2 The Tonnage Tax Phenomenon
2.1 Concept and Historical Development
The concept of tonnage tax has its roots in the so-called open registry system which
is radically different from the traditional closed registry system of ship registration.
Indeed, there are several varieties of ship registries with which one must be familiar
in order to fully appreciate the notion of tonnage tax. As the starting point, it must be
recognized that seagoing ships need to be registered to acquire nationality and in
international law, ship nationality is subject to the so-called doctrine of genuine link.
The rationale underlying the legal concept of ship nationality is explained by a noted
author in the following words:
The conceptual theory of ship nationality stems from the functional characteristic of mobility
of a ship beyond the jurisdictional limits of a state into the high seas where no jurisdictions
would otherwise prevail. As a self-contained communal unit, where people live, work and
interact, a ship must, of necessity, be subject to some legal regime at all times. In waters other
than the high seas, a ship could well be subject to the laws of a littoral state, at least in some
respects. But upon the high seas, without the benefit of flag or nationality, she would,
metaphorically speaking, float in a legal vacuum.
3
Under public international law, which is reflected in Article 91 of the United
Nations Convention on the Law of the Sea, 1982
4 (UNCLOS), states are required to
fix conditions for the grant of a ship’s nationality. This Article in paragraph 1 provides as a fundamental principle that “there must exist a genuine link between the
state and the ship”. While the doctrine of genuine link has not only been mentioned
in this UNCLOS provision, but also in the United Nations Convention on Conditions
for Registration of Ships (UNCCROS), its meaning in terms of the law remains
unclear and is not entirely consistent with practice. It has, among other things, been
described as an “elusive” concept.
5 The question is whether it means political link,
administrative link, economic link or sociological link. In the absence of any
definitive elaboration in treaty or case law, flag states have resorted to giving the
term an interpretation that best suits their national needs and interests. Some
indication of what it might constitute may be found in Chapter 94.1 of UNCLOS
and in Chapter 1 of UNCCROS. In UNCLOS, reference is made to the flag state’s
jurisdiction and control over ships with respect to its “administrative, technical and
social matters”. In UNCCROS the “economic” parameter is added to that list.
6
The core of the debate concerns the question of whether the link must be between
the flag state and the ship or between the shipowner and the ship, the common
denominator being nationality (Mukherjee 2000, pp. 110–114). Those who subscribe to the ultra-conservative view of the traditional closed registry would contend
3 Mukherjee and Brownrigg (2013), p. 199.
4 1833 UNTS 3.
5 McConnell (1985).
6 Mukherjee and Brownrigg (2013), p. 199.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
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2.1 Concept and Historical Development
The concept of tonnage tax has its roots in the so-called open registry system which
is radically different from the traditional closed registry system of ship registration.
Indeed, there are several varieties of ship registries with which one must be familiar
in order to fully appreciate the notion of tonnage tax. As the starting point, it must be
recognized that seagoing ships need to be registered to acquire nationality and in
international law, ship nationality is subject to the so-called doctrine of genuine link.
The rationale underlying the legal concept of ship nationality is explained by a noted
author in the following words:
The conceptual theory of ship nationality stems from the functional characteristic of mobility
of a ship beyond the jurisdictional limits of a state into the high seas where no jurisdictions
would otherwise prevail. As a self-contained communal unit, where people live, work and
interact, a ship must, of necessity, be subject to some legal regime at all times. In waters other
than the high seas, a ship could well be subject to the laws of a littoral state, at least in some
respects. But upon the high seas, without the benefit of flag or nationality, she would,
metaphorically speaking, float in a legal vacuum.
3
Under public international law, which is reflected in Article 91 of the United
Nations Convention on the Law of the Sea, 1982
4 (UNCLOS), states are required to
fix conditions for the grant of a ship’s nationality. This Article in paragraph 1 provides as a fundamental principle that “there must exist a genuine link between the
state and the ship”. While the doctrine of genuine link has not only been mentioned
in this UNCLOS provision, but also in the United Nations Convention on Conditions
for Registration of Ships (UNCCROS), its meaning in terms of the law remains
unclear and is not entirely consistent with practice. It has, among other things, been
described as an “elusive” concept.
5 The question is whether it means political link,
administrative link, economic link or sociological link. In the absence of any
definitive elaboration in treaty or case law, flag states have resorted to giving the
term an interpretation that best suits their national needs and interests. Some
indication of what it might constitute may be found in Chapter 94.1 of UNCLOS
and in Chapter 1 of UNCCROS. In UNCLOS, reference is made to the flag state’s
jurisdiction and control over ships with respect to its “administrative, technical and
social matters”. In UNCCROS the “economic” parameter is added to that list.
6
The core of the debate concerns the question of whether the link must be between
the flag state and the ship or between the shipowner and the ship, the common
denominator being nationality (Mukherjee 2000, pp. 110–114). Those who subscribe to the ultra-conservative view of the traditional closed registry would contend
3 Mukherjee and Brownrigg (2013), p. 199.
4 1833 UNTS 3.
5 McConnell (1985).
6 Mukherjee and Brownrigg (2013), p. 199.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
715