Choosing a profitable course* - PwC · 2015-06-03 · [email protected] Denmark Bo...

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Choosing a profitable course* European tonnage tax regimes for the shipping industry Transportation & Logistics International tax *connectedthinking

Transcript of Choosing a profitable course* - PwC · 2015-06-03 · [email protected] Denmark Bo...

Page 1: Choosing a profitable course* - PwC · 2015-06-03 · panikos.n.tsiailis@cy.pwc.com Denmark Bo Schou-Jacobsen +45 39 45 36 39 bo.schou-jacobsen@dk.pwc.com Finland Mirva Laaksonen

Choosing a profitable course*European tonnage tax regimes for the shipping industry

Transportation & LogisticsInternational tax

*connectedthinking

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Key contacts

Jeroen Boonacker+31 10 407 53 [email protected]

Victor Palm+31 10 407 65 [email protected]

PricewaterhouseCoopers tonnage tax experts in Europe

BelgiumRene Willems +32 47 560 24 [email protected]

CyprusPanikos N. Tsiailis+357 25 55 52 [email protected]

DenmarkBo Schou-Jacobsen+45 39 45 36 [email protected]

Finland Mirva Laaksonen+ 358 9 22 80 12 [email protected]

FrancePhilippe Willemin+33 4 91 99 30 [email protected]

GermanyWolfgang von Hacht+49 40 63 78 13 [email protected]

GreeceKonstantinos Karlis+30 21 06 87 45 [email protected]

ItalyLuciano Festa+39 65 70 25 24 [email protected]

IrelandDeirdre Keegan+353 1 79 26 [email protected]

MaltaNeville Gatt +356 25 64 67 [email protected]

NetherlandsJeroen Boonacker+31 10 407 53 [email protected]

NorwaySteinar Hareide+47 95 26 04 [email protected]

PolandAndrzej Jacek Jarosz +48 61 850 51 [email protected]

Spain Daniel Bosch Wood+34 9 28 38 59 [email protected]

Sweden Sven Erik Holmdahl+46 31 793 14 [email protected]

UK Christopher Goddard+44 12 93 56 66 [email protected]

For more contact persons in our global Transportation & Logistics network, please see at the last page of this report.

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Foreword

The shipping industry and its related activities are generally in good shape worldwide. A high demand for cargo space and strong international investment in new vessels led to an above average growth over the last few years. Particularly in Asia the shipping industry has developed a strong base, while Europe is trying to maintain its position.

In this respect favourable tax and other incentives play an important role. One of the most important incentives has been the introduction of the favourable tonnage tax principle. Most European countries implemented a tonnage tax regime. The basic idea of tonnage tax is that tax payable is based on the registered tonnage of vessels, multiplied by a fixed amount of deemed profit per ton, instead of the actual accounting profits from the exploitation of a vessel. Nevertheless, there are still a number of differences between the tonnage tax regimes of the individual countries. When having or starting a shipping business in Europe, the choice for the optimal regime may increase the value of your company considerably. Which system this is, depends on the circumstances and the different conditions and calculation methods of these regimes.

In order to facilitate you, we compared the European tonnage tax regimes for the shipping industry. This brochure gives you a detailed description of the differences between them and calculation examples, as well as an outline of the background of the tonnage tax regimes. The tables at the end of the publication provide a comparison of the most important aspects. This enables you to take an initial decision on the most suitable system for your company.

Michel AdriaansensGlobal Shipping & Ports Leader

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Choose the fair wind. May 2007PricewaterhouseCoopers – European tonnage tax regimes Page 2

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Choosing a profitable course 5

Foreword 3

Reinforcing the European shipping market 6

Tonnage tax regimes 8

Tonnage tax models 12

The Dutch tonnage tax model 14

The Norwegian tonnage tax model 16

The Greek tonnage tax model 18

Comparison of the most important elements 20

Final remark 26

Content

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Reinforcing the European shipping market

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Since the 1970s, the European shipping fleet, maritime technology sector and shipbuilding sector have faced fierce competition from other continents like Asia. Especially in the 1980s, when the worldwide shipping industry expanded rapidly, shipping companies moved their fleet to countries applying open registration policies. With low registration fees, low or no taxes and freedom to employ cheap labour, these countries enjoy a significant competitive edge over the European registers.

