TTM03800 - Qualifying companies and ships: Strategic and commercial management
Source: gov.uk (2025-12-03)


Introduction

The definition of a qualifying company in FA00/SCH22/PARA16 (1)(c) provides that qualifying ships operated by a company must be strategically (see TTM03810 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03810)) and commercially (see TTM03820 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03820)) managed in the UK. This is not the same as the ‘central management and control’ test relevant to determining whether a company is resident in the UK, but see TTM03810 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03810). See also TTM03830 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03830) for additional factors that may be considered and TTM03840 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03840) for examples.

Origin of test

Tonnage tax, now referred to as a 'subsidy' regulated by the UK Competition and Markets Authority (CMA), was introduced as a 'state aid' approved by the EU Commission (by letter dated 2 August 2000) as conforming with with published guidelines on maritime state aid, the most recent version being Commission Communication C(2004)43. The following paragraph appears in the guidelines:
- The objective of State aid within the common maritime transport policy is to promote the competitiveness of the Community fleets in the global shipping market. Consequently tax relief schemes should, as a rule, require a link with a Community flag. However, they may also, exceptionally, be approved where they apply to the entire fleet operated by a shipowner established within a Member State’s territory liable to corporate tax, provided that it is demonstrated that the strategic and commercial management of all ships concerned is effectively carried on from within the territory and that this activity contributes substantially to economic activity and employment within the Community.
The test is therefore aimed at ensuring that there is, through the strategic and commercial management of ships in a territory, a substantial contribution to economic activity and employment, with evidence of economic links including details of vessels owned and operated, nationals employed on ships and in land-based activities and investments in fixed assets (ships and supporting assets). The guidelines mentioned above list the aims of maritime transport State aid as
- improving a safe, efficient, secure and environmentally friendly maritime transport [industry],
- encouraging the flagging or re-flagging to relevent registers,
- contributing to the consolidation of the maritime cluster while maintaining an overall competitive fleet on world markets,
- maintaining and improving maritime knowhow and protecting and promoting employment for seafarers, and
- contributing to the promotion of new services in the field of short sea shipping.
A company within tonnage tax should be able to demonstrate that it contributes towards meeting these aims, though this does not necessarily mean all of them (short sea shipping may not be relevant, for example).

Companies must be aware of their rights and obligations, as tonnage tax is subject to 'subsidy control' administered by the CMA under the UK's international obligations. As the strategic and commercial management test is not defined, HMRC adopt an interpretation which takes into account the different strands of management activity that might be considered relevant. In cases of doubt companies may use the non-statutory business clearance procedure (see TTM02030 (https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm02030)).

Two-legged test

All elements of management activity relevant to the ships in question should be taken into account in determining whether strategic and commercial management is carried out in the UK, and whether these management activities contribute substantially to economic activity and employment. Particular care should be taken if there is any element of artificiality in the company’s arrangements. It is unlikely the test could be satisfied without contributions from both legs.

Following the UK's departure from the EU/EEA, UK tonnage tax no longer, for example, conforms with the EU/EEA flagging rules. But this background is still relevant as the UK and EU/EEA have similar aims in this area.