Tonnage tax regimes are increasingly common worldwide. Under such schemes, shipping companies are taxed on the basis of the tonnage of their fleets rather than the actual profits of the companies. In years when they make profits, the shipping companies benefit from only paying the tonnage tax but, conversely, they still have to pay the tonnage tax even in the years in which they make losses.
These regimes raise interesting issues of European Union competition law because of the possible payment of State aid to the beneficiaries. State aid issues can arise because of the selective conferral of advantages on some shipping companies to the prejudice of their competitors. The European Commission has therefore adopted guidelines on how such regimes can be compatible with EU State aid law. Member States are therefore cautious to ensure that they notify their regimes and have them approved in advance by the European Commission.
In 2003, the Commission approved the original French tonnage tax scheme. The EU's Official Journal at the time summarised the French scheme as being:
- "To replace, for shipping companies which have opted for the tonnage tax scheme, the taxable basis used in the calculation of corporate tax by an amount determined on the basis of vessel tonnage, as follows:
- Up to 1 000 net tonnes: EUR 0,93 per 100 NT.
- Between 1 001 and 10 000 net tonnes: EUR 0,71 per 100 NT.
- Between 10 001 and 25 000 net tonnes: EUR 0,47 per 100 NT.
- Over 25 001 net tonnes: EUR 0,24 per 100 NT.
- This scheme does not impose any condition with regard to the flag of the vessel."
In 2015, the Commission summarised its 2003 approval in the following terms: "[the  scheme limited the eligibility of time chartered ships not flagged in the EU (“time chartered” vessels provide maritime transport services with vessels and crew temporarily rented from other companies). Such ships could not constitute more than 75% of the fleet of a tonnage tax payer. This scheme was in line with the then applicable 1997 EU guidelines on state aid to maritime transport, which aimed to enhance the competitiveness of shipping companies facing competition from non-EU businesses and boost jobs in the sector."
In 2004, after the adoption of the Commission's updated guidelines on State aid to maritime transport, France removed the specific flagging rules for time-chartered vessels without informing the Commission.
In 2011-2012, the Commission asked France for information on this development as part of a monitoring exercise on the implementation of the 2003 decision.
In 2013, the European Commission opened an in-depth investigation to examine whether the changes to the French tax rules for maritime companies were compatible with EU state aid rules. The changes related to fiscal exemptions for certain maritime chartering services in France. The Commission was concerned that France's giving of favourable fiscal benefits to certain vessels sailing under non-EU flags would run counter the objectives of EU maritime transport policy which is to promote EU flags. Put another way, the Commission was concerned that the specific limits on the eligibility of time chartered ships that do not sail under the flag of a Member State should be maintained.
On 4 February 2015, the European Commission announced that it had accepted commitments from France which addressed the Commission's concerns. According to the Commission, France has now committed to ensure that French tonnage tax payers flag at least 25% of their tonnage in the European Economic Area (the EEA which comprises the 28 EU Member States along with Iceland, Norway and Liechtenstein). Moreover, the Commission gave some details, in its 2015 press release of its investigation when it said that having:
- "examined the submissions received, the Commission came to the conclusion that so far no tonnage tax beneficiary in France has had more than 75% of its fleet composed of time chartered vessels flagged outside the EU or the EEA. The removal of the specific flagging rules therefore did not yet have any effect in practice. At the same time, the Commission also found that there was no guarantee that this would remain the case in future as no minimum EEA flagging requirements were foreseen for new entrants. As a result, a newcomer company whose fleet was 100% composed of non-EEA time-chartered vessels would be able to benefit from the tonnage taxation.
- The Commission considered that this was not in line with the 2004 Maritime Guidelines. Even if the Guidelines do not impose specific limitations on time charterers (contractually, time-charterers are maritime transport service providers) the Commission has always required in its case practice that time charterers wishing to benefit from tonnage tax contribute to the Guidelines' objectives of preserving a minimum maritime know-how within the EU/EEA or to the objective of promoting EU/EEA flagging of vessels.
- To address the Commission's concerns, the French authorities have therefore committed to require from all the French tonnage taxpayers that at least 25% of their tonnage is EEA flagged."
Dr Vincent Power, partner at A&L Goodbody said: "the Commission decision has not yet been published but will be published shortly after France has an opportunity to request the removal of confidential information from the decision."1
This case is a clear example of how the tonnage tax regimes need to be monitored continually from the perspective of State aid rules to ensure that they are compatible. It is particularly important for ship owners, who are not able to notify aid schemes (or changes) to the European Commission, that Member States ensure that their regimes are compatible at all times.