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HANSA 03-2017

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Finanzierung | Financing

Finanzierung | Financing UK tax regime liable to change With Prime Minister Theresa May having indicated the UK’s intention to make a clean break from the EU that will involve leaving the Single Market, the way is open for Britain to modify its existing tonnage tax regime outside the constraints of the EC Guidelines for State Aid on Maritime Transport to make it more attractive to ship owners The UK was one of the first EU countries, behind the Netherlands, to adopt tonnage tax back in 2000. The model for its scheme is the same for most other European countries (but excluding Greece, Malta and Cyprus): nominal taxable profit is determined by the size of the fleet of ships operated, after which the country’s standard rate of corporation tax levied is then applied. Nominal taxable profit is calculated according to the net tonnage of vessels, on a sliding-scale rate ranging from £ 0.60 per 100 t for vessels up to 1,000 t, to £ 0.15 per 100 t for vessels over 25,000 t. After that, corporation tax in the UK is already a fairly low 19% and is set to progressively decrease to 17% over the next two years. May has hinted she might decrease it even further after that in the event of hostile Brexit negotiations, positioning the UK as a »low tax« haven in order to underline that it remains »open for business«. Other improvements in the terms of UK tonnage tax might come in the form of what types of ships and types of income are eligible. Currently the UK applies a strict interpretation of the EC State Aid Guidelines that follows the EU’s rather narrow interpretation of »maritime transport« – namely carrying goods from A to B. Therefore certain types of ships such as tugs and dredgers are not included. If the term »merchant shipping« were substituted for »maritime transport« then the scope of eligible vessel types would be widened. Offshore vessels serving oil and gas platforms and wind farms might theoretically be allowed to qualify for tonnage tax under EC State Aid Guidelines but are not currently allowed under the UK model. Any changes to that regime currently require EC approval, but once freed of that constraint the UK is likely to include these in the regime as fast as is possible, on account of the country’s large involvement in those sectors in the North Sea. The type of shipping activities allowable under tonnage tax might also be relaxed, for example to include port and onward intermodal transport links. This would make it easier for companies with a broad scope of activities rather than merely maritime to qualify for tonnage tax – thought to be something of a »red flag« for Brussels and the reason why the Greek and Maltese tonnage tax schemes have been subject of intense scrutiny. Certainly ship and crew management activities – already allowable under EC State Aid Guidelines since Cyprus negotiated a precedent in 2010 but again requiring EC-approval for any revision of the existing UK model – would likely be included in any new, more relaxed scheme. In return, companies subscribing to UK tonnage tax are required to commercially manage their fleet from offces based in the country, as well as to take part in a training scheme for UK seafarers requiring them to allocate a certain number of cadet berths aboard their ships. Going forward, the UK Chamber of Shipping is looking to have that scheme changed to contain a commitment to employ a quota of UK junior offcers as well to ensure career progression for the national seafaring base. UK flag Having ships that fly the UK flag is not a requirement of tonnage tax but doing so does bring with it an onus to have a commercial presence in the UK to manage ships, thereby bringing a knock-on tax benefit to the national exchequer. In recent years the Maritime and Coastguard Agency (MCA) that administers the UK Ship Registry has not viewed that as a revenue earner, preferring to emphasise highest possible maritime standards instead. All that is changing, however, and a 2015 Maritime Growth Study commissioned by the UK Government identified having a more commercial and customer-facing national ship register as a prerequisite for growth of the maritime cluster in general. Two new appointments have just been made to kick-start a more commercial responsive UK flag. First is the appointment of Doug Barrow, currently chief executive of maritime services promotional body Maritime London, as Director of the UK Ship Registry, the previous incumbent having retired for family reasons last summer. Barrow will work closely with Michael Parker, former chairman of CMA CGM Holdings UK, who retired his position with the French shipowning group at the end of 2016 in order to take up the new role of non-executive chairman of MCA, charged with helping ensure a more commercial profile to the Registry. CMA CGM is one of the more high-profile large overseas shipping groups to operate some vessels under the UK 24 HANSA International Maritime Journal – 154. Jahrgang – 2017 – Nr. 3

