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Friday, October 21, 2016

EC Warns Greece on Tonnage Tax

December 21, 2015

Logo: European Commission

Logo: European Commission

 The European Commission has sent to Greece a set of proposals to ensure that state support to the maritime sector in Greece complies with EU state aid rules.

In particular, the Commission found that current provisions may breach EU state aid rules by allowing shareholders of shipping companies to benefit from favourable tax treatment that should be reserved for maritime transport providers.
Similarly, the Commission is concerned that favourable tax treatment is also extended to maritime sector intermediaries and operators of ships, which do not provide maritime transport services.
The Commission acknowledges the importance of maintaining a competitive maritime transport sector in the EU. EU state aid rules establish common rules on how Member States can support maritime transport providers, without unduly distorting competition in the Single Market. 
In particular, the Maritime Guidelines enable Member States to tax shipping companies on the basis of the tonnage of the fleet (i.e. based on size of shipping fleet) rather than the actual profits of the company.
These measures were introduced to encourage EU ship-owners to flag their ships and carry out ship-management activities in the EU, rather than relocate those activities outside the EU. 
However, in order to avoid subsidy races between Member States and limit the distortions of competition created by the state support, these provisions need to be applied consistently throughout the EU and comply with the conditions set out in the Maritime Guidelines.
The Commission has concerns that the Greek tonnage tax system is not well targeted and benefits the shareholders of shipping companies as well as companies other than maritime shipping companies, beyond what is permitted under the Maritime Guidelines. 
The Commission has therefore asked Greece to review which vessels are eligible under its system and exclude fishing vessels, port tugboats, as well as yachts rented out to tourists without a crew from the preferential regime. Operators of such vessels should in future be subject to the standard income tax.
Preferential tax treatment should also be removed for insurance intermediaries, maritime brokers and other maritime intermediaries as well as the shareholders of shipping companies – none of which conduct genuine maritime transport activities.
The Commission's requests do not concern the core of the Greek shipping economy, notably the operation of bulk carrier and tanker vessels. These can continue to benefit from a tonnage-based taxation instead of profit-based taxation as long as operators of such vessels maintain the share of the fleet they have under EU or European Economic Area flags.
Greece now has two months to inform the Commission whether it agrees to the measures proposed, in which case it would need to amend its national rules with effect from 1 January 2019 at the latest. 
This is in line with the Memorandum of Understanding signed with Greece in August 2015 which foresees that the special crisis contributions by maritime companies and their shareholders will be maintained until end-2018.
Existing aid procedure: The Greek scheme has been in place since 1975, which is before Greece's accession to the European Union. It is therefore considered as "existing aid" and subject to a specific cooperation procedure. 
Today's decision is the second step in this procedure. In 2012, the Commission started the existing aid procedure by expressing, in a service letter, its preliminary concerns concerning the compliance on the Greek legislation with EU state aid rules. This was followed by exchanges with the Greek authorities.
Greece and the Commission will now jointly explore how to adjust the Greek tonnage tax scheme to end distortions of competition within the Single Market. Greece has two months to inform the Commission whether it will agree to the proposed measures. 
If Greece accepts the proposed measures, the Commission will confirm this in a separate State aid decision. Failing an agreement, the Commission may open a formal state aid investigation.

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