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Commission Rejects Amendment To Danish Tonnage Tax Regime

by Ulrika Lomas,, Brussels

18 June 2009

The European Commission has refused a change Denmark intended to make to its flat-rate tonnage-based tax scheme (tonnage tax) for shipping companies. The Danish authorities had proposed to exempt maritime companies which benefit from a tonnage tax regime from their obligation to systematically send fiscal authorities financial information relating to their transactions with any of their foreign affiliates.

The tonnage tax schemes enable shipping companies not to pay company tax, but only a flat-rate tax based on the tonnage of their fleet. Community law requires all tonnage tax schemes within the Community to contain ring-fencing measures aimed at avoiding possible abuses to ensure that these very favourable taxation schemes are not extended to activities other than maritime transport. The Commission has underlined that transactions between two affiliated companies, of which one can apply a favourable tax regime, should in particular follow the ‘arms-length’ principle. This principle ensures that profits are not unduly transferred to companies subject to the tonnage tax regime.

On the basis of its investigation, the Commission took the view that the proposed change could damage significantly one of the ring-fencing measures linked to the scheme, namely the monitoring of commercial transactions between companies subject to this scheme and their possible affiliates in other Member States or countries in the European Economic Area. The Commission also noted that Denmark failed to justify the difference of treatment between transactions with a Danish-taxed affiliate and those with a foreign-based affiliate.

The Commission therefore decided to consider the measure notified by Denmark as incompatible with the common market.

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