As Europe was losing its share in the international shipping market, some individual European countries took action. They introduced more liberal crewing and flag registration requirements to support their maritime and shipping industry. By taking measures on their own, these countries, some of them members of the European Union, were in fact creating competition within the European Union (EU).

The European Commission understood the need to protect the EU maritime industry. It should become competitive with respect to the international shipping market and free access to other shipping markets with clean, safe vessels, preferably registered in the EU. Therefore the European Commission developed a joint policy resulting in the first guidelines for state aid to maritime transport in 1989. From that moment on the shipping policy and legislation of every EU member state had to be within the limits of these guidelines.

Despite of the 1989 guidelines, the decline of the European community fleet continued. The guidelines were reviewed and renewed in 1997 with the objective to maintain as many vessels as possible under an EU flag, without losing sight of ensuring a level playing field in the European community. The most important element of these guidelines was the possibility for member states to introduce a tonnage tax regime. However, the EU was not the inventor of the tonnage tax system. In fact Greece introduced a tonnage tax regime as early as in 1957 with similar regimes following in Cyprus in 1963 and in Malta in 1973. The guidelines

were renewed in 2004 with the introduction of the EU/EEA flag requirement as one of the most important changes.

These days, most EU countries and the European Economic Area (EEA) member Norway have introduced a tonnage tax regime based on these guidelines. Sweden is expected to introduce a tonnage tax presumably in 2008.

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Tonnage tax regimes

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The main advantage of the tonnage tax regimes is the very low effective tax rate of sometimes less than 1%, when the shipping business is doing well. In fact, tax payable is based on the registered tonnage of vessels, multiplied by a fixed amount of deemed profit per ton, instead of the actual accounting profits from the exploitation of a vessel. All countries use a degressive scale system because smaller vessels tend to sail with a higher profit margin per ton than larger vessels. Nevertheless, there are still a number of differences between the tonnage tax regimes of the individual countries. They differ in detail in methods of calculating the deemed profit related to shipping activities and in the following respects.

Qualifying activities Only certain shipping activities qualify for a tonnage tax regime. Most tonnage tax regimes are applicable to ‘maritime transport’: the transport of goods and persons by sea in international traffic. Under some tonnage tax regimes towage, dredging and/or ship management activities may also qualify.

Ownership To qualify for a tonnage tax regime a shipping company must have a certain degree of ownership regarding the vessel. The required degree of ownership differs between the different tonnage tax regimes. The conditions in this respect usually refer to the following kinds of requirements:• The shipping company must own a sea-going vessel

or its interest in the vessel must be under a bareboat charter arrangement.

• The shipping company may be permitted to charter out vessels on time charter and in some circumstances on bareboat charter.

• The shipping company may include some time chartered vessels within tonnage tax.

Conditions regarding the level of ownership are typically used in combination with a requirement that a certain level of management activities with respect to the vessel is undertaken in the EU country. For the tonnage

tax regimes applied by EU member states strategic and commercial management should usually be exercised by the vessel owning company itself. However, under the new 2004 guidelines it is allowed for member states to apply the tonnage tax regime for ship management companies as well.

Lock up periodSome tonnage tax regimes are subject to a lock up period. Under the most tonnage tax regimes it is for instance only possible to enter the tonnage tax regime for a fixed period of mostly 10 years.

Capital GainsIn some tonnage tax regimes capital gains on the sale of vessels and equipment related to international shipping activities are not subject to ordinary taxation. Comparing the different regimes, the main points to note in this respect are the following:• When entering the system, hidden reserves are or

may not be taxable and/or may result in deferred tax liabilities.

• When leaving the system within the lock up period, sometimes penalties result in a direct tax liability.

• When leaving the system after the expiration of a lock up period, different rules may be applicable regarding the valuation of the vessel on the opening balance sheet.

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Flag requirement In principle, only EU and EEA flagged vessels qualify for the application of the tonnage tax regime. There are a few exceptions:• A nationwide exemption from the flag requirement is

allowed by the EU if, on a national level, the relative tonnage share of EU flagged vessels does not decrease in a year, related to the relative tonnage share of non-EU and -EEA flagged vessels at national level.

