HM Revenue and Customs Brief 64/08
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Issued 29 December 2008
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 2009 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
When the Tonnage Tax regime was introduced in FA 2000, where a vessel was
registered, or “flagged”, did not affect whether or not it was a qualifying
vessel for Tonnage Tax purposes.
The Tonnage Tax regime was amended by Finance Act 2005, which introduced
legislation on where vessels are registered (now sections 22A to 22F Finance Act
2000). This legislation means that 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 on the registers of 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
In other years, 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 2009
The growth in the number of ships in Tonnage Tax has continued, but the
tonnage of ships registered in Member States has again grown at a much lower
rate than that of those registered elsewhere.
As a result the overall proportion of TT shipping registered in Member States
has declined. This means that financial year 2009 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
- the Kerguelen register
- the Dutch Antilles' register
- the Isle of Man register
- the Bermuda register
- The Cayman Islands register.
About the Author
© Crown Copyright 2008.
A licence is need to reproduce this article and has been republished for
educational / informational purposes only. Article reproduced by permission of
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updated regularly and may be out of date at time of reading.
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Article Published/Sorted/Amended on Scopulus 2009-01-02 23:03:18 in Tax Articles