tonnage tax described above, leads the discussion into the arena of comparison
between what tax liability a shipowner would have incurred under a normal income
tax regime compared with its tax liability under a tonnage tax regime.
There is added advantage to the tonnage tax system as compared with other
measures in that the system can be made subject to specified limitations. It was
hoped that the scheme would assist in the revival of the domestic shipping industry
by fostering and boosting investment in the domestic shipping domain that has in
fact happened. The system is particularly attractive to shipowners as well as investors because there is certainty and clarity in terms of future taxation liabilities.
Potential investors would consider the system as more user-friendly and less expensive than the typical corporate tax regime which is based on allowances and
deductions.
29 Looking at it from another vantage point, it is well established under
the Ricardian theory that each state should maximize its economic efficiency through
the deployment of resources in sectors where the state enjoys a relative advantage.
The prerequisite, of course, is that there must be a free and fair global market place.
Where shipping holds a particularly advantageous national position, it would make
economic sense to deploy commensurate resources in that industry.
30
The general situation within the global shipping industry, however, is distinctively different, at least in terms of a level playing field. Ship registry jurisdictions
such as Bermuda, Bahamas and the Cayman Islands levy virtually no corporate taxes
at all. Much depends on the taxation regimes of states as to whether profits reverted
from the jurisdiction of a subsidiary back to its primary jurisdiction, that of the parent
state, are subject to taxation.
31 As explained earlier, several shipping states have
created replicas of tax friendly jurisdictions through the secondary registries which
provide commensurate favorable taxation environments within the national jurisdiction. In these jurisdictions, tonnage tax has been introduced as competitive measures
vis a vis open registry states which offer low tax or zero tax regimes. Some European
states such as Germany, Netherlands and Denmark also offer domestic tax favorable
conditions in respect of personal investments to attract investments into their
national shipping sectors. The variations described above have in effect created
considerable market distortions whereby shipping entities in less favorable fiscal
jurisdictions inevitably continue to bear the brunt. Only if global tax competition
comes to an end can disadvantaged shipping sectors witness a revival.
Without adequate government action, not only will the shipping industry suffer,
but allied industries and the seafaring profession inclusive of the crewing industry
will run the risk of severe decline at the very least and eventual collapse in a worstcase scenario.
32 While there are many pros in terms of national fiscal policy and
advantages to the shipping industry derived from the tonnage tax system, there are
cons as well. These include potential tax avoidance opportunities, competition and
29 Leggate and McConville (2005).
30 Brownrigg et al. (2005), p. 219.
31 Ibid at p. 216.
32 Ibid, at p. 216.
724
Y. Yin
between what tax liability a shipowner would have incurred under a normal income
tax regime compared with its tax liability under a tonnage tax regime.
There is added advantage to the tonnage tax system as compared with other
measures in that the system can be made subject to specified limitations. It was
hoped that the scheme would assist in the revival of the domestic shipping industry
by fostering and boosting investment in the domestic shipping domain that has in
fact happened. The system is particularly attractive to shipowners as well as investors because there is certainty and clarity in terms of future taxation liabilities.
Potential investors would consider the system as more user-friendly and less expensive than the typical corporate tax regime which is based on allowances and
deductions.
29 Looking at it from another vantage point, it is well established under
the Ricardian theory that each state should maximize its economic efficiency through
the deployment of resources in sectors where the state enjoys a relative advantage.
The prerequisite, of course, is that there must be a free and fair global market place.
Where shipping holds a particularly advantageous national position, it would make
economic sense to deploy commensurate resources in that industry.
30
The general situation within the global shipping industry, however, is distinctively different, at least in terms of a level playing field. Ship registry jurisdictions
such as Bermuda, Bahamas and the Cayman Islands levy virtually no corporate taxes
at all. Much depends on the taxation regimes of states as to whether profits reverted
from the jurisdiction of a subsidiary back to its primary jurisdiction, that of the parent
state, are subject to taxation.
31 As explained earlier, several shipping states have
created replicas of tax friendly jurisdictions through the secondary registries which
provide commensurate favorable taxation environments within the national jurisdiction. In these jurisdictions, tonnage tax has been introduced as competitive measures
vis a vis open registry states which offer low tax or zero tax regimes. Some European
states such as Germany, Netherlands and Denmark also offer domestic tax favorable
conditions in respect of personal investments to attract investments into their
national shipping sectors. The variations described above have in effect created
considerable market distortions whereby shipping entities in less favorable fiscal
jurisdictions inevitably continue to bear the brunt. Only if global tax competition
comes to an end can disadvantaged shipping sectors witness a revival.
Without adequate government action, not only will the shipping industry suffer,
but allied industries and the seafaring profession inclusive of the crewing industry
will run the risk of severe decline at the very least and eventual collapse in a worstcase scenario.
32 While there are many pros in terms of national fiscal policy and
advantages to the shipping industry derived from the tonnage tax system, there are
cons as well. These include potential tax avoidance opportunities, competition and
29 Leggate and McConville (2005).
30 Brownrigg et al. (2005), p. 219.
31 Ibid at p. 216.
32 Ibid, at p. 216.
724
Y. Yin