France complies with EC flag rules

Perpignan: The European Commission has closed an in-depth 14-month investigation into French tonnage tax rules. France will now enforce minimum flagging requirements for tonnage regime taxpayers.

In May 2003, the commission originally approved the French tonnage tax scheme. This scheme allows shipping companies to be taxed on the basis of the tonnage of the fleet rather than the actual profits of the company. The scheme limited the eligibility of time chartered ships not flagged in the EU. Such ships could not constitute more than 75% of the fleet of a tonnage tax payer. This scheme was in line with the then applicable 1997 EU guidelines on state aid to maritime transport, which aimed to enhance the competitiveness of shipping companies facing competition from non-EU businesses and boost jobs in the sector.

After the adoption of the commission’s updated guidelines on state aid to maritime transport in 2004, France removed the specific flagging rules for time-chartered vessels without informing the commission.

In November 2013, the commission opened an in-depth investigation and found that that so far no tonnage tax beneficiary in France has had more than 75% of its fleet composed of time chartered vessels flagged outside the EU or the EEA. The removal of the specific flagging rules therefore did not yet have any effect in practice. At the same time, the commission also found that there was no guarantee that this would remain the case in future as no minimum EEA flagging requirements were foreseen for new entrants. As a result, a newcomer company whose fleet was 100% composed of non-EEA time-chartered vessels would be able to benefit from the tonnage taxation. The commission considered that this was not in line with the 2004 maritime guidelines. Even if the guidelines do not impose specific limitations on time charterers the commission has always required in its case practice that time charterers wishing to benefit from tonnage tax contribute to the guidelines’ objectives of preserving a minimum maritime know-how within the EU/EEA or to the objective of promoting EU/EEA flagging of vessels.

To address the commission’s concerns, the French authorities have therefore committed to require from all the French tonnage taxpayers that at least 25% of their tonnage is EEA flagged.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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