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European Commission Approves Extension of Danish Tonnage Tax Regime to Additional Vessel Types — Orbitax Tax News & Alerts

The European Commission has issued a release announcing its approval of Denmark's extension of its tonnage tax regime to additional vessel types, which was approved by the Danish parliament the end of 2015 with intended effect from 1 January 2016, pending State aid approval.


State aid: Commission approves extension of Danish tonnage tax scheme to new types of vessels

Brussels, 12 October 2018

The European Commission has approved under EU State aid rules the extension of the existing Danish tonnage tax scheme to additional types of vessels. This will encourage ship registration in Europe and contribute to the global competitiveness of the sector without unduly distorting competition.

At the same time, Denmark will amend its existing scheme to ensure that it applies only to genuine maritime shipping activities by limiting revenues from non-core activities to an acceptable level.

Commissioner Margrethe Vestager in charge of competition policy, said: "Denmark's revised tonnage tax scheme will help the shipping industry remain competitive on the global market. It will preserve jobs and promote high environmental standards in the maritime transport sector. The scheme complies with the Commission's State aid guidelines and contains new safeguards to ensure equal treatment of European shipping companies and avoid distortions of competition."

Under tonnage tax schemes, maritime transport companies pay taxes on the basis of the ship tonnage (i.e. the size of the shipping fleet) rather than on the basis of their actual taxable profits. Such schemes can be approved by the Commission under EU State aid rules.

In May 2016, Denmark notified to the Commission its plans to extend its existing tonnage tax scheme to cover guard vessels, vessels servicing off-shore installations and vessels for raising, repairing and dismantling windmills as well as pipeline- and cable-laying vessels, ice management vessels and accommodation vessels.

The Commission decided today that those types of vessels are involved in maritime activities that are subject to the same legal requirements and competitive conditions as maritime transport. The Commission therefore approved the extension of the scheme to these vessels under EU State aid rules (the Commission's 2004 Guidelines on State aid to maritime transport).

The decision also confirms that Denmark will amend certain aspects of its existing tonnage tax scheme to align it with the Commission's current interpretation of the Guidelines on State aid to maritime transport. In this respect, in the past years, the Commission has been requesting Member States to revise their tonnage tax schemes to ensure equal treatment amongst European shipping companies and to keep pace with the evolution of the shipping sector whilst avoiding undue distortions of competition globally. In particular, Denmark will amend its tonnage tax rules as regards:

  • ancillary services that are closely connected to shipping activities. These services will be subject to tonnage taxation only if they account for less than 50% of a ship's total tonnage-taxed income, and
  • revenues from bare boat charter out activities (the leasing of ships without crew). The services will be subject to tonnage taxation provided that the beneficiary self-operates at least 50% of the tonnage tax fleet and that the vessel is not leased out for a period longer than three years.

The Commission assessed the amended Danish tonnage tax scheme under its Guidelines on State aid to maritime transport and concluded that it is in line with EU State aid rules.