Tuesday, December 17, 2019

European Commission Approves Five Schemes Aimed at Promoting EU Ship Registration

Measures Aimed at Cutting Competition from Flag of Convenience Low Tax States
Shipping News Feature

EUROPE – This week the European Commission has approved under EU State aid rules five schemes to support maritime transport. Such schemes are designed to encourage the registration of vessels across the continent, whilst ensuring there is no undue distorting of the sector's competitiveness.

There are different schemes crafted to suit individual states, as the Commission sees their situations and these were first mooted in 2003. All are designed to maintain ship registration inside the European Community and hold off competition aimed at flagging vessels in low tax countries in the wider world. In other words ‘flags of convenience’.

The most prominent of such measures are tonnage taxes, whereby shipping companies can apply to be taxed based on a notional profit or the tonnage they operate, instead of being taxed under the normal corporate tax system. This can reduce the overall level of taxes paid and increase their predictability (and profitability) for the companies involved.

Also regulated are ‘seafarer schemes’ under which labour costs (i.e. income tax and social security contributions) for seafarers employed on board vessels flying the flag of EU or European Economic Area (EEA) Member State may be partly or totally reduced. The EC walks a fine line between legal application of such measures and breaking its own internal market rules (however as it judges its own performance we don’t suppose it worries too much about that).

The Commission has adopted five separate decisions, concerning:

  • the introduction of a tonnage tax and seafarer scheme in Estonia
  • the prolongation of a tonnage tax and seafarer scheme in Cyprus
  • the introduction of a new seafarer scheme in Poland
  • the prolongation and extension of a seafarer scheme in Denmark
  • the prolongation of a seafarer scheme in Sweden
Proponents of the schemes say they contribute to the competitiveness of the EU maritime transport sector while supporting Europe's high environmental and safety standards. Cyprus was the first ever open registry to have a Tonnage Tax System (TTS) approved by the EU and the prolongation by a decade, after extensive negotiations and discussion between the Cyprus Shipping Deputy Ministry and the European Commission, was welcomed by Natasa Pilides, Cyprus Shipping Deputy Minister, who said:

“To be recognised by the European Commission for our fair and transparent Tonnage Tax System, which has already been applicable for ten years and is now extended for another ten years, demonstrates our commitment to the sustainable growth of European Shipping and enables us to continue with our strategy for the sustainable growth of the sector in Cyprus and in Europe.

”We are committed to providing a stable, reliable and forward-thinking registry and maritime cluster that will appeal to all ship owners, managers, and charterers. We are confident this prolonged system will assist in increasing the tonnage of our fleet as well as the breadth and sophistication of our cluster.

“Both the number of ships registered under the Cyprus Flag and the number of companies under the Cyprus Tonnage Tax System is growing steadily, and we are committed to continuing this trend. Our Tonnage Tax System is one of the many benefits of the Cyprus flag and maritime cluster and we would like to thank the European Commission for the excellent collaboration, as well as their dedication to maintaining competitive and high-quality standards within the EU.”

Photo: P&O Ferries Spirit of Britain, the last of that company’s fleet to be reflagged from the UK to Cyprus when Brexit was unfolding (or unravelling if you prefer).