Finance and InsuranceRegulatory

G7 deal at odds with shipping’s tonnage tax schemes

Shipping’s existing taxation systems could face upheaval in the wake of the deal struck over the weekend by finance ministers of the G7 nations to push ahead with a global minimum corporate rate of 15%.

The deal announced on Saturday between the G7 group of wealthy nations – US, the UK, France, Germany, Canada, Italy and Japan, plus the EU – was hailed by the British finance minister Rishi Sunak as “a fairer tax system fit for the 21st century”.

The G7 deal demands that multinational companies must pay a minimum tax rate of at least 15% in each country they operate.

The agreement will be considered at a meeting next month of the G20, including China and India.

For shipping, whose taxation has largely been based on tonnage taxes, any flat, 15% corporate rate could come as a shock were it to be enforced. The International Transport Forum (ITF) at the Organisation for Economic Co-operation and Development (OECD) estimates shipping currently pays just 7% tax on profits on average worldwide.

“The agreement at the G7 certainly adds to the momentum to reach a global agreement in July,” commented Olaf Merk, the ITF’s shipping expert.

The inclusion or exclusion of shipping at next month’s G20 global tax discussion is still to be decided.

“It looks like the beginning of the end of jurisdiction shopping but the devil will always be in the detail and we are still some way away from understanding the real impact of a deal like this on shipping and other industries,” commented Dubai-based maritime lawyer David Galea.

The OECD issued a 246-page report last October in which it aims to help governments claw back $100bn in corporate tax revenues from a variety of multinational industries led by Big Tech. Contained in the report was a focus on international shipping.

“The widespread availability of … alternative tax regimes means that international shipping often operates outside the scope of corporate income tax,” the report noted.

The worldwide average statutory corporate income tax rate for all industries is 24%. According to ITF’s own calculations, the effective income tax rate of the 41 shipping firms listed on the New York Stock Exchange over 2010-19 was just 2%. According to KPMG, meanwhile, the nominal corporate tax rate for qualifying shipping groups in the UK tonnage tax scheme is around 1-2%.

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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