1999/651/EC: Commission Decision of 9 December 1998 on the measure which Ireland is planning to implement in favour of employers for the refund of social security contributions paid in respect of seafarers employed on certain categories of ships not being required to be registered in a Member State (notified under document number C(1998) 4278) (Text with EEA relevance) (Only the English text is authentic)
Date: 1998-12-09
Institutions: European Commission
Subjects: crew, employer, merchant fleet, redemption, social-security contribution

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 9 December 1998

on the measure which Ireland is planning to implement in favour of employers for the refund of
social security contributions paid in respect of seafarers employed on certain categories of ships
not being required to be registered in a Member State

(notified under document number C(1998) 4278)

(Only the English text is authentic)

(Text with EEA relevance)

(1999/651/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

By letter dated 20 January 1998, the Commission informed
Ireland of its decision:

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
93(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having regard to the Community guidelines on state aid to
maritime transport (1),

Having called on interested parties to submit their comments
pursuant to the above provisions,

Whereas:

1. Procedure

— to authorise aid in respect of type (1) vessels,

— not to object to the refund of contributions paid in respect
of old-age pensions to self employed contributors and
formerly self employed voluntary contributors aged 56
years on 6 April 1998 since it does not constitute aid, and

— to initiate the procedure laid down in Article 93(2) of the
EC Treaty in respect of aid towards type-2 ships (type-2
measure) under the Social Welfare (Consolidated Contribu-
tions and Insurability) (Amendment) (No 2) Refunds) Regu-
lations, 1997.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communities (2).
The Commission invited interested parties to submit
their
comments on the measure.

By letter dated 15 May 1997, registered in the Commission on
20 May 1997,
Ireland notified the Commission of the aid
N 322/97. By letters dated 30 June and 8 September 1997 the
Commission sent requests, for further information. A bilateral
meeting took place on 9 July 1997. By letters registered in the
Commission on 31 July, 27 October, 7, 13, 19 and 27
November 1997 as well as 2, 4, 8 and 10 December 1997, the
Irish authorities furnished the Commission with supplementary
information.

By letter of 23 February 1998, registered in the Commission
on 24 February 1998, Ireland provided the Commission with
its comments as regards the abovementioned Article 93(2)
procedure. On several occasions thereafter bilateral contacts
have taken place between representatives of the Commission
and the Irish authorities.

The Commission has
Member States or from interested parties.

received no comments

from other

(1) OJ C 205, 5.7.1997, p. 5.

(2) OJ C 103, 4.4.1998, p. 15.

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2. Detailed description of the aid measure

— promoting quality EU standard shipping.

(a) The type-2 measure

(e) Possible effect of the aid

That part of the N 322/97 scheme in respect of which the
Commission opened the procedure provides for the refund
to employers of up to 100 % of the social security contri-
butions paid in respect of the employment of EC seafarers
on board ships engaged in merchant shipping at sea which
are the subject of a letting on charter without crew by a
lessor not resident in Ireland (type-2 vessels).

Type-2 vessels, which are chartered in and managed from
within Ireland, are not required to fly the flag of a Member
State in the framework of the aforementioned measure. For
background purposes it should be recalled that
type-1
vessels are ships owned as to not less than 51 % by a
person or persons resident
in Ireland and which are
required to be registered in Ireland.

(b) Budget and duration

The aid budget to be spent on the type-2 measure has been
notified as an amount in common with the budget for the
type-1 measure (approved in the Commission decision
earlier mentioned). The total budget
foreseen for both
measures is IEP 8 million, to be spent at a rate of IEP 2
million per annum over a four year aid period beginning
on 6 April 1996 and ending on 5 April 2000. Since
according to the indications of the Irish authorities there
was at the time of notification only one type-2 vessel
qualifying for the type-2 measure and since no other ships
are expected to come on stream in the near future, only a
small amount of this total budget would be attributed to
the type-2 measure.

Funds for this measure are made available through tax
payments previously levied.

