposed as a pipe-layer. The vessel, operated by a Swiss employer, still carried large quantities of pipeline but primarily functioned to install those pipelines on the seabed while sailing.
Tax treaty tiebreaker: What counts as international traffic?
According to Article 15(3) of the Belgium–Switzerland Double Taxation Agreement (DTA), employment income earned aboard a ship ‘operated in international traffic’ is taxable in the country where the enterprise’s effective management is located—Switzerland, in this case. Otherwise, under Article 15(1), taxing rights remain with the country of residence—Belgium.
The key issue here is what exactly qualifies as ‘international traffic’? The DTA with Switzerland defines the term as “any transport by a ship […] operated by an enterprise with its effective management in a contracting state.” But it does not clarify what kind of ‘transport’ counts.
OECD guidance: focus on primary activity
To fill the gap, the Court turned to the OECD Commentaries. Although the 2014 version was cited, the treaty with Switzerland dates from 1978, making the 1977 Commentary more contextually relevant. Notably, post-2017 versions of the OECD Model shifted taxing rights to the residence state of crew members, but the older treaty still follows the place of effective management rule (POEM).
Based on the OECD Commentary to Article 8, the Court inferred that ‘international traffic’ refers only to actual transport operations—and certain ancillary services. Activities unrelated or only loosely tied to transport fall outside its scope.
The Court concluded that if the ship’s main activity is not transport, it cannot be considered to operate in international traffic—even if transport occurs incidentally.
Verdict: pipe-laying takes precedence over transport
Applying this logic, the Court ruled that pipe-laying was the ship’s principal function, with transport being secondary. Therefore, the vessel was not operating in international traffic, and Belgium, as the captain’s residence state, retained taxing rights over his entire remuneration. That the income had already been taxed in Switzerland was also considered irrelevant.
All or nothing: no split taxing rights
The judgment implicitly adopted an ‘all-or-nothing’ approach—if the vessel doesn’t primarily transport goods or people, Article 15(3) does not apply at all. This interpretation supports the anti-fragmentation principle underlying the provision: simplifying taxation by assigning full taxing rights to a single state.
However, the Court’s added requirement—that the vessel be primarily engaged in international transport—arguably goes beyond the treaty text. The treaty refers to remuneration for work ‘aboard a ship operated in international traffic’, not remuneration linked to transport activities. This raises questions about how such rules apply to multifunctional ships, increasingly common in offshore industries.
Key takeaway: treaty wording still rules the waves
The Antwerp Court’s reasoning in the pipe-laying ship case can extend to a wide range of specialized maritime activities where transport is not the vessel’s primary function. This includes offshore construction vessels involved in laying underwater cables or installing wind turbines, diving support vessels (DSVs) facilitating subsea maintenance, and research ships conducting oceanographic or geological surveys. In each case, the transport component is merely incidental, potentially disqualifying crew income from the treaty’s special taxing rules for seafarers and reverting the taxing rights to the state of residence.
While the Antwerp Court was right to seek clarity, its interpretation introduces conditions not explicitly stated in the treaty. Once a ship engages in international transport, however minor, the treaty may already trigger the shift in taxing rights to the state of effective management. Importantly, not all Belgian tax treaties define ‘international traffic’ the same way—or at all—making careful, treaty-specific interpretation essential in each case.