taxation of shipping enterprises. Unsurprisingly therefore, the CFC does not apply to
shipping income.
62
6 Compatibility of UK Tonnage Tax Regime with EU Law
and Policy
The first point to be noted is that there is no law in the EU legal regime that directly
addresses the issue of tonnage tax. This is understandable simply because the
phenomenon of tonnage tax is related to ship registries and the EU does not have
a ship registry but many of its member states do. Incidentally, an EU ship registry
was planned over a decade ago which never materialized.
63 This chapter is focused
on the UK, a traditional maritime state which has one of the most prominent ship
registries in the EU and has adopted the tonnage tax system in the same way as
non-traditional open-registry states have.
The characteristics of the tonnage tax system are in several respects contrary to
the principles of income taxation as practiced in the EU. The tonnage tax system was
already in operation in the UK when the law and policy makers of the EU realized
the importance of shipping for the economic well-being of Europe but were also
conscious of maintaining the principles of EU tax law. To balance the two interests,
the EU has granted certain concessions applicable to shipping entities of member
states through the vehicle of the maritime state aid Guidelines with attendant
strictures and limitations designed to safeguard the basic principles of tax avoidance
and temper the proliferation of states indiscriminately adopting tonnage tax regimes
(Lang 2009, pp. 98–113).
The UK cannot afford to retract from its tonnage tax policies where success has
been proven with the considerable expansion of the size of the UK merchant fleet.
On the other hand, as a member state of the EU, the UK cannot be seen to be acting
contrary to the spirit of the EU law and policy on taxation, especially those
concerning state aid and tax avoidance. This state of affairs points to potential
incompatibility between the UK tonnage tax regime and the relevant aspects of
EU taxation law. The following discussion regarding this potential incompatibility
centres on two issues, namely, maritime state aid and tax avoidance which extends to
a contextual consideration of the CFC Rules.
The main requirement regarding maritime state aid is that the ship in question
must be registered in the ship registry of a Member state subject to an exception
comprising three conditions already mentioned above and repeated below for
convenience.
62 Ibid.
63 Ready (1994).
734
Y. Yin
shipping income.
62
6 Compatibility of UK Tonnage Tax Regime with EU Law
and Policy
The first point to be noted is that there is no law in the EU legal regime that directly
addresses the issue of tonnage tax. This is understandable simply because the
phenomenon of tonnage tax is related to ship registries and the EU does not have
a ship registry but many of its member states do. Incidentally, an EU ship registry
was planned over a decade ago which never materialized.
63 This chapter is focused
on the UK, a traditional maritime state which has one of the most prominent ship
registries in the EU and has adopted the tonnage tax system in the same way as
non-traditional open-registry states have.
The characteristics of the tonnage tax system are in several respects contrary to
the principles of income taxation as practiced in the EU. The tonnage tax system was
already in operation in the UK when the law and policy makers of the EU realized
the importance of shipping for the economic well-being of Europe but were also
conscious of maintaining the principles of EU tax law. To balance the two interests,
the EU has granted certain concessions applicable to shipping entities of member
states through the vehicle of the maritime state aid Guidelines with attendant
strictures and limitations designed to safeguard the basic principles of tax avoidance
and temper the proliferation of states indiscriminately adopting tonnage tax regimes
(Lang 2009, pp. 98–113).
The UK cannot afford to retract from its tonnage tax policies where success has
been proven with the considerable expansion of the size of the UK merchant fleet.
On the other hand, as a member state of the EU, the UK cannot be seen to be acting
contrary to the spirit of the EU law and policy on taxation, especially those
concerning state aid and tax avoidance. This state of affairs points to potential
incompatibility between the UK tonnage tax regime and the relevant aspects of
EU taxation law. The following discussion regarding this potential incompatibility
centres on two issues, namely, maritime state aid and tax avoidance which extends to
a contextual consideration of the CFC Rules.
The main requirement regarding maritime state aid is that the ship in question
must be registered in the ship registry of a Member state subject to an exception
comprising three conditions already mentioned above and repeated below for
convenience.
62 Ibid.
63 Ready (1994).
734
Y. Yin