HM Revenue and Customs Brief 107/09
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Issued 11 January 2010
Tonnage Tax - Flagging (Registration of ships in Member States)
This Revenue & Customs Brief is relevant to those companies that have elected
to have their corporation tax profits from the maritime transport activities of
qualifying ships calculated under the rules of Tonnage Tax.
During financial year 2010 companies in Tonnage Tax starting to operate a
ship for the first time will have to carry out an additional test to see if the
ship qualifies for Tonnage Tax. Companies may find that some ships not
registered in an EU or EEA Member State, do not qualify for Tonnage Tax.
Background: Registration of Ships
Since 2005 where a ship is registered can affect whether or not it is a
qualifying vessel for Tonnage Tax purposes.
There are special rules for tugs and dredgers. Only tugs and dredgers
registered in a Member State can qualify for Tonnage Tax.
For other ships, where the overall proportion of vessels in Tonnage Tax that
are registered in EU/EEA Member States is not decreasing then the legislation
allows the Treasury to designate a year as an 'excepted year. In an excepted
year the legislation is not applied on a company by company basis.
If a year is not an excepted year for the purposes of the flagging rules,
companies and groups have to apply a test when they start to operate a vessel
for the first time. If the conditions are met, then the additional vessel is not
a qualifying ship for Tonnage Tax purposes and the profits from that ship are
taxed under the normal rules of corporation tax.
The financial years 2005, 2006 and 2007 have been designated as excepted
As the proportion of ships registered on the register of an EU/EEA member
state decreased, the flagging rules applied at a company or group level in 2008
Flagging rules for Financial Year 2010
The growth in the number of ships in Tonnage Tax has continued, but because
of where companies have chosen to register their ships, the tonnage registered
in EU/EEA Member States has again declined on average over a three year period.
As the overall proportion of TT shipping registered in Member States has
declined financial year 2010 will also not be an excepted year and, when
companies/groups start to operate a ship, where it is registered may affect
whether or not it is a qualifying ship for Tonnage Tax purposes.
Member States' registers
For the purposes of the flagging rules, the term 'Member State's register'
has the same meaning as in the annex to the Commission's Guidelines on State aid
for maritime transport.
These guidelines also apply to the three EEA EFTA states, Norway, Iceland and
'Member States' registers' should be understood as meaning registers governed
by the law of a Member State applying to their territories forming part of the
All the first registers of Member States or the first registers of the three
EEA EFTA states are Member States' registers.
In addition, the following registers are Member States' registers for the
purposes of the flagging rules:
- 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 2010.
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Article Published/Sorted/Amended on Scopulus 2010-01-12 20:37:54 in Tax Articles