grants would be tolerate.
43 The revised Guidelines introduced the requirement for a
EU/EEA flag which is considered to be one of the most crucial changes.
44
The main requirement in this regard is that state aid may only be granted in
respect of ships entered in the ship registry of a Member state. As an exception to this
general rule, state aid may be granted in respect of other ships if the following three
conditions are satisfied:
(a) there is compliance with international standards and EU law embracing, inter
alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ships in question are operated from within the EU; and
(c) the shipowner is established within an EU state and the Member state in question
can show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Guidelines.
It is apparent from the third condition mentioned above that the question of flag
state of the ship, i.e., where it is registered is of particular significance in relation to
state aid in respect of shipping in the EU.
45
It is common ground that preferential treatment of shipping companies in fiscal
terms is an age-old phenomenon which has taken different shapes and forms
including accelerated depreciation on investments in shipping and tax-free preservation of profits from ship sales for a stipulated time on condition that they are
re-invested in ships. These are examples of movements towards the creation of a
fiscal-friendly climate to boost shipping. As a fundamental principle, however, any
form of preferential and discriminatory fiscal treatment is prima facie deemed to be
potentially in conflict with the principles of free movement. Nevertheless, in view of
the fact that EU shipping needs to be in competition with shipping from the open
registry flag states, the Commission is inclined to support and approve such preferential fiscal treatment of ship-owning entities provided there is an effective link
(somewhat akin to the concept of genuine link in ship registry regimes) between the
fiscal relief scheme and a EU flag state. Any state aid so provided must be necessary
to promote the return of commercial and strategic management of ships beneficially
owned by EU entities back to the EU. The beneficiaries of any such state aid scheme
must be subject to corporate taxation liability within the EU.
46
There is usually a so-called “lock-up” period which means that the entity in
question can only enjoy the tonnage tax status for a limited period which is usually
10 years. In some tonnage tax jurisdictions, capital gains from sales of vessels and
their equipment, if related to international shipping activities, are not taxed under the
normal taxation regime. Hidden reserves may or may not be taxed or there may be
provision for deferred tax liability. In some instances, if a ship leaves the system
43 Chuah (2005), pp. 235–239.
44 OJ C 13, 17.1.2004, p. 3.
45 Chuah (2005), pp. 235–239.
46 Chuah (2005), pp. 235–239.; See also Lang John Temple (2012)
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Y. Yin
43 The revised Guidelines introduced the requirement for a
EU/EEA flag which is considered to be one of the most crucial changes.
44
The main requirement in this regard is that state aid may only be granted in
respect of ships entered in the ship registry of a Member state. As an exception to this
general rule, state aid may be granted in respect of other ships if the following three
conditions are satisfied:
(a) there is compliance with international standards and EU law embracing, inter
alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ships in question are operated from within the EU; and
(c) the shipowner is established within an EU state and the Member state in question
can show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Guidelines.
It is apparent from the third condition mentioned above that the question of flag
state of the ship, i.e., where it is registered is of particular significance in relation to
state aid in respect of shipping in the EU.
45
It is common ground that preferential treatment of shipping companies in fiscal
terms is an age-old phenomenon which has taken different shapes and forms
including accelerated depreciation on investments in shipping and tax-free preservation of profits from ship sales for a stipulated time on condition that they are
re-invested in ships. These are examples of movements towards the creation of a
fiscal-friendly climate to boost shipping. As a fundamental principle, however, any
form of preferential and discriminatory fiscal treatment is prima facie deemed to be
potentially in conflict with the principles of free movement. Nevertheless, in view of
the fact that EU shipping needs to be in competition with shipping from the open
registry flag states, the Commission is inclined to support and approve such preferential fiscal treatment of ship-owning entities provided there is an effective link
(somewhat akin to the concept of genuine link in ship registry regimes) between the
fiscal relief scheme and a EU flag state. Any state aid so provided must be necessary
to promote the return of commercial and strategic management of ships beneficially
owned by EU entities back to the EU. The beneficiaries of any such state aid scheme
must be subject to corporate taxation liability within the EU.
46
There is usually a so-called “lock-up” period which means that the entity in
question can only enjoy the tonnage tax status for a limited period which is usually
10 years. In some tonnage tax jurisdictions, capital gains from sales of vessels and
their equipment, if related to international shipping activities, are not taxed under the
normal taxation regime. Hidden reserves may or may not be taxed or there may be
provision for deferred tax liability. In some instances, if a ship leaves the system
43 Chuah (2005), pp. 235–239.
44 OJ C 13, 17.1.2004, p. 3.
45 Chuah (2005), pp. 235–239.
46 Chuah (2005), pp. 235–239.; See also Lang John Temple (2012)
728
Y. Yin