Finanzierung | Financing flag, along with the likes of Maersk, Evergreen and Cosco. Tonnage under the UK flag has been declining of late. At end 2016 the UK Ship Registry numbered 1,300 vessels of 15 m dwt, a decrease of 15% from the 17.7 m dwt in 2011 despite the greatly increased size of the world fleet. »Non­doms« Finally, there is also the question of personal taxation in the UK and the exemption until recently for individuals residing in the country but for tax reasons deemed to be non-domiciled (or »nondoms«). In shipping terms, the most notable of these non-doms have been the so-called »London Greeks« – whose presence is hard to quantify but is perhaps best indicated by the 70 or so company members of the London-based Greek Shipping Co-operation Committee. Political pressure to close what is viewed by the public as a tax »loophole« for non-doms has been growing in recent years, with the result that new legislation is being progressively tightened. In recent years non-doms have been able to pay a one-off annual »remittance« fee ranging from £ 30,000 to £ 90,000 depending on their length of residence to cover their entire personal tax liability. From April 2017 non-doms are due to lose this remittance facility after having spent 15 years of residence in the country; they will, however, be able to resume remittances again after five years of absence from the country. It is speculated that many London Greeks and other non-doms with families, properties and businesses established in the UK may choose to become effective »tax exiles« for HANSA series on global maritime hubs five years and then re-set the clock at zero. However, Londonbased shipping accountants Moore Stephens conducted a survey of their nondom clients last July that found as many as 37% were considering permanently leaving the UK in the near future. Asked for their reasons 71% cited the impending UK tax changes, while 53% mentioned Brexit and 50% the desire for a better lifestyle. Haralambos Fafalios, chairman of the Greek Shipping Co-operation Committee, was quoted in the body’s recent announcement as saying: »We strongly believe that Brexit could provide a very positive catalyst for shipping in the UK if the government creates the right fiscal environment to attract and retain shipping companies.« However, he also warned: »If this is not done soon, London will suffer the fate of New York and that would be a great shame considering that the UK had one of the most globally prominent maritime clusters.« ED Ireland seeks to benefit The move will leave Ireland as the only English-speaking country in the EU, as it already is within the Eurozone. More than 100 companies have made enquires about relocating to the Republic of Ireland following last summer’s Brexit vote, the Irish Development Agency (IDA) has reported, with the vast majority being banks or financial services from the City of London. Ireland’s biggest advantage is its ultra low Corporation tax rate of 12.5%, which it is firmly committed to keeping, says IDA chief executive Martin Shanahan. »I do not see any circumstances that it will change any time in the near future, or even the long-term future for that matter,« he said recently. He added, Investors placed great store in the fact that Ireland has been unwavering and consistent. They knew exactly what they are getting. Thanks to its tax policy, Ireland is counting on a massive boost to its business community, including shipping-related companies, as a result of neighbour UK quitting the European Union »For the financial services sector it is the fact that they need to have access to the European market and they need a jurisdiction in which they can do that,« Shanahan said. »Ireland is extremely attractive because we are English speaking, have a common law system, there is the close proximity to the UK.« For shipping companies, unwavering 12.5% corporation tax makes the Irish Tonnage Tax regime highly competitive. Here as with most other EU tonnage tax regimes including the UK (see separate article), standard corporation tax rate is levied on a notional profit figure assigned to companies based on their net tonnage. Under Irish Tonnage Tax notional taxable profit is calculated on a sliding-scale rate ranging from 1 € per 100 net tons for the first net 1,000 tons, to 0.25 € per 100 net tons over 25,000 net tons. Other advantages of the Irish regime include the fact that it is flag blind, and – unlike the UK – ship management companies also qualify, with no obligation to provide training berths. Ireland also affords a 25% Research & Development tax credit (refundable), as well as a Seafarer Training Grant provided to companies providing training for cadets studying in Ireland. As a further incentive there is an Irish Maritime Development Offce (IMDO) that has been specially created to advise and assist companies interested in setting up operations in Ireland. Its free services stretch arranging familiarisation trips that include access and introductions to key contacts; helping select suitable locations; and advising on tax and grant matters. IMDO also liaises with the Irish Ministry of Transport on the development and co-ordination of national policy relating to shipping, and operates under the auspices of the Department of Transport. Already several shipping-related companies have decided to move their headquarters to Ireland to benefit from the favourable conditions, such as marine electronics supplier Transas or Italian shipowner the d’Amico Group. ED HANSA International Maritime Journal – 154. Jahrgang – 2017 – Nr. 3 25

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