1.

By electronic letters of 3 October 2007 and 19 November 2007, the Irish authorities notified an amendment to the existing tonnage tax scheme N 504/02, initially approved by the Commission on 11 December 2002 (2).

2.

The Irish tonnage tax of 2002 is a “tax scheme applicable to shipping companies engaged in seagoing transport. Qualifying companies may choose to have their shipping activities taxed on basis of the net tonnage of their fleet instead of on the basis of their actual profits. Qualifying companies must opt for the regime within three years from the date of the entry into force of the legislation. Companies having opted for the tonnage tax must remain subject to this regime for a period of 10 years (tonnage tax period).

If several qualifying Irish companies are members of the same group of companies, all of them must opt for the tonnage tax system. Business activities other than those subject to the tonnage tax would be taxed on the basis of the normal provisions of corporate taxation.

Under the […] tonnage tax scheme the amount of tax for qualifying maritime companies is established on the basis of the net tonnage of their qualifying fleet. For each vessel subject to the tonnage tax, the taxable profits pertaining to qualifying activities shall be fixed at a lump sum calculated by reference to its net tonnage as follows, per 100 net tons (NT) and per 24-hour period started, irrespective of whether the vessel is operational or not:

The standard Irish corporation tax of 12,5 % is then applied to the profits determined in that way” (3).

3.

Amongst others, one “precondition for being eligible for the tonnage tax scheme is that the share of qualifying ships owned by the company itself, calculated on their tonnage, is not less than 25 % of the tonnage of all its qualifying ships. It is indeed required for entering and remaining within tonnage tax that a company should not have “chartered in” (also time charter) more than 75 % of the net tonnage of the qualifying ships operated by it. In the case of a group, the limit is 75 % of the aggregate net tonnage of all the qualifying ships operated by all group members that are qualifying companies. “To charter in a ship” means to rent it with a crew provided by the charterer, in contrast to the definition of the bareboat charter whereby the lessee must man the ship” (4).

4.

The Irish authorities now intend to abolish the above time charter limitation. Thus, according to their present notification, a company or a group of companies could benefit from the tonnage tax without owning a single ship. According to the Irish authorities the abolition of that limit is required for several reasons:

5.

The notified amendment of the tonnage tax shall be applicable only after Commission approval, but retroactively commencing from the appearance of the amendment in national legislation in January 2006.

6.

The amendment does not alter the duration of tonnage tax: the current tonnage tax regime is limited in duration to 10 years. “Qualifying companies” will, in general, have 36 months only in which to elect to enter the tonnage tax regime on becoming qualifying companies i.e. a company chargeable to Irish corporation tax, operating “qualifying ships” and carrying on the strategic and commercial management of the qualifying ships in Ireland.

7.

The amendment will apply to all companies that are currently in a position to benefit from the tonnage tax regime and to the following: those qualifying companies, or groups of companies

8.

The Irish authorities project that the first year cost of this measure, applied from 1 January 2006 will be in the region of EUR 5,88 million in the immediate short-term given the current market upturn. It is anticipated that the cost in the medium term (+ 2 years) will fall as earnings fall to more typical market levels, approximately EUR 1,38 million.

9.

In cases where the inclusion of time chartered vessels under the tonnage tax was notified, the Commission's decisional practice has focussed on schemes complying with a proportion of one owned vessel to maximum three time chartered vessels (1:3). In the case of Denmark, taking account of the arguments provided, a proportion of (1:4) was authorised (5).

10.

As regards the presence of aid, the Commission considers that the notification that is the subject matter of the present decision does not in any way alter the qualification as State aid of the Irish tonnage tax approved in 2002.

11.

Indeed, even after a potential abolition of the said time charter limit, the Irish authorities would still be granting subsidies through State resources and thereby favour certain undertakings since the measure is specific to the shipping sector. Such subsidies threaten to distort competition and could affect trade between Member States since such shipping activities are essentially carried out on an international level playing field. For these reasons, the notified amendment of the 2002 Irish tonnage tax does not alter its aid qualification within the meaning of Article 87(1) of the Treaty.

12.

The legal basis for assessing the compatibility of the notified measures are the Community Guidelines on State aid to maritime transport (6) (hereinafter the guidelines).

13.

Even though the guidelines do not mention any limits for the inclusion of time chartered ships under tonnage tax schemes, in its decision making practice the Commission has authorised schemes where companies with a ratio of 1:3 or 1:4 owned to time chartered ships were eligible to tonnage tax. The exception of the 1:4 ratio as compared to the initial 1:3 ratio in Decision No 563/2001/EC concerning the initial approval of the Danish tonnage tax was justified on the basis of an in depth market analysis and the following arguments reproduced below:

14.

It should first be mentioned that the Commission is promoting the respect of a level playing field between Member States that apply a Tonnage Tax. A first observation in this respect shows that the guidelines do not provide for any restriction to the proportion of chartered vessels, which may be allowed under a Tonnage Tax. Second, it is to be noted that the Member States which notified the Commission of a Tonnage Tax in the past could thus freely choose the proportion of chartered ships to notify. Third, Denmark has chosen a respective proportion of 1:4 on the basis that its maritime industry has a long lasting tradition to operate in a more intensive way by means of chartered ships as compared to those Member States which notified a lower proportion. Fourth, the Commission can accept that a lower proportion than 1:4 in other Member States will thus not provide a competitive disadvantage to their Tonnage Tax schemes as compared to the Danish one, since they could have notified otherwise. And fifth, the Danish Tonnage Tax has a feature (the non-remittance of deferred taxes) which may potentially make this scheme less attractive as compared to other Tonnage Tax schemes (7).

15.

The Commission notes that Ireland did not provide arguments such as the ones provided here above under point three and five and notes that the full abolition of such time charter limits may trigger fiscal competition between more or less attractive tonnage tax schemes across the EU. In the light of the guidelines' acknowledgement that such fiscal competition needs to be taken into account (8), the amendments proposed by the Irish authorities under the present notification to fully remove the time charter limit may be contrary to the “common interest” expressed in Article 87(3) c of the Treaty on which the approval of tonnage taxes is based.

16.

For the above mentioned reasons the Commission expresses its doubts as regards the compatibility of a unilateral abolition by Ireland of the maximum number of time chartered ships allowable under its tonnage tax scheme.

17.

On the same grounds the Commission also expresses its doubts as regards any potential retroactivity of the planned measure. This may occur in case aid related to the amendment in object is effectively granted as from January 2006.