5 Tax Avoidance in the Context of Tonnage Tax
Being a vehicle for tax avoidance,
50 the contention that tonnage tax creates competition distortion is supported by the fact that none of the other modalities of
transportation enjoy the advantages of this phenomenon simply because tonnage is
not a factor that can be utilized for imposition of any form of taxation. Tonnage is
peculiar to shipping because of the fact that the physical characteristics of a ship are
based on the law of floatation. As alluded to earlier, the size of the ship, translates
into volume or space which in turn determines its revenue earning capacity. Tonnage
is the unit by which size is measured. That is not the case with other modes of
transport, such as rail, road or air because none of them are based on tonnage.
Consequently, shipping derives an advantage over these other modes in fiscal terms
by virtue of the tonnage tax system. This is how distortion in competition may be
created. Tonnage tax can arguably, also foster tax avoidance.
5.1 UK Tonnage Tax Scheme and Tax Avoidance
It is submitted that the way out of this maze is the tonnage tax device which
traditional maritime states are adopting, having taken the cue from states which
have attracted shipowners away from them. In the context of the issue of tax
avoidance, the tonnage tax regime of the UK has been explained and analyzed
including the proposition that they provide a form of tax avoidance legitimized by
legislation. Be that as it may, it is also evident that the regime is subject to controls
that yield other benefits in terms of overall national policy in trade and commerce
pertaining to the shipping industry.
51
In the United Kingdom, it was the flight of tonnage out of the domestic registry
that prompted the Government to embark upon the tonnage tax scheme. As mentioned above, the scheme is viewed in some quarters as encouraging tax avoidance.
This writer has expressed the opinion that tax avoidance is a part of the overall fiscal
policy of a government which the government implements through legislation for
various reasons. The fact that the tonnage tax system operates to support the shipping
industry, specifically to prevent or reduce the frequency of ships owned by national
entities from flagging out, may be characterized as a tax avoidance scheme of some
sort, but that is obviously a policy matter that has been thought through by the
government concerned. In that vein it can be said that the tonnage tax scheme
employed by the UK is simply a necessary component of national fiscal policy
50 This opinion was expressed by Lord Alexander, Lord Alexander of Weedon Q.C. was commissioned by the UK Government to carry out an inquiry and produce a report (known as the
“Alexander Report” which essentially spells out the legal and operational framework for the UK
tonnage tax regime. See Independent Inquiry into a Tonnage Tax, London: H.M. Treasury.
51 OJ C 205,5.7.1997, p. 5.
730
Y. Yin
Being a vehicle for tax avoidance,
50 the contention that tonnage tax creates competition distortion is supported by the fact that none of the other modalities of
transportation enjoy the advantages of this phenomenon simply because tonnage is
not a factor that can be utilized for imposition of any form of taxation. Tonnage is
peculiar to shipping because of the fact that the physical characteristics of a ship are
based on the law of floatation. As alluded to earlier, the size of the ship, translates
into volume or space which in turn determines its revenue earning capacity. Tonnage
is the unit by which size is measured. That is not the case with other modes of
transport, such as rail, road or air because none of them are based on tonnage.
Consequently, shipping derives an advantage over these other modes in fiscal terms
by virtue of the tonnage tax system. This is how distortion in competition may be
created. Tonnage tax can arguably, also foster tax avoidance.
5.1 UK Tonnage Tax Scheme and Tax Avoidance
It is submitted that the way out of this maze is the tonnage tax device which
traditional maritime states are adopting, having taken the cue from states which
have attracted shipowners away from them. In the context of the issue of tax
avoidance, the tonnage tax regime of the UK has been explained and analyzed
including the proposition that they provide a form of tax avoidance legitimized by
legislation. Be that as it may, it is also evident that the regime is subject to controls
that yield other benefits in terms of overall national policy in trade and commerce
pertaining to the shipping industry.
51
In the United Kingdom, it was the flight of tonnage out of the domestic registry
that prompted the Government to embark upon the tonnage tax scheme. As mentioned above, the scheme is viewed in some quarters as encouraging tax avoidance.
This writer has expressed the opinion that tax avoidance is a part of the overall fiscal
policy of a government which the government implements through legislation for
various reasons. The fact that the tonnage tax system operates to support the shipping
industry, specifically to prevent or reduce the frequency of ships owned by national
entities from flagging out, may be characterized as a tax avoidance scheme of some
sort, but that is obviously a policy matter that has been thought through by the
government concerned. In that vein it can be said that the tonnage tax scheme
employed by the UK is simply a necessary component of national fiscal policy
50 This opinion was expressed by Lord Alexander, Lord Alexander of Weedon Q.C. was commissioned by the UK Government to carry out an inquiry and produce a report (known as the
“Alexander Report” which essentially spells out the legal and operational framework for the UK
tonnage tax regime. See Independent Inquiry into a Tonnage Tax, London: H.M. Treasury.
51 OJ C 205,5.7.1997, p. 5.
730
Y. Yin