• Individual shipping companies can be exempted from the nationwide flag requirement if the company is operating at least 60% of its relative tonnage under a Community flag. If it fails to meet that requirement, the relevant Member State should not grant the tonnage tax system with respect to additional non-Community flagged vessels operated by that company.

• The company keeps the same relative share of tonnage that it was operating under EU flags when the 2004 guidelines became applicable.

Where a company controls vessel operating companies, the tonnage share requirement mentioned above will also have to apply to the parent company and subsidiary companies on a consolidated basis.

ManagementThe management requirements differ. In general, four types of management can be distinguished:• Strategic management: the decisions regarding

investments and disinvestments of a vessel and also decisions regarding the way other management activities are performed.

• Commercial management: activities regarding affreightment, chartering and the carrying of cargo.

• Technical-nautical management: activities to keep the vessel in actual operation.

• Crew management: the hiring and setting to work of seafarers.

For the tonnage tax regimes applied by European Union member states strategic and commercial management should usually be exercised by the vessel owning company itself. However, under the new 2004 guidelines it is allowed for member states to apply the tonnage tax regime to ship management companies as well, if they perform the full technical and crew management. Further, ship managers have to assume the full responsibility for the vessel’s operation, as well as the duties and responsibilities imposed by the ISM Code (International Management Code for the Safe Operation of Ships and for Pollution Prevention).

Tonnage tax regimes

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Tonnage tax models

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Choose the fair wind 11

In Europe basically three different tonnage tax models can be distinguished:- the Dutch model, introduced in 1996 in advance of

the EU guidelines;- the Norwegian model, introduced by Norway in 1996

and also based on the EU guidelines in spite of the fact that Norway is not a member of the European Union;

- the Greek model, introduced in 1957.

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The Dutch tonnage tax model

The Dutch model, introduced in 1996 in advance of the EU guidelines, is implemented by Belgium, Denmark, France, Germany, Ireland, Italy, The Netherlands, Poland, Spain and the UK. Sweden will presumably implement it in 2008.

The taxable operating profit of a vessel is based on the tonnage of the vessel, and not on the actual operating results. The amount of deemed taxable profit is subject to ordinary (corporate) income tax rates. The main difference between the Dutch model and the ordinary taxation method is the calculation of the profit related to the shipping activities. Apart from that, the shipping company and its non-qualifying shipping income is subject to regular taxation rules. Calculating the tonnage tax • Fixed/deemed profit calculated using 4 tonnage size

groups.• Based on net tonnage. • The calculated profit is taxed against the statutory

CIT (corporate income tax) rate, or in case of individual entrepreneurs, with individual income tax. Belgium has 5 tonnage size groups including a special low rate for qualifying large vessels (above 40,000 ton) subject to age conditions.

The example below calculates the profit and tax according to the Dutch tonnage tax model for a 5 year old cargo vessel operated by a Dutch resident company operational all year with a gross tonnage of 20,000 and a net tonnage of 18,000.

Amount of PROFIT per day per 1000 net ton per day

€ 9.08 up to 1,000 net ton

€ 6.81 for the excess up to 10,000 net ton

€ 4.54 for the excess up to 25,000 net ton

€ 2.27 for the excess over 25,000 net ton

Taxable profit: 1 x € 9.08 + 9 x € 6.81 + 8 x € 4.54 = € 106,69 per day = € 38,941 per yearDutch corporate tax rate for 2007: 25.5% Corporate tax levied amounts to € 38,941 x 25.5% = € 9,929.

Who qualifies• Entrepreneurs, e.g. individual entrepreneurs,

foundations, legal entities, partnerships, permanent establishments.

• Denmark: only legal entities can opt for the tonnage tax system.

Qualifying activities • Operating vessels in international traffic; also

dredging and towing activities can qualify under most systems, under condition that more than 50% of these activities take place at sea.

• The vessel owner/bareboat charterer must exercise certain management activities with respect to the vessel.

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Choosing a profitable course 15

Qualifying vessels/ownership• Owned vessels (not bareboat chartered out).• Vessels in bareboat charter.• Vessels in time charter (only applicable if additional

ownership requirements are met:• Denmark: max 80% of the fleet’s tonnage on time

chartered vessels without purchase options (if a time charter vessel has a purchase option it is regarded as an owned vessel).

• Belgium and the UK: max 75% of the fleet’s tonnage on time charter.

