Don’t fix what isn’t broken

Greek shipowners have come out fighting in opposition of a European Commission finding that some provisions of its national shipping taxation system are in breach of EU state aid rules.

Towards the end of December, the EC “invited” Greece to better target its tonnage tax to ensure that state support to the maritime sector in the country complied with Europe’s state aid rules. The Commission claimed that Greece had been allowing shareholders of shipping companies to benefit from favourable tax treatment that should, in its eyes, only be reserved for maritime transport providers.

This favourable tax treatment is also being extended to maritime sector intermediaries and operators of ships, which also falls outside of the rules.

Criticising the Greek tonnage tax system as “not well targeted”, the EC sent a set of proposals to the world’s largest shipowning nation by fleet value, urging a full review of eligible vessels. It added that preferential tax breaks must also be removed for insurance intermediaries, maritime brokers and other maritime intermediaries as well as shareholders of shipping companies, as none of these conduct “genuine maritime transport activities”.

Fighting talk

Representing the nation’s shipowners, the Union of Greek Shipowners (UGS) has gone on record to state that there is “no effective distortion of competition in the maritime field in the EU and that any fundamental changes to the institutional and fiscal framework in which the Greek shipping community is presently operating would have unforeseeable consequences which would be detrimental not only for Greece but also for the rest of the EU”. The Union believes that any changes would “seriously undermine” one of its most important strategic sectors which has managed to maintain its international prominence in the face of fierce competition.

This spat has been brewing for four years as the issue was first raised in a service letter from the EC in 2012, which was formally disputed by the Greek authorities. As part of the informal EC investigation, Greek authorities and the UGS put forward their agreements in 2012, based on the following:

• The Greek institutional shipping regime predates the State Aid Guidelines by many years. In particular, the Greek institutional framework for shipping taxation and especially the Greek model of tonnage tax for ships was introduced in 1953 and re-established in 1975 and became more or less the precedent for the development of the State Aid Guidelines and of regimes in the EU and internationally. Hence, Greece is not exceptional in this respect.
• The Greek maritime framework constitutes pre-accession law, which was recognised during the accession of Greece to the EEC in 1981 and has not been questioned until now and is an important part of the policy to attract inward investment in the maritime sector.
• DG COMP’s present investigation and decision are not the result of a formal complaint.
• A large part of the Greek shipping taxation regime is underpinned by constitutional guarantees which were put in place following the overturning in 1974 of the seven-year military dictatorship in Greece.

Says the UGS: “It is significant that the 1997 Maritime State Aid Guidelines were not introduced in the form of an EU Directive or Regulation with a view to imposing uniformity of application across the Member States. The State Aid Guidelines deliberately provide a flexible ‘soft law’ which can take account of the different characteristics, size and importance of shipping in the Member States and the ability and willingness of Member State governments to adopt its provisions.”

The Union believes that as such, they only provide a framework and not a level playing field as the amount of tonnage tax paid for vessels of the same size differs from Member State to Member State. Additionally, the EC’s assertion that it will view any decision on the Greek shipping taxation systems as a precedent for the assessment of other EU shipping regimes threatens to seriously disrupt the shipping sector, says the UGS.

Celebrating uniqueness

The Union has urged the EC to take a closer look at the unique characteristics of the Greek shipping industry, which it points out is a “textbook example of free and fair competition” and one of the last remaining truly entrepreneurial sectors comprising primarily small- and medium-sized, unquoted private companies, mostly family businesses.

“The European Commission must focus on the strategic, commercial and international dimension of the EU shipping industry in its diversity and its potential mobility, rather than concentrate on the nominal or juridical aspects of compliance with the letter of the State Aid Guidelines within the EU,” says UGS. Otherwise, the Commission risks undermining the confidence of shipping entrepreneurs and may encourage relocation of companies outside Europe.

The Union also points to the philanthropic work of the Greek shipping sector as evidence of its commitment to the Greek economy and population. According to Boston Consulting Group and the Foundation for Economic and Industrial Research reports, Greek shipping contributes over 7% of GDP, provides employment to 200,000 people and covers over 30% of the trade deficit.

“The Greek shipping industry was never part of the debt problems of the Greek state,” says UGS. “On the contrary, as mentioned above, the contribution of shipping to the Greek economy and the Balance of Payments over the last 35 years has been consistently substantial and irreplaceable especially since the repatriation of Greek shipping companies which commenced in the 1980s.”

It is also, claims the Union, a “grave misconception” that Greek shipping companies and shipowners pay very low or non-existent taxes. These taxes, it continues, have increased in recent years and are now “probably among the highest” worldwide.

In a closing salvo, UGS raises concerns that the negative climate created by the decision could undermine one of the Greek economy’s “primary pillars” at a time of comparative weaknesses. This could lead to the loss of a substantial part of the EU fleet and maritime cluster. “Such developments are not in line with the Commission’s declared policy agenda for growth, employment, improved competitiveness and better regulation.”

There is, however, one silver lining noted by UGS: State Aid Guidelines have, it says, successfully stemmed the exodus of shipowners from EU registers.