Last week the Government amended its new Tonnage Tax regime to exclude offshore dividends from the tonnage-based tax base, although it was not immediately clear what minimum rate of tax would have to have been paid before dividends would be admitted to the tonnage tax regime. The Government has announced its intention to suppress 'designer' offshore companies which set tax rates just above such barriers, but they still exist and operate in many offshore jurisdictions.
The tonnage tax regime itself represents a major step forward by the Government to give the UK shipping industry a tax regime which is more or less comparable to those available in other major trading nations, and has been welcomed by the industry. On this occasion at least, the Government also has to be given full marks for listening: there has been extensive consultation, both prior to drafting the original legislation, which was then included in this year's Finance Bill, and subsequently in amending it. This particular amendment however may owe more to the EU's drive against 'harmful tax competition' than it does to anything the shipping industry is likely to have said. The tonnage tax is a 'State Aid' and is therefore subject to EU approval. Like weeds and diseases, state aids are 'notifiable'; a rare example of even-handedness on the part of Brussels.
Basically, the new tonnage tax regime will allow shipping companies to be taxed on the tonnage of shipping they operate rather than on the level of their profits. There are some requirements for minimum levels of training of cadets which are built into the regime, which will be available for accounting periods beginning on or after 1st January 2000.
In recent years the British merchant fleet has shown signs of recovery from its 40-year decline as successive Governments have loosened the stranglehold exercised over shipping by UK ports and unions. The new rules should help to return the UK to its natural position in world shipping as an island, trading nation. It has certainly been strange that landlocked countries such as Luxembourg should have successful shipping registries while sea-girt Albion languished in a slough of maritime despond (sorry). Cherchez l'impot, as Colbert should have said, in place of that rather banal remark about geese.
For copies of Inland Revenue Press Releases tracking the progress of the Tonnage Tax through recent months, see Tax-news.com Resources. As well as dealing with foreign dividends, the press releases cover the treatment of leased ships, the training obligation, time-chartering, rules to allow corporate partnerships to participate in tax benefits, and the treatment of capital allowances.
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