fiscal disparity between shipping and other industries and revenue losses for governments. The UK government, at least, does not view the potential downsides as
serious problems.
33
It is to be noted that the introduction of the tonnage tax phenomenon as an
attractive fiscal measure has gained high popularity and has had a significant impact
on the global distribution of ship ownership. Needless to say, this has also had the
effect of distorting the shipping market considerably. The gains acquired by these
jurisdictions have inevitably been at the expense of national fleets of other jurisdictions which have suffered because of less conducive fiscal treatment. Before the
tonnage tax scheme was introduced in the UK, the shipping industry in that country
suffered immensely because of competition from these jurisdictions, offering tax
advantages which grossly undermined the profitability of the domestic shipping
industry which resulted in a serious decline.
34
It was this state-of-affairs that prompted the UK government to adopt the tonnage
tax system to save the shipping industry from down-sliding and provide the impetus
for its revival. The Government viewed this as the optimal solution to end to global
tax competition in the shipping field. The Government had already used subsidies
and other devices for its shipping industry but these were not considered as fruitful as
the tonnage tax scheme. Subsidies could only be justified if there was a comparative
advantage and there were subsidy schemes elsewhere beyond the shores of the
UK. From a policy perspective it was thought that failure to support the shipping
industry in the short-term would result in long-term harm especially to the community of home-grown seafarers and land-based industries allied to shipping. The end
of global tax competition would allow the UK shipping industry to expand and
benefit further through acquisition of more ships and investment capital on a Global
scale.
35 Previously shipping activities enjoyed direct government grants until they
were outlawed under the Guidelines on maritime state aids issued by the European
Commission in 1997.
Under the Guidelines, it is not permissible for a single member state to support its
national shipping industry through grants if another member state’s shipping fleet
suffered as a result. However, if measures are taken to assist in ensuring sufficient
supply seafarers, such as through tax rebates being extended, these could be considered as justifiable. It is submitted, however, that such measures would not
ordinarily advance the position of a national shipping industry. Given that shipowners are the principal if not the sole employers of seafarers, it would be necessary
to foster the growth of the shipping industry to make it viable on a long-term basis.
This would ensure that national seafarers are provided with sufficient training and
hands-on experience. It is evident that the tonnage tax scheme can generate this
desired effect. This contention is borne out by the fact that numerous ships are
returning to their national flag states to make the fleets sustainable and generate
33 Ibid.
34 Ibid, at p. 213.
35 Ibid, at pp. 220–221.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
725
serious problems.
33
It is to be noted that the introduction of the tonnage tax phenomenon as an
attractive fiscal measure has gained high popularity and has had a significant impact
on the global distribution of ship ownership. Needless to say, this has also had the
effect of distorting the shipping market considerably. The gains acquired by these
jurisdictions have inevitably been at the expense of national fleets of other jurisdictions which have suffered because of less conducive fiscal treatment. Before the
tonnage tax scheme was introduced in the UK, the shipping industry in that country
suffered immensely because of competition from these jurisdictions, offering tax
advantages which grossly undermined the profitability of the domestic shipping
industry which resulted in a serious decline.
34
It was this state-of-affairs that prompted the UK government to adopt the tonnage
tax system to save the shipping industry from down-sliding and provide the impetus
for its revival. The Government viewed this as the optimal solution to end to global
tax competition in the shipping field. The Government had already used subsidies
and other devices for its shipping industry but these were not considered as fruitful as
the tonnage tax scheme. Subsidies could only be justified if there was a comparative
advantage and there were subsidy schemes elsewhere beyond the shores of the
UK. From a policy perspective it was thought that failure to support the shipping
industry in the short-term would result in long-term harm especially to the community of home-grown seafarers and land-based industries allied to shipping. The end
of global tax competition would allow the UK shipping industry to expand and
benefit further through acquisition of more ships and investment capital on a Global
scale.
35 Previously shipping activities enjoyed direct government grants until they
were outlawed under the Guidelines on maritime state aids issued by the European
Commission in 1997.
Under the Guidelines, it is not permissible for a single member state to support its
national shipping industry through grants if another member state’s shipping fleet
suffered as a result. However, if measures are taken to assist in ensuring sufficient
supply seafarers, such as through tax rebates being extended, these could be considered as justifiable. It is submitted, however, that such measures would not
ordinarily advance the position of a national shipping industry. Given that shipowners are the principal if not the sole employers of seafarers, it would be necessary
to foster the growth of the shipping industry to make it viable on a long-term basis.
This would ensure that national seafarers are provided with sufficient training and
hands-on experience. It is evident that the tonnage tax scheme can generate this
desired effect. This contention is borne out by the fact that numerous ships are
returning to their national flag states to make the fleets sustainable and generate
33 Ibid.
34 Ibid, at p. 213.
35 Ibid, at pp. 220–221.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
725