Mark Nisbett, partner and space sector expert at tax consultancy RSM, and Jim Burberry, VAT partner, discuss the future of space and its implications for the tax system.
The government has yet again shown its support for the Scottish space industry with Business Secretary Greg Clark’s visit to the site of the Sutherland spaceport last week.
He released UK Space agency figures estimating that the UK is well placed to compete for a substantial market share of launching an estimated 2,000 small satellites by 2030.
It follows last month’s announcements of a £31.5m cash injection to support the north Highland coast spaceport project, and the separate corporate agreements with the Shetland Space Centre in Unst – highlighting the current momentum behind the Scottish and wider UK space sector.
This news follows the government’s Space Industry Bill which became law 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 UK 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 and imports’ highlight future VAT and import duties loopholes in a post Brexit environment?
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, like Asteroid Mining Corporation, started to mine minerals from the Moon, Mars or an asteroid the 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 to which tax authority? To the country from where the initial craft was launched or where the company that operates it is located?
Once crafts are built in space there will be further complexity.
In addition, we have also seen examples of the ownership of commercial aircraft 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 potential future VAT and import duties loopholes for UK and European businesses regarding the export and import of goods from space, in a post Brexit environment.
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?
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