Lock up periodA choice must be made in year one and is fixed for 10 years, whether opted for the tonnage tax regime or not. Exceptions are: • Belgium: opt at any time; choice fixed for 10 year

period.• Poland: choice to be made until 20 January of the

first year of the tonnage taxation period or, in the case of a shipping company commencing the activities subject to tonnage taxation in the course of the tax year, until the day preceding the day of commencing these activities; the choice is fixed for 5 consecutive years.

Capital gains• Capital gains are not subject to additional tax.• Deferred tax liabilities: valuation at fair market value

upon entry into system and claw back rules on hidden reserves realized during lock up period.

• Deferred tax liabilities disappear after the lock up period: usually 10 years, Poland 5 years.

• Capital gains derived during the lock up period are part of the tonnage tax tax base (not subject to tax). Exceptions are:• France: capital gains are subject to regular

statutory tax rate.

• Poland: capital gains on sale of vessels will be taxed against a flat rate of 15%; a case tax exemption applies when reinvested in a purchase, co-ownership, modernization, renovation or rebuilding of the shipping fleet within 3 years from the moment of sale of that vessel.

• Denmark: capital gains on vessels are taxed at the normal corporate tax level (28%), but this rule is expected to be abolished during 2007, and hereinafter capital gains on the sale of vessels will not be taxed as it will be considered as tonnage tax income.

• UK: no deferred tax liabilities.

Flag requirement EU/EEA flag requirement (Germany: register requirement instead of flag requirement).

Ship management companies Only possible to qualify for tonnage tax in: • Belgium: commercial management activities for third

parties.• Denmark: performing technical and crew

management for another company.• Germany: tonnage tax can often be used for

management activities.• The Netherlands: performing technical and crew

management for another company.• Poland: under additional conditions.

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The Norwegian tonnage tax model

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The Norwegian model, introduced in 1996, is based on the EU guidelines and implemented by Norway (EEA member, not EU member) and Finland. The EEA is also bound by these guidelines. In the Norwegian model the taxation of the operating profits is deferred until profits are distributed, the company exits the tonnage tax system or the company is liquidated. A company subject to this tonnage tax system must pay a tonnage tax based on the net tonnage of the vessels.

Calculating the tonnage tax • Tax calculated at a degressive tax rate.

Finland has 4 degressive size groups, Norway 3.• Based on net tonnage.• Tonnage tax is not part of the taxable income.

Norway applies environment deduction for qualifying environmental friendly vessels.

• In Finland tonnage tax is calculated and paid on a yearly basis; dividends distributed by the tonnage taxed company are fully taxable for the receiving company.

The example below calculates the profit and tax according to the Norwegian tonnage tax model for a 5 year old cargo vessel operated by a Norwegian resident company, with a gross tonnage of 20,000 and a net tonnage of 18,000, which is operational all year.

Amount of TAX per day per 1000 net ton per day

-- up to 1,000 net ton

NOK 18 for the excess up to 10,000 net ton

NOK 12 for the excess up to 25,000 net ton

NOK 6 for the excess over 25,000 net ton

Tax: 9 x NOK 18 + 8 x NOK 12 = NOK 258 per day = NOK 94,784 (€ 11,240)Corporate tax levied amounts to NOK 94,784 (€ 11,240).

Who qualifiesLegal entities; in Finland legal entities and permanent establishments, in Norway only Norwegian Limited Liability Companies.

Qualifying activities Operating vessels in international traffic. Entrepreneurial activities on non-Norwegian continental shelf, leasing out in bareboat, some domestic supply, seismic, anchor handling, tugs and stand-by vessels also qualify.

Qualifying vessels/ownership• Owned vessels.• Vessels in bareboat charter.• Vessels in time charter (Finland: max 50% time

charter, only EU flagged chartered vessels and only applicable if additional ownership requirements are met).

Lock up period• Norway: opt every year (exit from the model will result

in exit taxation as if all assets were realized at fair market value).

• Finland: fixed 10 year period.

Capital Gains• No capital gains taxes need to be paid as long as

profits are not distributed. In Norway a participation exemption applies to shareholdings in companies residing in the EEA. This also applies to shareholdings in companies outside the EEA provided that the company is not regarded as resident in a low-tax jurisdiction and certain ownership conditions are met. Gains derived from realisation of shares in companies which do not meet the conditions for the participation exemption are exempt from tax if they constitute a qualifying asset under the tonnage tax model. However, such gains will be taxed upon distribution or upon exit from the tonnage tax model.

