during the lock-up period, direct tax liability may apply as a penalty. At the end of a
lock-up period, rules relating to valuation of the ship may be different from one
jurisdiction to another. With few exceptions, to qualify under a tonnage tax scheme
the ship must be flagged with a EU registry. An individual shipping company may be
granted relief if at least 60% of its fleet is flagged with a EU registry. If that is not the
case, the relevant EU Member state should not grant tonnage tax status to ships of
that company flagged outside the EU. These are provisions in the 2004 Guidelines
which allow ship management companies to participate in the tonnage tax system if
they fully perform all the technical/nautical and crew management functions. In
other words, they must assume full responsibility for the operations of the fleet
including compliance with the requirements of the International Safety Management
(ISM) Code.
47
4.2 Maritime State Aid and Harmful Tax Competition
Tonnage tax, considered as one of the special tax regimes together with low–tax
countries and tax havens, provides shipping entities with the benefit of lower tax
liability. It is attractive for shipping entities to be able to move to tonnage tax regimes
or other varieties of low-tax regimes. This can potentially trigger tax competition
among countries.
48
Fiscal competition among EU Member States is an issue that warrants consideration in the context of tonnage tax. At present, there are no schemes in place that
appear to distort competition between Member States with regard to trade; at least
distortion that is harmful to their common interest (Luca 2009, pp. 389–395). On the
contrary, as far as shipping is concerned, there seems to be a converging trend in
terms of the approaches being adopted by Member States with regard to provision of
aid to shipping. It is hardly ever the case that one EU Member State flags out to
another except to a satellite registry of an overseas territory which flies the same flag.
Fiscal competition is a phenomenon that exists mainly between Member States and
non-EU states, especially offshore jurisdictions. These jurisdictions offer considerable cost savings to shipowners mainly through fiscal advantages at the centre of
which is the tonnage tax device.
49
47 Farthing and Brownrigg (1997), p. 225, see also Stopford (1997), pp. 38–43.
48 Zielke (2011).
49 OJ C 13, 17.1.2004, p. 3.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
729
lock-up period, rules relating to valuation of the ship may be different from one
jurisdiction to another. With few exceptions, to qualify under a tonnage tax scheme
the ship must be flagged with a EU registry. An individual shipping company may be
granted relief if at least 60% of its fleet is flagged with a EU registry. If that is not the
case, the relevant EU Member state should not grant tonnage tax status to ships of
that company flagged outside the EU. These are provisions in the 2004 Guidelines
which allow ship management companies to participate in the tonnage tax system if
they fully perform all the technical/nautical and crew management functions. In
other words, they must assume full responsibility for the operations of the fleet
including compliance with the requirements of the International Safety Management
(ISM) Code.
47
4.2 Maritime State Aid and Harmful Tax Competition
Tonnage tax, considered as one of the special tax regimes together with low–tax
countries and tax havens, provides shipping entities with the benefit of lower tax
liability. It is attractive for shipping entities to be able to move to tonnage tax regimes
or other varieties of low-tax regimes. This can potentially trigger tax competition
among countries.
48
Fiscal competition among EU Member States is an issue that warrants consideration in the context of tonnage tax. At present, there are no schemes in place that
appear to distort competition between Member States with regard to trade; at least
distortion that is harmful to their common interest (Luca 2009, pp. 389–395). On the
contrary, as far as shipping is concerned, there seems to be a converging trend in
terms of the approaches being adopted by Member States with regard to provision of
aid to shipping. It is hardly ever the case that one EU Member State flags out to
another except to a satellite registry of an overseas territory which flies the same flag.
Fiscal competition is a phenomenon that exists mainly between Member States and
non-EU states, especially offshore jurisdictions. These jurisdictions offer considerable cost savings to shipowners mainly through fiscal advantages at the centre of
which is the tonnage tax device.
49
47 Farthing and Brownrigg (1997), p. 225, see also Stopford (1997), pp. 38–43.
48 Zielke (2011).
49 OJ C 13, 17.1.2004, p. 3.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
729