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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 basis.

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 years.

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 Liechtenstein.

‘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 European Community.

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 2008.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are 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

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