State aid — Ireland — State aid C 2/08 (ex N 572/07) — Modification of tonnage tax — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2008-05-14
Institutions: European Commission
Subjects: Ireland, State aid, competition law, control of State aid, exchange of information, maritime transport, tax system

C 117/32

EN

Official Journal of the European Union

14.5.2008

PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMPETITION
POLICY

COMMISSION

STATE AID — IRELAND

State aid C 2/08 (ex N 572/07) — Modification of tonnage tax

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(Text with EEA relevance)

(2008/C 117/14)

By means of the letter dated 15 January 2008 reproduced in the authentic language on the pages following
this summary, the Commission notified Ireland of its decision to initiate the procedure laid down in
Article 88(2) of the EC Treaty concerning the abovementioned measure.

Interested parties may submit their comments on the measure in respect of which the Commission is initi-
ating the procedure within one month of the date of publication of this summary and the following letter,
to:

European Commission
Directorate-General for Energy and Transport
Directorate A Internal Market and competition
Building/Office DM 28 6/109
B-1049 Brussels
Fax (32-2) 296 41 04

These comments will be communicated to Ireland. Confidential treatment of the identity of the interested
party submitting the comments may be requested in writing, stating the reasons for the request.

TEXT OF SUMMARY

1. PROCEDURE

1. By electronic letters of 3 October 2007 and 19 November
2007, the Irish authorities notified an amendment to the
existing tonnage tax scheme N 504/02.

2. THE FACTS

2. To recall, the Irish tonnage tax of 2002 is a ‘tax scheme
applicable to shipping companies engaged in seagoing transport.
Qualifying companies may choose
shipping
activities taxed on basis of the net tonnage of their fleet instead
of on the basis of their actual profits’ (1).

to have

their

(1) Commission Decision of 11 December 2002, C(2002) 4371 fin,

point (26).

3. Amongst others, one ‘precondition for being eligible for the
tonnage tax scheme is that the share of qualifying ships owned
by the company itself, calculated on their tonnage, is not less
than 25 % of the tonnage of all its qualifying ships. It is indeed
required for entering and remaining within tonnage tax that a
company should not have “chartered in” (also time charter)
more than 75 % of the net tonnage of the qualifying ships oper-
ated by it. […] “To charter in a ship” means to rent it with a
crew provided by the charterer, in contrast to the definition of
the bareboat charter whereby the lessee must man the ship.’.

4. The Irish authorities now intend to abolish the above time
charter limitation. Thus, according to their present notifi-
cation, a company or a group of companies could benefit
from the tonnage tax without owning a single ship.

3. ASSESSMENT

5. As regards the presence of aid, the Commission considers
that the notification object of the present decision does
not in any way alter the qualification as State aid of the
Irish tonnage tax approved in 2002.

14.5.2008

EN

Official Journal of the European Union

C 117/33

6. Even though the guidelines do not mention any limits for
the inclusion of time chartered ships under tonnage tax
schemes, in its decision making practice the Commission
has been careful to avoid competitive distortions and to
establish a de facto level playing field around a ratio of 1:3
or 1:4 owned to time chartered ships.

7. The Commission considers that

the abolition of such
limits in one or several Member States could distort
competition and thus distort the intra EU level playing
field.

TEXT OF LETTER

‘The Commission wishes
to inform Ireland that, having
examined the information supplied by your authorities on the
measure referred to above, it has decided to initiate the proce-
dure laid down in Article 88(2) of the EC Treaty.

1. PROCEDURE

1. By electronic letters of 3 October 2007 and 19 November
2007, the Irish authorities notified an amendment to the
existing tonnage tax scheme N 504/02, initially approved
by the Commission on 11 December 2002 (2).

2. DETAILED DESCRIPTION OF THE MEASURE

2.1. Summary of the 2002 tonnage tax

2. The Irish tonnage tax of 2002 is a “tax scheme applicable
to shipping companies engaged in seagoing transport.
Qualifying companies may choose to have their shipping
activities taxed on basis of the net tonnage of their fleet
instead of on the basis of their actual profits. Qualifying
companies must opt for the regime within three years
from the date of the entry into force of the legislation.
Companies having opted for the tonnage tax must remain
subject to this regime for a period of 10 years (tonnage
tax period).

If several qualifying Irish companies are members of the
same group of companies, all of them must opt for the
tonnage tax system. Business activities other than those
subject to the tonnage tax would be taxed on the basis of
the normal provisions of corporate taxation.

Under the […] tonnage tax scheme the amount of tax for
qualifying maritime companies is established on the basis
of the net tonnage of their qualifying fleet. For each vessel
subject to the tonnage tax, the taxable profits pertaining
to qualifying activities shall be fixed at a lump sum calcu-
lated by reference to its net
tonnage as follows, per
100 net tons (NT) and per 24-hour period started, irre-
spective of whether the vessel is operational or not:

Up to and including
1 000 net tons

Between 1 001 and
10 000 net tons

(2) Document C(2002) 4371 fin.

