growth at a multiple level. The tonnage tax system is yielding a positive effect also
because in countries such as in the UK, shipowners are having to provide minimum
training for seafarers sailing under the home flags. Between 1999 and 2000 the UK
national fleet, by virtue of the tonnage tax system, experienced a growth of some
35%. Experience also shows that the tonnage tax system attracts foreign vessels into
the national shipping registry.
36
The tonnage tax system has enhanced the profile of certain traditional ship
registries so that they have become attractive enough to trigger the return of ships
owned by national entities which had previously left the registry. This dramatic and
radical change in outlook which is essentially a reform of taxation policy relating to
the shipping industry has engendered renewed confidence among all parties participating in the shipping industry. In particular, the growth in the prospects of national
seafarers has brought about considerable positivism in the overall economy of
shipping in terms of the cost-effectiveness as well as legal and economic efficiencies.
The tonnage tax experience is likely to remain as an integral feature of national tax
policy even though it is a phenomenon that works effectively only in the shipping
sector. It has helped in reversing the decline of shipping in the UK which exemplifies
a reverse in the trend of the past several decades which saw ships leaving the UK
registry to enter open flag registries which have prospered immensely in the postWorld War II era.
As explained above, shipping companies which have elected to enter the tonnage
tax system are required to calculate their corporate tax profits from maritime
transport activities under the Merchant Shipping (Tonnage Tax) Regulations 2006.
If a shipping company in the tonnage tax system commences operation of a ship not
registered in the EU or EEA member state during the current financial year, that is,
2013, it is required to carry out a “flagging test” to determine whether the ship
qualifies for tonnage tax. Such a situation may have an effect on whether a ship so
qualifies unless the year in question is an “excepted year”.
It is notable that tugs and dredgers must at all times be registered in an EU or EEA
member state in order to qualify for tonnage tax. On an annual basis, the UK
Revenue and Customs authorities determine the proportion of UK tonnage tax
ships registered in EU/EEA member state registers as a proportion of tonnage tax
ships registered worldwide. If the proportion does not fall below the calculation
made for the previous year, the treasury may by order declare that financial year as
excepted. If such designation is not made, companies must apply a flagging test
when they begin operation of a non-EU or EEA registered ship for the first time to
determine whether the ship qualifies for tonnage tax.
37 If the conditions set out in the
flagging test are met the ship will not qualify for tonnage tax and the ship’s profits
will be taxed under the normal rules of corporate taxation. It is notable that over the
recent past the proportion of EU/EEA tonnage has declined on average over a 3-year
36 Ibid, at p. 219.
37 The details regarding the flagging test are found in the Tonnage Tax Manual at TTM03910.
726
Y. Yin
because in countries such as in the UK, shipowners are having to provide minimum
training for seafarers sailing under the home flags. Between 1999 and 2000 the UK
national fleet, by virtue of the tonnage tax system, experienced a growth of some
35%. Experience also shows that the tonnage tax system attracts foreign vessels into
the national shipping registry.
36
The tonnage tax system has enhanced the profile of certain traditional ship
registries so that they have become attractive enough to trigger the return of ships
owned by national entities which had previously left the registry. This dramatic and
radical change in outlook which is essentially a reform of taxation policy relating to
the shipping industry has engendered renewed confidence among all parties participating in the shipping industry. In particular, the growth in the prospects of national
seafarers has brought about considerable positivism in the overall economy of
shipping in terms of the cost-effectiveness as well as legal and economic efficiencies.
The tonnage tax experience is likely to remain as an integral feature of national tax
policy even though it is a phenomenon that works effectively only in the shipping
sector. It has helped in reversing the decline of shipping in the UK which exemplifies
a reverse in the trend of the past several decades which saw ships leaving the UK
registry to enter open flag registries which have prospered immensely in the postWorld War II era.
As explained above, shipping companies which have elected to enter the tonnage
tax system are required to calculate their corporate tax profits from maritime
transport activities under the Merchant Shipping (Tonnage Tax) Regulations 2006.
If a shipping company in the tonnage tax system commences operation of a ship not
registered in the EU or EEA member state during the current financial year, that is,
2013, it is required to carry out a “flagging test” to determine whether the ship
qualifies for tonnage tax. Such a situation may have an effect on whether a ship so
qualifies unless the year in question is an “excepted year”.
It is notable that tugs and dredgers must at all times be registered in an EU or EEA
member state in order to qualify for tonnage tax. On an annual basis, the UK
Revenue and Customs authorities determine the proportion of UK tonnage tax
ships registered in EU/EEA member state registers as a proportion of tonnage tax
ships registered worldwide. If the proportion does not fall below the calculation
made for the previous year, the treasury may by order declare that financial year as
excepted. If such designation is not made, companies must apply a flagging test
when they begin operation of a non-EU or EEA registered ship for the first time to
determine whether the ship qualifies for tonnage tax.
37 If the conditions set out in the
flagging test are met the ship will not qualify for tonnage tax and the ship’s profits
will be taxed under the normal rules of corporate taxation. It is notable that over the
recent past the proportion of EU/EEA tonnage has declined on average over a 3-year
36 Ibid, at p. 219.
37 The details regarding the flagging test are found in the Tonnage Tax Manual at TTM03910.
726
Y. Yin