(a) there must be compliance with international standards and EU law embracing,
inter alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ship in question must be operated from within the EU; and
(c) the shipowner must be established within an EU member state which must be
able to show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Maritime state aid Guidelines.
The second and third conditions mentioned above bring to light a particular
situation pertaining to the UK. In this context it must be noted that the UK has a
number of offshore ship registries physically located in its overseas territories. Ships
registered in these territories are separate flag states; they are British ships but not
UK ships. Whether or not such ships satisfy the third condition above is a question of
fact giving rise to potential incompatibility between UK practice and the EU
requirements although it is evident from the discussion in Sect. 4 of this chapter
that the UK tonnage tax regime is in principle compliant with the Guidelines. In
particular, it must be noted that Gibraltar and the Isle of Man in certain respects are
considered as registries of the UK for the purposes of the Guidelines.
Regarding tax avoidance, given the fact that the tonnage tax system started in the
UK well before the EU Maritime State Aid Guidelines were introduced, it may well
be that certain entities which would not otherwise qualify under the EU Guidelines
have already been enjoying the benefits of tonnage tax under the UK domestic law.
Strictly speaking, at least under the EU law, these entities could be considered to be
income tax avoiders. However, the question is—what will their status be under UK
law? If under that law, such entities remain entitled to enjoy the benefits of tonnage
tax, it would point to incompatibility between the UK tonnage tax law and practice
and the EU law regarding tax avoidance. Given this possible state of affairs, it is
necessary to re-examine the EU tax avoidance rules.
The tonnage tax regime may become a vehicle for tax avoidance and the debate
regarding this issue has raged ever since the tonnage tax regime was introduced
through domestic legislation and implemented into practice by the UK government.
Any tax avoidance or harmful tax competition potentially attributable to the UK
tonnage tax regime, would, needless to say, constitute a breach of the relevant EU
law. However, the maritime state aid Guidelines aim to provide member states with
the tools to ensure that the tonnage tax regime in the domestic law is in line with EU
requirements and also boost the competiveness of the EU fleet all over the world. It
has been stated that entities that do not qualify under the maritime state aid
Guidelines may well be accused of tax avoidance if they continue to operate within
the UK tonnage tax regime. It is therefore incumbent on the UK to ensure that such
entities are not granted the privileges of tonnage tax under the domestic law. A
perusal of the Merchant Shipping (Tonnage Tax) Regulations would indicate that at
the UK law is in compliance with the EU requirements but whether or not in practice
there are entities still operating legitimately under the UK tonnage tax regime but are
in real or potential violation of the EU requirements is a question of fact.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
735
inter alia, safety, security, environmental protection and shipboard working
conditions;
(b) the ship in question must be operated from within the EU; and
(c) the shipowner must be established within an EU member state which must be
able to show that the foreign ship registry (if any), contributes directly to the
objectives set out in the Maritime state aid Guidelines.
The second and third conditions mentioned above bring to light a particular
situation pertaining to the UK. In this context it must be noted that the UK has a
number of offshore ship registries physically located in its overseas territories. Ships
registered in these territories are separate flag states; they are British ships but not
UK ships. Whether or not such ships satisfy the third condition above is a question of
fact giving rise to potential incompatibility between UK practice and the EU
requirements although it is evident from the discussion in Sect. 4 of this chapter
that the UK tonnage tax regime is in principle compliant with the Guidelines. In
particular, it must be noted that Gibraltar and the Isle of Man in certain respects are
considered as registries of the UK for the purposes of the Guidelines.
Regarding tax avoidance, given the fact that the tonnage tax system started in the
UK well before the EU Maritime State Aid Guidelines were introduced, it may well
be that certain entities which would not otherwise qualify under the EU Guidelines
have already been enjoying the benefits of tonnage tax under the UK domestic law.
Strictly speaking, at least under the EU law, these entities could be considered to be
income tax avoiders. However, the question is—what will their status be under UK
law? If under that law, such entities remain entitled to enjoy the benefits of tonnage
tax, it would point to incompatibility between the UK tonnage tax law and practice
and the EU law regarding tax avoidance. Given this possible state of affairs, it is
necessary to re-examine the EU tax avoidance rules.
The tonnage tax regime may become a vehicle for tax avoidance and the debate
regarding this issue has raged ever since the tonnage tax regime was introduced
through domestic legislation and implemented into practice by the UK government.
Any tax avoidance or harmful tax competition potentially attributable to the UK
tonnage tax regime, would, needless to say, constitute a breach of the relevant EU
law. However, the maritime state aid Guidelines aim to provide member states with
the tools to ensure that the tonnage tax regime in the domestic law is in line with EU
requirements and also boost the competiveness of the EU fleet all over the world. It
has been stated that entities that do not qualify under the maritime state aid
Guidelines may well be accused of tax avoidance if they continue to operate within
the UK tonnage tax regime. It is therefore incumbent on the UK to ensure that such
entities are not granted the privileges of tonnage tax under the domestic law. A
perusal of the Merchant Shipping (Tonnage Tax) Regulations would indicate that at
the UK law is in compliance with the EU requirements but whether or not in practice
there are entities still operating legitimately under the UK tonnage tax regime but are
in real or potential violation of the EU requirements is a question of fact.
The United Kingdom Tonnage Tax Regime: Compatibility with Relevant. . .
735