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Choosing a profitable course 17

Other capital gains and financial income are also taxable at a rate of 28% when the company is subject to tonnage tax.

• Norway: no deferred tax liabilities. Finland: tax deferral. Valuation of fixed assets at fair market value upon entry into the system. Taxation of capital gains at normal tax rate under regular taxation rules through indirect gain recognition method. This may be realised during tonnage taxation period, but the fair market value at the time of the entry limits the taxable amount. Taxes are paid on a yearly basis (if any); tax deferral does not disappear after the lock up period.

• Profits that were taxed under the tonnage tax regime are subject to 28% tax if distributed.

Flag requirement EU/EEA flag requirement.

Ship management companies No possibilities.

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The Greek tonnage tax model

The example below calculates the profit and tax according to the Greek tonnage tax model for a 5 year old cargo vessel operated by a Greek resident company operational all year with a gross tonnage of 20,000 and a net tonnage of 18,000.

For Greece, to calculate the taxable tonnage the scales are:

Gross registered tonnage Coefficient

100-10,000 net ton 1.2

for the excess up to 20,000 net ton 1.1

for the excess up to 40,000 net ton 1.0

for the excess up to 80,000 net ton 0.9

for the excess over 80,000 net ton 0.8

For a GRT 20,000 vessel this results in 10,000 x 1.2 + 10,000 x 1.1 = 23,000 taxable ton.

This amount is multiplied by the respective tax rate corresponding to the age of the vessel.

Age of the vessel Rates for passenger Rates for tankers, in years and cruise vessels cargo vessels, etc. (USD) (GRT > 1,500 ton)

0-4 $ 1.124 $ 0.318

5-9 $ 2.014 $ 0.57

10-19 $ 1.972 $ 0.558

20-29 $ 1.866 $ 0.528

Over 30 $ 1.442 $ 0.39

Corporate tax levied amounts to 23,000 x $ 0.57= $ 13,110 (€ 10,000).

The Greek model was introduced in 1957 and implemented by Greece, Cyprus and Malta. The calculation methods applied by Cyprus and Malta differ slightly from the Greek one. The Greek model is mandatory for vessel owners who derive income from shipping. First the taxable gross tonnage must be calculated by multiplying coefficient rates by each scale of gross registered tonnage. This taxable tonnage is multiplied by an age corrected rate. Basically, in this model the shipping activity is taxed. In addition to that, all distributions are exempt from taxation up to the beneficial owner no matter how many intermediate holding companies are imposed. The Greek tonnage tax covers all vessels and all shipping activities.

In terms of Maltese law, the tonnage tax regime is mandatory for vessel owners only in the sense that the registration fee and the annual tonnage tax are payable irrespective of whether or not the vessel owner or charterer makes use of the benefits and concessions contained in the Maltese tonnage tax regime.

Calculating the tonnage tax • Taxable tonnage of the vessel calculated based on

coefficients using 6 tonnage size groups.• Coefficients multiplied by taxable gross tonnage.• Tax calculated by using a tax rate that corresponds

with the age of the vessel. Cyprus uses 4 size groups and applies 25% deduction for vessels younger than 10 years; an additional 30% deduction can be obtained if the vessel management is performed in Cyprus.

• No CIT or dividend tax is levied on shipping profits. Malta uses 8 size groups and applies a fixed amount of tax per group + amount of tax for exceeding tonnage.

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Choosing a profitable course 19

Lock up period• Greece/Malta: mandatory system. • Cyprus: optional system (mandatory for vessels flying

the Cypriot flag).

Capital Gains• Capital gains on vessels are not taxed.• No deferred tax liabilities.

Flag requirement • Greece/Malta: Greek/Maltese flagged vessels qualify.• Cyprus: EU/EEA flag requirement.

Ship management companies • Greece: not taxed if put under special regime.• Only possible in Cyprus. Vessel management

companies may choose on an annual basis to either be taxed under the tonnage tax system or have their net profits subjected to Cyprus corporate tax at the flat rate of 4.25% under certain conditions.

