A TONNAGE-BASED TAX
1. MAIN FEATURES
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.
2. ADVANTAGES TO
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 matchedparticularly
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
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.
3. BENEFITS TO
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
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
ShippingCharting 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.
4. COSTS TO
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 weakenedthe
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 allowancesso
Government revenues would increase in some areas.
M R Brownrigg
Director, Shipping Policy and External Relations
29 January 1999