Greece: two months and counting

In a move that is unlikely to be viewed kindly, the European Commission has “invited” Greece to better target its tonnage tax to ensure that state support to the maritime sector in the country complies with EU state aid rules. The decision could put intermediaries, including brokers, out of pocket as preferential tax breaks are removed.

This week, the Commission sent a set of proposals to the world’s largest shipowning nation by fleet value after determining that Greece’s current provisions “may breach EU state aid rules”.

The Commission claims that Greece has been allowing shareholders of shipping companies to benefit from favourable tax treatment that should, in its eyes, only be reserved for maritime transport providers. This favourable tax treatment is also being extended to maritime sector intermediaries and operators of ships, which also falls outside of the rules.

“The Commission acknowledges the importance of maintaining a competitive maritime transport sector in the EU. EU state aid rules establish common rules on how Member States can support maritime transport providers, without unduly distorting competition in the Single Market,” says the Commission. “In particular, the Maritime Guidelines enable Member States to tax shipping companies on the basis of the tonnage of the fleet (i.e. based on size of shipping fleet) rather than the actual profits of the company.

“These measures were introduced to encourage EU shipowners to flag their ships and carry out shipmanagement activities in the EU, rather than relocate those activities outside the EU. However, in order to avoid subsidy races between Member States and limit the distortions of competition created by the state support, these provisions need to be applied consistently throughout the EU and comply with the conditions set out in the Maritime Guidelines.”

Bad target

In a pointed attack, the Commission said that the Greek tonnage tax system is “not well targeted” as it benefits parties that are outside of the Maritime Guidelines.

It has urged a full review of eligible vessels, as fishing vessels, tugs and yachts rented out to tourists with a crew are not eligible. The preferential tax breaks must also be removed for insurance intermediaries, maritime brokers and other maritime intermediaries as well as the shareholders of shipping companies, says the Commission, as none of these conduct “genuine maritime transport activities”.

Bonafide Greek shipowners can sleep easy as the Commission’s requests do not concern them and they can continue to benefit from a favourable tonnage-based taxation scheme.

Greece has two weeks to decide whether to accept the Commission’s proposed measures after which it must amend its national rules by January 1, 2019 at the latest.

Greece’s tonnage tax scheme has been in place since 1975, before the country’s accession to the European Union. This means that its tonnage tax rules are considered “existing aid” and subject to a specific cooperation procedure. The Greek authorities have been expecting such an ultimatum as the issue was first raised in a service letter in 2012.

Greece won’t be left to its own devices though as the Commission will “jointly explore” how to adjust the Greek tonnage tax scheme to end distortions of competition. Failing an agreement, the Commission has threatened formal state aid investigation.

Greece may not be the last to suffer the Commission’s wrath as the EC is currently investigating other similar measures across the EU in its attempt to maintain a level playing field in the internal market. “If existence of similar measures is confirmed in other Member States, the Commission will seek to take necessary action to ensure that their legislation is also amended,” said the Commission.

This ruling concerns Greek Law 27/1975 on the taxation of ships, the application of a duty for the development of merchant shipping, the establishment of foreign shipping companies and related matters.