(c) Recipients

The aid recipients of the Irish social security reimbursement
are employers who employ seafarers on board the afore-
mentioned type-2 vessels engaged in merchant shipping at
sea.

(d) Objective

According to the Irish authorities, the introduction of the
refund of social security contributions and its application to
the aforementioned vessels is an important element of a
strategy for the Irish shipping sector which is aimed at:

— retaining and attracting new tonnage to the register,

— strengthening

Irish
economic
shipowning and operating interests and the state, and

between

link

the

By refunding to employers their social security contribu-
tions paid in respect of the employment of seafarers being
tax liable in Ireland on board type-2 vessels,
the Irish
authorities intend to support Irish shipping companies.

(f) Grounds for initiating the procedure

Considering that the type-2 measure does not require quali-
fying vessels to be registered in a Member State (that is, fly
the flag of a Member State) as required by the guidelines on
state aid to maritime transport, it appeared to the Commis-
sion that there were serious doubts regarding the compati-
bility of this measure with the common market. Therefore,
in its letter dated 20 January 1998,
the Commission
decided to initiate the procedure provided for in Article
93(2) of the EC Treaty in respect of the type-2 measure
described above.

3. Comments from Ireland

Ireland replied to the Article 93(2) procedure by raising two
issues in particular:

— the case of the type-2 vessel m.v. Normandy, and

— the argument that the type-2 measure should be subject to
point 3.1 rather than to subsection 3.2 of the guidelines.

(a) Type-2 vessels

As regards the procedure opened under Article 93(2) of the
EC Treaty in respect of ships subject to the type-2 measure,
Ireland noted that there is only one vessel qualifying for the
type-2 measure, the m.v. Normandy, which is at present on
short-charter letting to the Irish Continental Group plc,
Ferryport, Dublin, from January 1998 to October 1999.

In their comments to the Commission, the Irish authorities
further mention that they consider the charter contract of
the Normandy complies with the spirit of the Guidelines
even though the vessel flies the flag of the Bahamas.

The arguments for that contention are summarised below.

(i) An EU registered (Swedish) company ultimately owns

the vessel.

(ii) The vessel is crewed solely by EU nationals (predom-
inantly Irish and UK), 150 in low season and 250 in
peak season.

(iii) The vessel

is marketed and managed by an EU
company, Irish Ferries, from Dublin and Rosslare as
well as from Liverpool for the UK trade. These activ-
ities support a substantial number of
jobs for EU
nationals in Dublin and Rosslare and in related com-
panies in mainland Europe.

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(iv) The vessel serves a marginal and peripheral route
between Rosslare in Ireland and the mainland of
Europe, which is important for intra-EU tourism and
trade links. This link, which commenced in 1973, was
under threat from economic forces and due to the
introduction of new safety rules which precluded
continued use of the existing vessel on the route.

The economic viability of the route remains question-
able. Nevertheless, Irish Ferries has chartered the m.v.
Normandy for a period of 21 months in order to keep
the link open and to assess its future viability. The Irish
Government fully supports the maintenance of this
route for strategic reasons (as an alternative to the land
route through the UK) and also as a contribution to the
general policy of increasing the use of short sea ship-
ping routes in the EU.

(v) The current charter is a temporary measure (until
October 1999). In the course of sourcing a replace-
ment vessel for the Rosslare route, Irish Ferries made
bids to purchase two vessels with the intention of
placing them under the Irish flag. In the event, the bids
were not successful. The only vessel which could be
sourced with sufficient bed space for the route was the
m.v. Normandy.

When the charter expires in 1999, Irish Ferries will
have the opportunity to negotiate with the owners of
the vessel regarding its flag. Alternatively, if the route's
viability can be proven it may be possible for Irish
Ferries to purchase a vessel for the route, which could
then be placed under the Irish flag. Therefore the
current position should be regarded as provisional
since it will only apply until October 1999.

(vi) The vessel

is one of a fleet of vessels which the
company operates between Ireland, the UK and France,
all other vessels in the fleet being on the Irish register.