In Greece tonnage tax extinguishes the tax liability of the owner and if the owner is a company this extends to shareholders. Tonnage tax also extinguishes tax liability in relation to operating profits, capital gains arising out of the vessel sale as well as liquidation proceeds.

Who qualifies• Greece/Cyprus: entrepreneurs, e.g. individual

entrepreneurs, foundations, legal entities, partnerships, permanent establishments.

• Malta: a legal entity, qualified as a ‘licensed shipping organisation’: a limited liability company, a partnership, whether ‘en nom collectif’ or ‘en commandite’, a trust or a foundation, any foreign body corporate or other entity enjoying legal personality, which has established a place of business in Malta.

Qualifying activities • Greece: ownership qualifies, not activities (the

location of the management is of no significance).• Cyprus: same as the Dutch model.• Malta: a ‘shipping organisation’ as a whole must

qualify by carrying out shipping activities with own or charter vessels in international traffic.

Qualifying vessels/ownership• Greece/Cyprus: vessels registered here. For non

Greek flagged vessels, a special regime applies to the operator.

• Malta: Malta registered, qualifying tonnage tax vessels (>1000 ton; smaller vessels cannot qualify, unless the Minister of Finance declares such vessels to be ‘tonnage tax vessels’).

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Comparison of the most important elements

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Choosing a profitable course 21

EU member states that have implemented a tonnage tax regime

Dutch model • Belgium • Denmark • France • Germany • Ireland • Italy • Netherlands • Poland • Spain • Sweden • UK

Norwegian model • Finland • Norway (no EU member, but EEA member)

Greek model • Cyprus • Greece • Malta

Method of calculating the tonnage tax

Dutch model • Fixed/deemed profit calculated using 4 tonnage size groups.

• Based on net tonnage.

• The calculated profit is taxed against the statutory CIT rate, or in case of individual entrepreneurs, with individual income tax. Belgium has 5 tonnage size groups including a special low rate for qualifying large vessels (above 40,000 ton) subject to age conditions.

Norwegian model • Tax calculated at a degressive tax rate. Finland has 4 degressive size groups, Norway 3.

• Based on net tonnage.

• Tonnage tax is not part of the taxable income. Norway applies environment deduction for qualifying environmental friendly vessels.

Greek model • Taxable tonnage of the vessel calculated based on coefficients using 6 tonnage size groups.

• Coefficients multiplied by taxable gross tonnage.

• Tax calculated by using tax rate that corresponds with the age of the vessel. Cyprus uses 4 size groups and applies 25% deduction for vessels younger than 10 years; an additional 30% deduction can be obtained if the vessel management is performed in Cyprus.

• No CIT or dividend tax is levied on shipping profits. Malta uses 8 size groups and applies a fixed amount of tax per group + amount of tax for exceeding tonnage.

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Qualifying activities

Dutch model • Operating vessels in international traffic. Also dredging and towing activities can qualify under most systems, under condition that more than 50% of these activities take place at sea.

• The vessel owner/bareboat charterer must exercise certain management activities with respect to the vessel.

Norwegian model • Operating vessels in international traffic. Entrepreneurial activities on non-Norwegian continental shelf, leasing out in bareboat, some domestic supply, seismic, anchorhandling, tugs and stand-by vessels also qualify.

Greek model • Greece: ownership qualifies, not activities (the location of the management is of no significance).

• Cyprus: same as the Dutch model.

• Malta: a ‘shipping organisation’ as a whole must qualify by carrying out shipping activities with own or charter vessels in international traffic.

Who qualifies

Dutch model • Entrepreneurs, e.g. individual entrepreneurs, foundations, legal entities, partnerships, permanent establishments.

• Denmark: only legal entities can opt for the tonnage tax system.

Norwegian model • Legal entities. In Finland legal entities and permanent establishments, in Norway only Norwegian Limited Liability Companies.

Greek model • Greece/Cyprus: entrepreneurs, e.g. individual entrepreneurs, foundations, legal entities, partnerships, permanent establishments.

• Malta: a legal entity, qualified as a ‘licensed shipping organisation’ (limited liability company, partnership, whether en nom collectif or en commandite, trust or foundation, any foreign body corporate or other entity enjoying legal personality which has established a place of business in Malta).

22 PricewaterhouseCoopers

Comparison of the most important elements

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Qualifying vessels/ownership

Dutch model • Owned vessels (not bareboat chartered out).

