ContainersRegulatory

Liners defend existing tax systems as pressure builds

John Butler, the president and CEO of Washington DC-based liner lobbying group, the World Shipping Council, has come out with a robust defence of tonnage tax schemes, while others are suggesting carriers are getting away with the same light taxation touch afforded to tech giants.

Splash reported yesterday on the small tax contributions liners were making while reporting record Q2 earnings. Hapag-Lloyd, for instance, will pay EUR20.8m in taxes for the billions it earned in Q2, meaning an effective tax rate of 0.5%, while Maersk’s tax rate stands at 1.8%.

“The disparity between profits and taxes in the current climate is simply too large to justify politically,” consultancy Sea-Intelligence stated in its latest weekly report.

Politicians have come out and attacked liner profits a great deal of late – with US president Joe Biden even going as far as saying he’d like to take a “pop” at the global carriers earlier this summer.

Liner shipping is on course to smash last year’s record profits by as much as 73%, according to new forecasts from John McCown-led Blue Alpha Capital, citing the soaring contract rates secured by carriers in 2022 and the ongoing port congestion issues.

Taxation of shipping line profits presents the same challenge to governments as do the tech giants


Net income this year will likely reach $256bn based on the 11 carriers monitored by Blue Alpha Capital, a figure Bloomberg has pointed out is roughly equivalent to the gross domestic product of Portugal.

Speaking with Splash, WSC head Butler said existing tonnage tax regimes safeguard the long term stability of a capital-intensive industry that is considered critical to national safety and security.

“Tonnage tax regimes vary between countries, but what they have in common is that the main taxation focus is on the amount of tonnage that carriers operate rather than profit levels,” Butler said, going on to explain: “In practice that means that in profitable years, carrier tax levels in percentage terms will be comparatively low, whilst in years of low margins or loss they will be comparatively high as taxes are paid largely irrespective of profit levels.”

It is also worth bearing in mind that an analysis performed by McKinsey before the pandemic showed that the liner industry as a whole lost some $100bn over a 20-year period leading some analysts to suggest that an objective way of suggesting whether tax is either too high or too low would be to take the 10- or 20- year horizon as an empirical data starting point.

One man questioning existing carrier tax commitments is James Hookham, the director of the Global Shippers Forum, who compared the industry’s tax system to the limited payments by tech giants such as Amazon and Facebook.

OECD countries recently agreed a target minimum rate of 15%. By comparison the amounts of tax shipping lines are paying is in the territory of “rounding errors”, Hookham said.

“Taxation of shipping line profits presents the same challenge to governments as do the tech giants. How do you tax profits earned in cyberspace or in international waters, both beyond the jurisdiction of any one national government?” Hookham mused.

Unlike the tech giants, Hookham pointed out that shipping lines enjoy significant on-going state support and subsidies, whether through tonnage taxes, the subsidised costs of new ships, or the availability of state handouts when the going gets tough. Hookham also mentioned what he described as the “peculiar exemptions and immunities” from competition laws.

“Given the aspirations of many shipping lines to grow even bigger and diversify their operations, the very least national governments can do is to urgently reappraise the support and tax breaks they provide, and ask are taxpayers getting value of money,” Hookham told Splash.

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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