Furthermore, as regards type-2 vessels in general, the Irish
authorities pointed out that type-2 vessels are vessels in
respect of which it can be shown that all the requirements
of the Merchant Shipping Acts 1894 to 1996 (which lay
down the requirements for Irish registration of vessels),
have been complied with as if they had been registered
under that part of Irish legislation.

The Irish authorities therefore mention that the ‘type-2
vessel’ m.v. Normandy is treated under Irish law for the
purposes of the state aid in an analogous way to an Irish
registered ship.

(b) The applicability of the Guidelines to the type-2 measure

As regards the applicable section of the Community guide-
lines on state aid to maritime transport, Ireland argues that
the levying of employers' social
insurance on company
payrolls should be looked on as a form of corporate taxa-
tion, quite unlike personal taxes such as employees' social
insurance and income tax. Ireland regards the flexibility
implicit in point 3.1 of the guidelines on the ‘fiscal treat-

ment of shipowning companies’ as applicable in the present
case where the employer's contribution (pay-related social
insurance — PRSI) is levied on the total seafarer payroll of
the company.

Ireland submits that there is a strong case that the more
flexible regime implicit in point 3.1 should apply particu-
larly to concessions in the area of taxes which are levied on
shipping companies in respect of employment. The primary
added value of EU shipping can often be the employment
of EU seafarers; reductions in costs of employment through
such concessions are the most effective and targeted instru-
ments available to attain that objective.

While the aid in question is not aimed at repatriation of
management
in terms of management and ancillary
services, since these are already located within the EU, it
will help to consolidate the Company's position with a
well-grounded EU base and serve to maintain and consol-
idate that base, thereby avoiding the need for repatriation at
some later stage.

4. Assessment of the measure

(a) Legal basis of the assessment

Articles 92 and 93 of the Treaty contain the rules on the
compatibility of state aids with the common market.

The Community guidelines on state aid to maritime trans-
port provide guidance as regards the compatibility with the
common market,
in accordance with Article 92 of the
Treaty, of state aid measures in favour of the maritime
transport sector.

(b) Compatibility of the measure

(i) Existence of state aid

the Treaty provides that

Article 92(1) of
‘any aid
granted by a Member State or through state resources
in any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings
or the production of certain goods shall, in so far as it
affects trade between Member States, be incompatible
with the common market’.

The refunding of contributions for the social protection
of seafarers results in the state receiving less income and
must therefore be considered to be granted through
state resources. Since the type-2 measure favours only
the maritime sector it is to be considered as sector-
specific. Furthermore, maritime transport being a sector
with a strong international and infra-Community
element, a public subsidy to this sector risks distorting
competition and affecting maritime transport activities
in other Member States. It follows that the aforemen-
tioned social security refund is therefore to be consid-
ered as state aid within the meaning of Article 92(1) of
the Treaty.

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(ii) Point 3.2 of the guidelines

The Community guidelines on state aid to maritime
transport provide in point 3.2 that aid in the form of
the alleviation of the burden of social security contribu-
tions in respect of social security contributions of
Community seafarers should be allowed, provided those
seafarers are employed on board ships registered in a
Member State. The guidelines allow such aid up to a
maximum of 100 % relief from contributions. On the
basis of this provision the Commission opened the
Article 93(2) procedure in respect of
the type-2
measure, since type-2 vessels are not bound to be regis-
tered in a Member State.

(iii) Applicability of point 3.2 of the guidelines

Summarising the comments on the Article 93(2) pro-
cedure mentioned above, Ireland argues that the levying
of employers' social insurance on companies' payrolls
should be looked on as a form of corporate taxation,
quite unlike personal taxes such as employees' social
insurance and income tax. Ireland would also regard the
flexibility implicit in point 3.1 of the guidelines on the
fiscal treatment of shipowning companies (providing
for the possibility of an exception to the normally
required EU flag link under certain circumstances) as
applicable in the present case where the employer's
contribution (PRSI) is levied on the total seafarer payroll
of the company.

