Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence




    —  A shipping company can elect whether to remain under the conventional corporation tax regime or place its shipping operations under a tonnage-based regime for a period of 10 years, renewable.

    —  A notional profit is imputed to each of the ships that the company controls, based on its size (expressed in net tonnes, which represents the earning capacity). There is a sliding scale: say up to 1,000 net tonnes the profit is set at 0.6p per tonne per day, between 1,000-10,000 tonnes at 0.45p per tonne, and so on. It is set at a level which is designed to produce a tax charge at the end of the day which is broadly the same as that in the Netherlands.

    —  The standard rate of corporation tax is applied to this notional profit.

    —  To qualify for the tonnage-based regime, the shipping company has to meet a commitment to recruit at least a minimum number of British cadets per year based on the numbers of qualified officers (of all nationalities) it employs. Alternatively, it must contribute proportionally to the proposed training trust if it cannot meet its training target in full. A similar approach could apply in regard to ratings, but the detail is under consideration separately in the Ratings Task Force.

    —  This regime can only apply to shipping and cannot "leak" to other industries. Like the conventional corporate system, it would apply to all of a company's ships, regardless of the flag.

  All the advantages and benefits described below assumed that a regime based essentially on the Dutch system is adopted and applied positively.


    —  The ability to compete in the minimal (or nil) tax climate which applies in international shipping generally, which most of our significant competitor countries have matched—particularly in Europe.

    —  Certainly over the level of taxation that will apply, in contrast to the present regime under which a low level of taxation is dependent on maintaining capital investment.

    —  Structural flexibility to accommodate international partnerships and maintain British influence in joint ventures.

    —  Clarity on the tax position for investors, banks and analysts.

    —  The ability to time investments to meet market conditions and commercial opportunities and not to be unduly influenced by the need for capital allowances.

    —  The morale boost of operating in a country whose government has decided that it values shipping and understands its problems.


    —  At minimum, the end of the decline in the UK-owned fleet and, we believe, the UK register. If this opportunity is lost and a UK tonnage-based tax is not introduced, other regimes will attract ships that would otherwise be operated from the UK.

    —  In the very near future, a significant repatriation of UK-owned ships to the UK register. Lord Sterling in his evidence confirmed his group was seriously considering that possibility. It is certainly borne out by the Dutch experience and the UK has a much larger fleet under its control which could return.

    —  Cessation of the migration of companies and investment overseas and, in the longer term, growth of the UK industry and the attraction of more international owner/operators to Britain, with substantial benefits to seafarer and shore staff employment and to the maritime-related industries, particularly in the City.

    —  The underpinning of the training and employment measures announced in the White Paper "British Shipping—Charting a New Course". The tonnage regime is the only lever that the Shipping Working Group could devise that would have a marked impact on training and recruitment levels. Voluntary levies will be useful, but a tonnage-based tax linked to a training commitment would be a powerful incentive.

    —  In cash terms the Shipping Working Group's economists foresaw the annual net benefits as:

  —  increased annual gross profits of £20 million by year five, rising by 2012 to £60 million;

  —  increase in GDP of £107 million by year five, rising by 2012 to £330 million.

  The Chamber regards these estimates as very conservative, albeit substantial in their own right.


  The Shipping Working Group estimated that the notional cost could be £40 million-£50 million per year initially, declining after a few years. This is based on gross estimates by the Inland Revenue of shipping revenue currently, adjusted to take account of the proportion of the fleet which might opt for the tonnage regime, and the positive tax which would arise under such a regime.

  The Chamber believes, however, that the net cost to the Revenue will be very much less, for several reasons:

    —  In practice, many shipping companies have large investment programmes and currently pay little or no tax. For these, particularly when they involve cross-national joint ventures, the benefits will be structural. Unless the conditions in the UK match those in other countries, in time, the degree of British ownership and control in these will be severely weakened—the new regime would enable them to retain that control and a greater range of activities here, which must also involve a significant offset to the cost;

    —  Under a tonnage-based tax regime, companies with varied activities will not be able to off-set their non-shipping profits against their shipping investment allowances—so Government revenues would increase in some areas.

M R Brownrigg

Director, Shipping Policy and External Relations

29 January 1999

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