EC To Probe Ireland's Tonnage Tax Proposals

by Carla Johnson, Investors Offshore.com, London

16 January 2008

Following up on a notification by the Irish authorities, the European Commission on Tuesday announced that it had decided to open a formal investigation into the changes Ireland plans to make to its flat-rate tax regime based on the tonnage of maritime ships (tonnage tax).

This tax regime enables shipping companies not to pay company tax but to pay a flat-rate tax based on the tonnage of their fleet. The investigation concerns planned amendments to the existing time charter rules, and whether the new notified scheme may apply retroactively from 1 January 2006.

In 2002, the Commission approved the Irish tonnage tax scheme until the year 2012. However, in 2007, the Irish authorities notified their intention to modify the 'time charter' rules laid down in that regime. A time-chartered ship is chartered with crew for a certain period of time.

The 2002 tonnage tax regime allowed for a ratio of 1 owned to 3 time-chartered ships (1:3).

The modification, however, proposes to allow a 100% time-chartered fleet to benefit from the scheme. Furthermore, the Irish authorities intend to make the new tonnage tax regime apply retroactively from 1 January 2006.

The tonnage tax scheme falls to be assessed under the Community guidelines on State aid to maritime transport of 2004.

The Commission has so far only allowed tonnage tax schemes with a time charter ratio of (1:3) or (1:4). Although the text of the 2004 guidelines does not as such impose restrictions on this aspect, the Commission considers it necessary to give stakeholders an opportunity to comment, notably on whether such variations could undermine the equitable balance so far achieved between different Member States.

The opening of a formal investigation is a procedural step that gives the Member State concerned and all interested parties an opportunity to comment. It does not prejudge the outcome of the Commission's inquiry.

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