EUR 1,00 per 100 NT

EUR 0,75 per 100 NT

Between 10 001 and
25 000 net tons

EUR 0,50 per 100 NT

More than 25 000 net tons

EUR 0,25 per 100 NT

The standard Irish corporation tax of 12,5 % is then
applied to the profits determined in that way” (3).

3. Amongst others, one “precondition for being eligible for
the tonnage tax scheme is that the share of qualifying
ships owned by the company itself, calculated on their
tonnage, is not less than 25 % of the tonnage of all its
It is indeed required for entering and
qualifying ships.
remaining within tonnage tax that a company should not
have “chartered in” (also time charter) more than 75 % of
the net tonnage of the qualifying ships operated by it. In
the case of a group, the limit is 75 % of the aggregate net
tonnage of all the qualifying ships operated by all group
members that are qualifying companies. “To charter in a
ship” means to rent it with a crew provided by the char-
terer, in contrast to the definition of the bareboat charter
whereby the lessee must man the ship” (4).

2.2. The notified amendments

2.2.1. Removal of time charter limit

4. The Irish authorities now intend to abolish the above time
charter limitation. Thus, according to their present notifi-
cation, a company or a group of companies could benefit
from the tonnage tax without owning a single ship.
According to the Irish authorities the abolition of that
limit is required for several reasons:

(a) to secure Irish-based shipping companies, fulfilling all
other current qualification criteria but unable to elect
to tonnage tax due to an excess of time chartering
activity;

(b) the amendment of

the above provision allows for
additional flexibility for Irish tonnage tax companies
engaged in tonnage tax activity to capitalise on market
conditions where otherwise they would be in breach
of tonnage tax conditions;

(c) to achieve parity with other Member State regimes on

time-chartering;

(d) to increase expansion of on-shore ship-management

activity;

(e) to avoid ceding business to non-tonnage tax and ulti-
mately non-EU ship operators or being expelled from
the Irish tonnage tax regime for breaching the limit.

2.2.2. Duration

5. The notified amendment of

the tonnage tax shall be
applicable only after Commission approval, but retroac-
tively commencing from the appearance of the amend-
ment in national legislation in January 2006.

(3) Commission Decision of 11 December 2002 C(2002) 4371 fin,

points (3) to (6).

(4) Commission Decision of 11 December 2002 C(2002) 4371 fin,

point (26).

C 117/34

EN

Official Journal of the European Union

14.5.2008

6. The amendment does not alter the duration of tonnage
tax: the current tonnage tax regime is limited in duration
to 10 years. “Qualifying companies” will, in general, have
36 months only in which to elect to enter the tonnage tax
regime on becoming qualifying companies i.e. a company
chargeable to Irish corporation tax, operating “qualifying
ships” and carrying on the strategic and commercial
management of the qualifying ships in Ireland.

2.2.3. Beneficiaries

7. The amendment will apply to all companies that are
currently in a position to benefit from the tonnage tax
regime and to the following: those qualifying companies,
or groups of companies

(a) chargeable to Irish corporation tax;

(b) whose profits are derived from qualifying ships
carrying on “qualifying activities” and which opt for
the tonnage tax regime; and

(c) who carry out the strategic and commercial manage-

ment of qualifying shipping from the State.

2.2.4. Budget

8. The Irish authorities project that the first year cost of this
measure, applied from 1 January 2006 will be in the
region of EUR 5,88 million in the immediate short-term
given the current market upturn. It is anticipated that the
cost in the medium term (+ 2 years) will fall as earnings
fall
approximately
EUR 1,38 million.

typical market

to more

levels,

2.3. Time charter

9. In cases where the inclusion of time chartered vessels
under the tonnage tax was notified, the Commission's
decisional practice has focussed on schemes complying
with a proportion of one owned vessel to maximum three
time chartered vessels (1:3).
In the case of Denmark,
taking account of the arguments provided, a proportion
of (1:4) was authorised (5).

(5) 1. Dutch tonnage tax (N 738/95, approved on 20 March 1996) no

indications on ratio;
2. German tonnage

tax

(Case N 396/ 98,

approved on

25 November 1998) ratio owned to time chartered shps 1:3;
3. UK tonnage tax (Case N 790/99, approved on 2 August 2000)

ratio owned to time chartered shps 1:3;

4. Spanish tonnage tax (Case N 736/01, approved on 27 February

2002) ratio owned to time chartered shps 1:3;

5. Danish tonnage tax (Case N 563/01, approved on 12 March

2002) ratio owned to time chartered shps 1:4;

6. Finnish tonnage tax (Case N 195/02, approved on 16 October

2002) ratio owned to time chartered shps 1:1;

7. Irish tonnage tax (Case N 504/02, approved on 11 December

2002) ratio owned to time chartered shps 1:3;

8. Belgian tonnage tax (Case N 433/02, approved on 19 March

2003) ratio owned to time chartered shps 1:3;

9. French tonnage tax (Case N 737/02, approved on 13 May 2003)

ratio owned to time chartered shps 1:3;

10. Basque (Sp)

tonnage tax (Case N 572/02, approved on

5 February 2003) ratio owned to time chartered shps 1:3;

11. Italian tonnage tax (N 114/04, approved on 20 October 2004)

no indications on ratio;

12. Lithuanian tonnage tax (Case N 330/05, approved on 19 July

3. ASSESSMENT

3.1. Presence of aid

10. As regards the presence of aid, the Commission considers
that the notification that is the subject matter of
the
present decision does not in any way alter the qualifica-
tion as State aid of
the Irish tonnage tax approved
in 2002.

