Revenue and Customs Brief 37 (2013): Tonnage Tax
Published 16 December 2013
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Readership
Shipping companies that have elected to compute their Corporation Tax profits from maritime transport activities calculated under the rules for Tonnage Tax.
Action required
If a company in Tonnage Tax starts to operate a ship that is not registered in a EU or European Economic Area (EEA) member state, during financial year 2014 (the year starting 1 April 2014), then they must carry out a ‘flagging test’ to determine whether the ship qualifies for Tonnage Tax.
Background: registration of ships
Where a newly operated ship is registered (flagged) outside the EU/EEA this may affect whether it is a qualifying ship for Tonnage Tax purposes, unless the year is an ‘excepted year’.
Tugs and dredgers, however, must always be registered in an EU/EEA member state to qualify for Tonnage Tax.
Excepted year and the flagging test
Each year HM Revenue and Customs tests the tonnage of Tonnage Tax ships on EU/EEA member states’ registers, as a proportion of Tonnage Tax ships registered worldwide.
So long as this proportion has not fallen from the previous year’s calculation, the Treasury may make an order that the financial year is an excepted year.
If the Treasury has not designated a year an excepted year, companies and groups must apply a flagging test when they start to operate a non-EU/EEA-registered ship for the first time to determine if the ship qualifies for Tonnage Tax. Details of the flagging test are in the Tonnage Tax manual at TTM03910.
The conditions set out in the flagging test are in terms that, if they are all met, the ship will not be a qualifying ship for Tonnage Tax purposes. The profits from a non-qualifying ship are taxed under the normal rules of Corporation Tax.
Financial year 2013
The number and tonnage of ships in Tonnage Tax has decreased slightly in the last 12 months; however, companies have reduced the tonnage of ships on the registers of countries that are EU/EEA member states more than those that are not EU/EEA registered. As a result the proportion of EU/EEA tonnage has continued to decline on average over a 3 year period.
Consequently, the Treasury is unable to designate the financial year 2014 an excepted year.
Companies and groups must apply the test described above when they start to operate a non-EU/EEA registered ship during financial year 2014.
Member states’ registers
For the purposes of the flagging test ‘member states’ registers’ means registers governed by the law of a member state applying to their territories forming part of the EU, and also those of the 3 EEA EFTA States: Norway, Iceland and Liechtenstein.
In addition, the following registers are member states’ registers for the purpose of the flagging test:
- the Danish International Register of Shipping (DIS)
- the German International Shipping Register (ISR)
- the Italian International Shipping Register
- the Madeira International Ship Register (MAR)
- the Canary Islands Register
- the Norwegian International Ship Register (NIS)
- the Gibraltar Register
- the following registers are not considered to be member states’ registers:
- the Kerguelen Register
- the Dutch Antilles’ Register
- the Isle of Man Register
- the Bermuda Register
- the Cayman Islands Register
Issued 16 December 2013