HM Revenue and Customs Brief 08/12
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Issued 21 March 2011
Tonnage Tax - qualifying ships
Shipping companies that have elected to compute their
Corporation Tax profits from maritime transport activities under
Tonnage Tax rules.
If a company in Tonnage Tax starts to operate a ship that is
not registered in a European Union (EU) or European Economic Area (EEA)
Member State, during financial year 2012 (the year starting 1 April
2012), 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 & Customs tests the tonnage of
Tonnage Tax ships on EU/EEA Member statesí registers, as a proportion
of Tonnage Tax ships registered worldwide.
So long as this proportion has not fallen from the previous
yearís 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.
If the conditions set out in the flagging test are 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
Financial year 2012
The number and tonnage of ships in Tonnage Tax have changed
very little in the last 12 months. But companies have increased the
number of ships in Tonnage Tax that are on the registers of countries
that are not EU/EEA Member States. The proportion of EU/EEA tonnage has
therefore declined on average over a three year period.
Consequently, the Treasury is unable to designate the
financial year 2012 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
Member Statesí 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 European Union, and
also those of the three EEA EFTA States: Norway, Iceland and
In addition, the following registers are Member States'
registers for the purposes 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
About the Author
© Crown Copyright 2012.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2012-03-22 15:08:18 in Tax Articles