• Vessels in bareboat charter.

• Vessels in time charter (only applicable if additional ownership requirements are met:

• Denmark: max 80% of the fleet’s tonnage on time chartered vessels without purchase options (if a time charter vessel has a purchase option it is regarded as an owned vessel).

• Belgium and the UK: max 75% of the fleet’s tonnage on time charter.

Norwegian model • Owned vessels.

• Vessels in bareboat charter.

• Vessels in time charter. Finland: max 50% time charter, only EU flagged chartered vessels and only applicable if additional ownership requirements are met.

Greek model • Greece/Cyprus: vessels registered here (for non Greek flagged vessels, a special regime applies to the operator).

• Malta: Malta registered, qualifying tonnage tax vessels (>1000 ton; smaller vessels cannot qualify, unless the Minister of Finance declares such vessels to be ‘tonnage tax vessels’).

Lock up period

Dutch model • Choice must be made in year one and is fixed for 10 years, whether opted for the tonnage tax regime or not. Exceptions are:

• Belgium: opt at any time; choice fixed for 10 year period.

• Poland: choice to be made until 20 January of the first year of tonnage taxation period. Or, in the case of a shipping company commencing the activities subject to tonnage taxation in the course of the tax year, until the day preceding the day of commencing these activities. The choice is fixed for 5 consecutive years.

Norwegian model • Norway: opt every year. Exit from the model will result in exit taxation as if all assets were realized at fair market value.

• Finland: fixed 10 year period.

Greek model • Greece/Malta: mandatory system.

• Cyprus: optional system (mandatory for vessels flying the Cypriot flag).

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Capital Gains

24 PricewaterhouseCoopers

Comparison of the most important elements

Dutch model • Capital gains are not subject to additional tax.

• Deferred tax liabilities: valuation at fair market value upon entry into system and claw back rules on hidden reserves realized during lock up period.

• Deferred tax liabilities disappear after the lock up period (usually 10 years, Poland 5 years).

• Capital gains derived during the lock up period are part of the tonnage tax tax base (not subject to tax). Exceptions are:

• France: capital gains are subject to regular statutory tax rate.

• Poland: capital gains on sale of vessels will be taxed against a flat rate of 15%. A case tax exemption applies when reinvested in a purchase, co-ownership, modernization, renovation or rebuilding of the shipping fleet within 3 years from the moment of sale of that vessel.

• Denmark: capital gains on vessels are taxed at the normal corporate tax level (28%). This rule is expected to be abolished during 2007. Hereinafter capital gains on the sale of vessels will not be taxed as it will be considered as tonnage tax income.

• The UK: no deferred tax liabilities.

Norwegian model • No capital gains taxes paid as long as profits are not distributed. In Norway participation exemption applies to shareholdings in companies residing in the EEA. This also applies to shareholdings in companies outside the EEA provided that the company is not regarded as resident in a low-tax jurisdiction and certain ownership conditions are met. Gains derived from realisation of shares in companies which do not meet the conditions for the participation exemption are exempt from tax if they constitute a qualifying asset under the tonnage tax model. However, such gains will be taxed upon distribution or upon exit from the tonnage tax model. Other capital gains and financial income are also taxable at a rate of 28% when the company is subject to tonnage tax.

• Norway: no deferred tax liabilities. Finland: tax deferral. Valuation of fixed assets at fair market value upon entry into the system. Taxation of capital gains at normal tax rate under regular taxation rules through indirect gain recognition method. It may be realised during tonnage taxation period, but the fair market value at the time of the entry limits the taxable amount. Taxes are paid on a yearly basis (if any). Tax deferral does not disappear after the lock up period.

• Profits that were taxed under the tonnage tax regime are subject to 28% tax if distributed.

Greek model • Capital gains on vessels are not taxed.

• No deferred tax liabilities.

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Flag requirement

Dutch model • EU/EEA flag requirement. (Germany: register requirement instead of flag requirement.)

Norwegian model • EU/EEA flag requirement.

Greek model • Greece/Malta: Greek/Maltese flagged vessels qualify.

• Cyprus: EU/EEA flag requirement.

Ship management companies

Dutch model Only possible to qualify for tonnage tax in:

• Belgium: commercial management activities for third parties.

• Denmark: performing technical and crew management for another company.