As regards this argument
it has to be noted that
Chapter 3 of the guidelines specifically deals with the
issue of ‘Fiscal and social measures to improve compet-
itiveness’. It is divided into point 3.1, which deals with
the ‘Fiscal treatment of shipowning companies’, and
point 3.2 which deals with ‘Labour-related costs’.

Point 3.1 deals with the compatibility with the
common market of certain state aid measures such as
those relating to a tonnage tax or accelerated deprecia-
tion on investment. Only for such measures do the
they may exceptionally be
guidelines provide that
applicable to the entire fleet operated by a Community
shipowner provided a certain number of criteria are
fulfilled.

Point 3.2 however deals with the compatibility with the
common market of state aid measures relating to
different types of labour-related costs, which are defined
as being the following:

— reduced rates of contributions for the social protec-
tion of Community seafarers employed on board
ships registered in a Member State, and

— reduced rates of

tax for Community
seafarers on board ships registered in a Member
State.

income

The fact that employment cost reductions in the form
of reduced rates of contribution for social protection
and income tax reductions are dealt with in a special
and distinct point of the guidelines clearly shows the
Commission's intention to separate these issues from
point 3.1 which deals with other measures such as the
tonnage tax.

It follows that for the purpose of applying the guide-
lines, any scheme providing for the refund of contribu-
tions for the social protection of seafarers cannot be
seen as a fiscal incentive within the meaning of point
3.1 but must be seen as a labour-related measure within
the meaning of point 3.2.

It should be noted that the Irish argument according to
which type-2 vessels are subject to Irish law as if they
had been registered in Ireland is not sufficient to fulfil
the requirement of point 3.2 of the guidelines, which
provides that qualifying ships must be registered in a
Member State. Even though the refund is intended to be
limited to Community seafarers (masters and seamen
liable to social security contributions in Ireland), as in
the approved measure concerning type-1 vessels and as
required by point 3.2 of the guidelines, the aforemen-
tioned requirement that ships be registered in a Member
State is not fulfilled.

In this respect it should further be noted that the guide-
lines have identified the low tax environment in certain
third countries as the main incentive for shipping
companies to flag out their vessels and have analysed
the various negative consequences resulting from that
trend. To halt that trend and to remedy the situation,
the guidelines permit Member States to introduce fiscal
and social relief measures in order to improve the
competitiveness of shipping under
flags. The
Commission considered, when drawing up those guide-
lines, that measures to reduce labour costs of seafarers,
such as those at issue here, should only be applied in
respect of seafarers employed on ships registered in
Member States. To diverge from that policy would not
provide a sufficient incentive to shipowners to operate
under Member State flags and could be construed as
state aid to improve the competitiveness of non-EU
shipping.

their

The type-2 measure, as proposed by Ireland, which
comprises no flag link, must therefore be considered to
be incompatible with the aforementioned Community
guidelines on state aid to maritime transport.

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(iv) The case of the m.v. Normandy

As regards the m.v. Normandy, which according to the
Irish authorities is presently the only type-2 vessel qual-
ifying for the proposed type-2 measure, it should be
noted that during several bilateral contacts subsequent
to the opening of the Article 93(2) procedure, the Irish
authorities have indicated that an agreement may be
found between the shipowner and the ship operator to
reflag the vessel under the Irish flag. However, such an
agreement has not taken place and no commitments as
regards
such a move have been provided to the
Commission.

subject of a letting on charter without crew by a lessor not
resident in Ireland is incompatible with Article 92 of the EC
Treaty.

That aid may accordingly not be implemented.

Article 2

Ireland shall
inform the Commission, within two months
following notification of this Decision, of the measures taken
to comply with it.

5. Conclusions

Article 3

In conclusion, the aid scheme as regards type-2 vessels should
be held to be incompatible with the common market,

This Decision is addressed to Ireland.

HAS ADOPTED THIS DECISION:

Done at Brussels, 9 December 1998.

Article 1

The state aid which Ireland is planning to implement in favour
of employers in respect of the employment of seafarers on
ships engaged in merchant shipping at sea which are the

For the Commission

Neil KINNOCK

Member of the Commission