11. Indeed, even after a potential abolition of the said time
charter limit, the Irish authorities would still be granting
subsidies through State resources and thereby favour
certain undertakings since the measure is specific to the
shipping sector. Such subsidies threaten to distort compe-
tition and could affect trade between Member States since
such shipping activities are essentially carried out on an
the
international
notified amendment of the 2002 Irish tonnage tax does
not alter
its aid qualification within the meaning of
Article 87(1) of the Treaty.

level playing field. For these reasons,

3.2. Legal basis for assessment

12. The legal basis for assessing the compatibility of the noti-
fied measures are the Community Guidelines on State aid
to maritime transport (6) (hereinafter the guidelines).

3.3. Compatibility of the measure

13. Even though the guidelines do not mention any limits for
the inclusion of time chartered ships under tonnage tax
schemes, in its decision making practice the Commission
has authorised schemes where companies with a ratio of
1:3 or 1:4 owned to time chartered ships were eligible to
tonnage tax. The exception of the 1:4 ratio as compared to
the
in Decision No 563/2001/EC
concerning the initial approval of the Danish tonnage tax
was justified on the basis of an in depth market analysis
and the following arguments reproduced below:

initial 1:3 ratio

14. It should first be mentioned that

the Commission is
promoting the respect of a level playing field between
Member States that apply a Tonnage Tax. A first observa-
tion in this respect shows that
the guidelines do not
provide for any restriction to the proportion of chartered
vessels, which may be allowed under a Tonnage Tax.
Second, it is to be noted that the Member States which
notified the Commission of a Tonnage Tax in the past
could thus freely choose the proportion of chartered ships
to notify. Third, Denmark has chosen a respective propor-
tion of 1:4 on the basis that its maritime industry has a
long lasting tradition to operate in a more intensive way
by means of chartered ships as compared to those
Member States which notified a lower proportion. Fourth,
the Commission can accept
that a lower proportion
than 1:4 in other Member States will thus not provide a
competitive disadvantage to their Tonnage Tax schemes as
compared to the Danish one, since they could have noti-
fied otherwise. And fifth, the Danish Tonnage Tax has a
feature (the non-remittance of deferred taxes) which may
potentially make this scheme less attractive as compared
to other Tonnage Tax schemes (7).

2006) ratio owned to time chartered shps 1:3;

13. Polish tonnage tax (Case N 93/06, approved on 10 July 2007)

ratio owned to time chartered shps 1:4.

(6) OJ C 13. 17.1.2004.
(7) Commission Decision No 563/2001/EC, point 3.3.2.

14.5.2008

EN

Official Journal of the European Union

C 117/35

In the light of the foregoing considerations, the Commission,
acting under the procedure laid down in Article 88(2) of the
EC Treaty, requests Ireland to submit
its comments and to
provide all such information as may help to assess the measure,
within one month of the date of receipt of this letter. It requests
your authorities to forward a copy of this letter to the potential
recipient of the aid immediately.

The Commission wishes to remind Ireland that Article 88(3) of
the EC Treaty has suspensory effect, and would draw your atten-
tion to Article 14 of Council Regulation (EC) No 659/1999,
which provides that all unlawful aid may be recovered from the
recipient.

The Commission warns Ireland that it will
inform interested
parties by publishing this letter and a meaningful summary of it
in the Official Journal of the European Union. It will also inform
interested parties in the EFTA countries which are signatories to
the EEA Agreement, by publication of a notice in the EEA
Supplement to the Official Journal of the European Union and will
inform the EFTA Surveillance Authority by sending a copy of
this letter. All such interested parties will be invited to submit
their comments within one month of the date of such publica-
tion.’.

15. The Commission notes that Ireland did not provide argu-
ments such as the ones provided here above under point
three and five and notes that the full abolition of such
time charter limits may trigger fiscal competition between
more or less attractive tonnage tax schemes across the EU.
In the light of the guidelines' acknowledgement that such
fiscal competition needs to be taken into account (8), the
amendments proposed by the Irish authorities under the
present notification to fully remove the time charter limit
may be contrary to the “common interest” expressed in
Article 87(3) c of the Treaty on which the approval of
tonnage taxes is based.

3.4. The Commission's doubts

16. For

the

above mentioned reasons

the Commission
expresses its doubts as regards the compatibility of a
unilateral abolition by Ireland of the maximum number of
time chartered ships allowable under
its tonnage tax
scheme.

17. On the same grounds the Commission also expresses its
the
doubts as
planned measure. This may occur in case aid related to the
amendment
from
January 2006.

is effectively granted as

regards any potential

retroactivity of

in object

(8) Guidelines point 3.1: Fiscal treatment of shipowning companies.