TTM03830 - Qualifying companies and ships: Strategic and commercial management - additional factors

Flag

Flagging is not a condition for a qualifying ship following the repeal of FA00/SCH22/PARA22B (2) by FA22/S25 (7). However, the fact that a vessel may be flagged in the United Kingdom will add weight to the indicators for commercial management.

The flag under maritime law requires what is termed a “genuine link” between a vessel and a flag state (Article 91 of the UN Convention on the Law of the Sea). Although the nature of the link is not defined, flag registration establishes vessel nationality and legal jurisdiction on board. Choice may be influenced by cabotage (operating between ports within a territory), quality of administration and reputation of the flag, costs, insurance and naval protection. Being UK flagged supports the conclusion that strategy is influenced by rules and conditions of the UK, so UK flagging will add material weight to the indicators for strategic and commercial management.

Environmental management

A company’s contribution to decarbonisation and pollution control is an increasingly important issue. Management of environmental factors and commitment of resource to these, and investment in research and development in the UK on clean energy and green technologies, will be material considerations.

Weighting of elements

The more elements that are carried out in the UK, the more likely it is that the company will be accepted as satisfying the test. The approach is not a mechanistic one; the weight given to each element will depend on an intelligent appraisal of the facts of each case. Greater weight will be given to higher levels of decision-making and management, as opposed to routine day-to-day management activities.

A world-wide shipping operation may delegate many of the lower-level activities to local branches. In assessing the weight and relevance of the various elements of commercial management activity, factors to take account of include the

  • extent to which each element is carried out in the UK, as compared with the extent that it is carried on elsewhere,
  • nature and extent of the accommodation occupied in the UK,
  • number of employees engaged in these activities in the UK, and
  • country of residence of key management staff, including company directors.

International groups

For an international group, the extent to which strategic and commercial management activities in the UK correspond to the UK’s share of the world-wide fleet is a factor. If some group functions in relation to the fleet are carried out in the UK and other functions elsewhere, the group may still be seen as commercially managing its fleet from the UK, provided there is a reasonable balance of activities in the UK represented by ships within the UK’s tonnage tax regime in proportion to world-wide fleet activities.

Third party activity

Activities or management contracted out to a third party will count as a contributing factor, provided carried on in the UK.

UK waters

The test does not require the vessels to be operated in UK waters.

Fleet to be examined as a whole

FA00/SCH22/PARA16 (1)(c) provides that the qualifying ships operated by a UK tonnage tax company must be strategically and commercially managed in the UK. It does not follow that each ship operated by the company from the UK must be managed in like manner and to the same extent as every other one. But each ship must satisfy enough of the strategic and commercial management criteria, and the company’s fleet as a whole must be strategically and commercially managed in the UK.

Strategic and commercial management

Commercial management, along with strategic management, is a recognised maritime industry management category. Special factors come into play where ships are chartered in by an operator - see TTM03835.

References

FA00/SCH22/PARA16 TTM17086
Introduction to strategic and commercial management TTM03800
Strategic management TTM03810
Commercial management TTM03820
Chartering in TTM03835
Examples TTM03840
Flagging TTM03900