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Maltese Tonnage Tax Measures Considered 'Predatory'

by Ulrika Lomas, Tax-News.com, Brussels

30 July 2012


Malta may be told to remove generous tax concessions introduced to improve the attractiveness of its tonnage tax regime following the initiation of an investigation by the European Commission.

As a member of the European Union, Malta is prevented from introducing measures that are said to distort competition in the European Union (EU) internal market.

In opening its investigation, the Commission said Malta may have extended favourable tax treatment, allowed by the EU Guidelines on State Aid to maritime transport, to other categories of beneficiaries that are not suffering from the same handicaps as those permitted state aid, and may not therefore be entitled to lower taxes.

The Guidelines on state aid to maritime transport allow member states to reduce taxes for the transport of passengers or freight under certain conditions. The Commission has said, however, that the scope of the Maltese tonnage tax scheme seems too wide and includes fishing vessels, yachts, oil rigs, and ship-owners who have no shipping activity of their own, such as pure lessors and financial institutions providing loans and guarantees to ship owners, operators, managers or administrators.

The Commission stated: "Given the multitude of exemptions and reductions available, it appears that in a number of cases the level of tax burden for a given tonnage is lower in Malta than in other member states. This could potentially make the Maltese tonnage tax system more attractive than the ones applied in the rest of the Union. Moreover, no sufficient safeguards are established to ensure that benefits available under the tonnage tax do not spill-over to non-shipping activities of the beneficiaries."

Announcing the Commission's investigation, Joaquin Almunia, Commission Vice-President in charge of competition policy, said: "The Commission acknowledges the contribution of the maritime transport sector to the EU economy. Given the high exposure to competition from third countries offering favourable tax treatment to their shipping companies, the European Union allowed the possibility to reduce taxes for maritime transport activities. In the Maltese case, the support measures apply to yachts, bankers, ship lessors, amongst other beneficiaries. This seems neither justified from a competition perspective, nor appropriate in times of high budgetary constraints."

The Commission said it had launched its investigation on the basis that the Maltese schemes may lead to distortions of competition in the EU internal market, and could potentially lead to Malta attracting companies and vessels from other member states.

TAGS: tonnage tax | tax | marine | European Commission | Malta | tax incentives | law | European Union (EU) | Europe

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