• Germany: tonnage tax can often be used for management activities.

• The Netherlands: performing technical and crew management for another company.

• Poland: under additional conditions.

Norwegian model • No possibilities.

Greek model • Greece: not taxed if put under special regime.

• Only possible in Cyprus: vessel management companies may choose on an annual basis to either be taxed under the tonnage tax system or have their net profits subjected to Cyprus corporate tax at the flat rate of 4.25% under certain conditions.

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Final remark

Your decision on the most suitable tonnage tax model plus how and where to locate your (European) shipping activities will depend on the circumstances and your activities. And usually it will be based on a combination of the tonnage tax regime, ship financing, freight taxes, wage cost deduction for seafarers and the general tax system.

Our PricewaterhouseCoopers network of highly experienced and dedicated shipping experts can assist you in deciding how to structure your shipping business. Contact us for an informal discussion about your individual situation and considerations. You can find the contact information of our tonnage tax experts in Europe on page 2 of this report and the contacts of our global Transportation & Logistics network on the following page.

26 PricewaterhouseCoopers

PricewaterhouseCoopers has established a European and Global Shipping Network of industry experts. Within this network, a dedicated team of assurance, tax and advisory professionals provides advice and support to businesses like yours. Through our network of local specialists PricewaterhouseCoopers can offer the solutions needed to manage your business on a local and global basis. The Shipping Network has built on its commitment to exchange experience through our global databases and regular meetings, allowing all members to share knowledge and find solutions that fit your needs. No matter where you are navigating, PricewaterhouseCoopers has a Shipping Team ready.

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Choose the fair wind. May 2007PricewaterhouseCoopers – European tonnage tax regimes Page 4

Global Transportation & Logistics contacts

PricewaterhouseCoopers’ Transportation & Logistics (T&L) practice provides industry-focused assurance, tax and advisory services to public and private T&L companies throughout the world. For more information on this report, please contact the Transportation & Logistics leader in your country. Contact information of our tonnage tax experts in Europe can be found on page 2 of this report.

Global T&L Industry LeaderKlaus-Dieter Ruske+49 211 981 28 [email protected]

T&L Business DevelopmentPeter Kauschke+49 211 981 21 [email protected]

AustraliaDon Munro+61 2 82 66 73 [email protected]

BelgiumPeter van den Eynde+32 3 259 33 [email protected]

CanadaMichael Whitworth+1 514 205 52 [email protected] China/Hong KongAlan Ng+852 22 89 28 [email protected]

DenmarkBo Schou-Jacobsen+45 39 45 36 [email protected]

FranceJean-François Châtel+33 1 56 57 83 [email protected]

GermanyKlaus-Dieter Ruske+49 211 981 28 [email protected]

GreeceVassilios Goutis+30 210 687 46 [email protected]

IndiaAmrit Pandurangi+91 11 51 35 05 [email protected]

ItalyLuciano Festa+39 65 70 25 24 [email protected]

MexicoMartha Elena Gonzalez+52 55 52 63 58 [email protected]

Middle EastNathan Weatherstone+971 507 71 29 [email protected]

NetherlandsMichel Adriaansens+31 10 407 52 [email protected]

New ZealandGrant Burns+64 9 355 80 [email protected]

PortugalJorge Costa+351 213 59 94 [email protected]

SingaporeSubramaniam Iyer+65 62 36 30 [email protected]

South AfricaAkhter Moosa+27 12 429 05 [email protected]

South AmericaHenrique Luz+55 11 36 74 38 [email protected]

SpainMiguel Martin Rabadan+34 91 568 41 [email protected]

SwedenClaes Thimfors+46 31 793 11 [email protected]

SwitzerlandAndreas Baur+41 58 792 53 [email protected]

United KingdomClive Hinds+44 17 27 89 23 [email protected]

United StatesKenneth H. Evans Jr.+1 305 375 63 [email protected]

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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www.pwc.com/transport

The firms of the PricewaterhouseCoopers global network (www.pwc.com) provide industry-focused assurance, tax and advisory services to build public trust and enhance value for clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. Our Transportation & Logistics practice is a global network of partners and client service professionals dedicated to postal, express and logistics service providers, airlines, shipping companies and transport infrastructure operators.

© 2007 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. 2007.06.01.01.262