Ship Pool Concept Accepted Under Danish Tonnage Tax Scheme
On 20 September 2011 the Danish Ministry of Taxation and the National Danish Tax Assessment Council ruled that ships can be said to have been effectively managed by a Danish company even in presence of the following facts:
(i) the relevant ships are chartered in on a bareboat basis
(ii) crewing is carried out in the Philippines
(iii) technical management is contracted out to a foreign service provider
(iv) ships are part of a ship pool managed by an associated, non-Danish ship management company.
The Danish tax authorities accepted that the ships would qualify for the Danish Tonnage Tax scheme as the Danish company contemplated to establish an overall control and extensive monitoring of the functions not handled by the Danish company itself. Taxand Denmark discusses the implications of the recent ruling on the provisions of Tonnage scheme to the shipping industry in Denmark.
Denmark has implemented a tonnage tax scheme in accordance with the EU Commission's guidelines on state aid to maritime transport. Under the tax scheme Danish shipping activities are subject to a beneficial tax regime.
The taxable tonnage income is calculated per available 100 Net Ton (NT) per 24 hours regardless of operating status as follows:
Tonnage Tax base 2011
Net ton per day calculated income in DKK (app) per 100 NT operated:
< 1,000 NT
1,001 NT - 10,000 NT
10,001 NT > 25,000 NT
25,001 NT >
The tax base is taxed at the ordinary Danish company tax rate of 25% flat.
The tonnage tax scheme only applies to ships where the strategic and commercial management is carried out from within Denmark. In practice, the place of strategic and commercial management in Denmark is determined on a case-by-case basis.
The place of strategic management will be ascertained on the basis of:
(i) the location of the shipping company's headquarters
(ii) the location of the top management
(iii) the location where strategic decisions are made (conclusion of large contracts, sale and purchase of ships, strategic alliances, etc).
The place of commercial management will be ascertained, on the basis of:
(i) organisation of sailing schedule
(ii) conclusion of freight contracts
(iii) provisioning of ships
(v) technical management and maintenance
(vi) location of support facilities.
The Danish Ministry of Taxation and the National Danish Tax Assessment Council have now concluded that it is sufficient for a shipping company to establish an overall control and monitoring of the technical management and crewing, by employing three technicians (marine superintendents) and one crew manager to supervise and participate in the operations conducted by the external service providers.
In the case reviewed by the National Danish Tax Assessment Council, the Danish shipping company itself managed:
(i) the maintenance of the ships including docking and insurances
(ii) accounting and monthly reporting
(iii) human resources (not handled by the crew external crew management company) and office administration
(iv) ship sale and purchases
(v) conclusion and extension of charter parties
The binding ruling from the National Danish Tax Assessment Council was issued to a shipping company operating gas carriers and approximately 8-10 employees located in Denmark to handle the activities managed by the shipping company.
It has been known and accepted for years that crewing is effectively done outside Denmark and often outside the EU/EEA as well. The recent ruling demonstrates and records the willingness from the Danish tax authorities to accept that both crewing and technical management (in the form of external ship pool management) is regularly provided by external, foreign, specialised management companies.
The ruling emphasises the fact that the Danish shipping company, through its overall control and extensive monitoring by dedicated employees, will remain actively involved in and responsible for the outsourced activities.
This is a welcome ruling as it allows the shipping companies domiciled in Denmark certain amount of operational flexibility of engaging internationally reputed management providers / partners, without being disqualified for the benefit of Tonnage Tax scheme.
Your Taxand contacts for further queries are:
Anders Oreby Hansen
T. +45 72 27 36 02
Poul Erik Lytken
T. +45 72 27 35 31
We are interested to hear your opinion on this key piece of tax news. Join our LinkedIn Group and share your ideas. With tax professionals in nearly 50 countries you can understand the impact of tax issues affecting multinationals today.