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Finance

Marad

Reboots CCF

Part II

Ropax operators can now take advantage of the program to build new vessels

By H. Clayton Cook, Cook Maritime Finance Editor’s note: In “MARAD ‘reboots’ CCF for Ropax ferries” published last month (ML October 2016, p.20), we noted that the most immediate beneficiaries of changes in interpretation to the Capital Construction Fund might be the shipyards that build Ropax vessels for public owner-operators. This month, H. Clayton Cook writes about some important new CCF tax deferral opportunities for existing and new Jones Act operators.

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s a shipyard, how would you like an interest-free loan? The Capital Construction Fund (CCF) Program allows a shipyard to defer the payment of federal and state income taxes on the profits on vessel sales and vessel leasing and associated investment income. The program provides what is in effect an interest-free loan of monies that would otherwise be used to pay current taxes in exchange for the shipyard’s promise to use these monies for the construction of vessels to be employed in U.S. foreign, U.S. non-contiguous, Great Lakes, U.S. offshore, and, since 2007, U.S. short sea services (“Qualifying Trades”). The tax deferral is accomplished under the terms of a CCF Program contract between the U.S. Maritime Administration (MARAD) and the shipyard participant lists vessels that are under construction or are contemplated for construction for which the taxes on profits will be deferred (“Eligible Vessels”) and lists the vessels for which the

monies will be used for the construction of vessels for operations in Qualifying Trades (“Qualified Vessels”). When a shipyard sells or leases a Qualified Vessel for which tax deferred monies have been used, the shipyard cost basis is reduced by this measure, and the shipyard profit will be increased by this amount. However, the shipyard will be able to defer this tax by depositing this profit, adding to the CCF working capital account for use in the construction of a vessel or vessels for Qualifying Trades. Any shipyard that meets MARAD U.S. citizenship standards and owns or leases at least one U.S.-built, U.S.-flagged vessel operated in U.S. domestic or foreign commerce is qualified to contract with MARAD to participate in the CCF Program. A CCF Agreement Participant can shelter the profits from the construction of almost all vessels built for U.S. citizens (including those for the U.S. Coast Guard and military). The participant can deposit the amount by which he wishes to reduce his current year’s taxable income (or for its income for any prior taxable year for which a final tax return has not yet been filed). For example, instead of writing a check to the U.S. Treasury for $4 million on March 15, 2017, a shipyard will be writing a check for $10 million to its Depository, $4 million of which will be an interest-free loan from the U.S. Treasury. And the shipyard will be able to use this $10 million, and the tax deferred earnings on this $10 million, to build a new vessel for the shipyard’s own account or for November 2016 // Marine Log 43

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November 2016 Marine Log  

November 2016 Marine Log  

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