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EC Urges Spain To Recover Shipping Tax Benefits

Friday, 19 July 2013   (0 Comments)
Posted by: Author: Ulrika Lomas
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Author: Ulrika Lomas

The European Commission has said that a Spanish tax relief scheme for the purchase of ships is partly incompatible with European Union (EU) rules on state aid.

The initiative, launched in 2002, enables a maritime transport company to purchase a ship via what the Commission claims is a complex contractual and financial structure, which allows investors to reduce their basic taxable amount. The Commission says that it was not notified about the scheme prior to its implementation, and could not therefore provide the authorization required. In-depth investigations began after complaints from a number of shipbuilding operators in other EU member states.

EU member states are permitted to help maritime transport companies to remain competitive at an international level. This can be done, for instance, through the employment of taxes based on fleet tonnage. In the case of Spain, the Commission gave the go-ahead to a tonnage tax scheme in 2002, which replaces the normal rules for calculating corporation tax for eligible businesses and activities.

The Commission is not calling the tonnage tax system into question. It does however allege that economic interest groupings (EIGs) and their investors have been able to benefit from aid that has distorted competition in the EU single market.

In practice, EIGs, acting on behalf of the maritime transport company purchasing a ship, are able to acquire the vessel on a financial leasing basis. Once work on the ship's construction begins, the EIG will pay off the cost within three to five years. The EIG is able to benefit from tax relief exclusively on the basis of tonnage, whereby it can hand over the ship to the transport company without paying capital gains tax. In turn, the transport company can acquire the ship with a reduction ranging from 20-30 percent on the purchase price charged by the shipyard.

The Commission takes the view that this cut price does not constitute state aid to the transport company, because it is the EIG that obtains it.

Under EU law, the beneficiaries must now repay any aid received after 2007, when the Commission ruled against a similar French deal.

Commission Vice-President Joaquín Almunia, responsible for competition, commented: "Economic interest groupings and their investors have benefited unlawfully from tax advantages which they must now repay to the Spanish state."

"As regards the future, there is a non-selective tax scheme which was approved by the Commission in November 2012 and which can be used, among other things, to finance the shipbuilding industry. This scheme is fully compatible with the European rules and therefore provides investors with all the legal certainty they require. I hope that all parties will be able to use it as soon as possible."



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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