After eight years of wrangling, the European Union and the Greek government are burying the hatchet in a dispute that threatened the country’s future as a maritime hub.
In 2011, the EU began a probe of Greece’s tonnage tax system, on the suspicion it was violating the bloc’s competition rules.
Four years later, Brussels upped the ante, threatening to haul the Greek government before the European Court of Justice if it failed to restructure the tonnage tax.
The move raised a storm of protest among Greek owners, with several threatening to decamp to non-EU destinations.
However, EU regulators in Brussels quietly dropped the probe earlier this year, TradeWinds is told.
“An agreement has been reached between the Greek government and the European Commission,” says Panos Laskaridis, a member of the Union of Greek Shipowners (UGS) and president of the European Community Shipowners’ Associations.
Key compromise
That agreement has not yet been formalised, but the row behind it is not expected to flare up again.
“We believe all differences have been settled and will not be raised again,” Laskaridis said in an interview prior to last month’s European elections.
Asked to comment on the state of the probe, an EC spokesman did not confirm that it had been dropped but stated that Brussels and Athens were “in constructive contact ... on state aid issues relating to the Greek tonnage tax system, with the objective of finding a permanent long-term solution”.
The key to the rapprochement was a compromise over the biggest issue: the exemption of Greek owners from a dividend tax — a hallmark of the country’s tonnage tax regime since it was introduced in 1975.
UGS president Theodore Veniamis gave ground on that, accepting in February the imposition of a 10% charge on all profits repatriated from offshore shipowning companies in countries such as Liberia, Panama and the Marshall Islands.
The charge applies to Greek tax residents who are “ultimate shareholders, partners or beneficial owners” of these companies and manage their ships out of Greece, regardless of the flag they fly.
It was a tactical retreat, in which owners gain more than they lose.
First of all, a 10% tax charge is not entirely new. It formalises a temporary austerity tax that has applied to repatriated shipping capital since 2013 as part of Greece’s international bailout.
In exchange for extending the 10% capital import tax to perpetuity, the government abolished the doubling of owners' tonnage tax, which was introduced in 2013 as an emergency austerity measure.
Estimating the net financial effect of these changes is hard. Tonnage tax receipts are relatively easy to calculate because they correlate to the size of the fleet they are levied on.
We believe all differences have been settled and will not be raised again
Panos Laskaridis
Tax receipts
On the other hand, dividend tax receipts fluctuate — not only with the size of the profits owners make but by the amount they repatriate.
When the government announced its new deal with the UGS in February, it said it would net at least €75m ($84m) in total each year from the 10% dividend tax.
However, the actual figure may be far less. The legally binding text of the agreement between the UGS and the government — published in April without media attention — commits UGS members to paying a minimum €40m annually.
Either figure is a far cry from the €105m in austerity taxes that owners were paying under their previous deal with the government from 2014 to 2018.
The upside of the new deal for Greek owners goes far beyond mere numbers.
If the compromise over dividends has indeed led EC regulators to end the tax probe, it will spare owners a host of other painful measures that were on the table.
Chief among these EC proposals was a request for Greece to subject shipowners to inheritance tax. The EC had also asked Greece to restrict its favourable tax treatment to ships exclusively providing maritime transport services.
That would have left whole classes of ships, such as port tugboats, fishing vessels and yachts facing high corporate tax rates that apply to non-shipping companies.
The deal cannot change unilaterally. It is subject to a force majeure clause, which allows both sides to stop enforcing it under “conditions that render its implementation extremely difficult or impossible”
Another plus for owners is that their new deal bolsters their autonomy vis-a-vis Greek and European legislators. To outside observers, it might seem odd to see a shipowners’ union striking tax deals on an equal footing with sovereign public authorities.
Private agreement
The reason for this is Article 107 of the Greek constitution, which guarantees the inviolability of the country’s shipping taxation system. In effect, this means the government cannot tinker with the tonnage tax without the approval of shipowners.
Veniamis made sure the new deal upholds and reaffirms these principles. The 10% dividend tax is described as a “voluntary tax”, entered into in a private agreement between individual shipowners that are represented by the UGS, and the Greek government, as equal partners.
The deal cannot change unilaterally. It is subject to a force majeure clause, which allows both sides to stop enforcing it under “conditions that render its implementation extremely difficult or impossible”.
No specific sanctions are foreseen for companies opting to stay outside its framework. Not that any do. Almost 100% of Greece’s shipping organisations subscribed to the deal, proving it was in the interest of companies to do so.
A total of 530 outfits signed up to the new arrangement, up from 478 that had joined the previous deal for the period from 2014 to 2018.
The agreement may even help draw non-Greek players to set up shop in the country.
According to its terms, payment of the 10% capital import charge exhausts all tax liability on the remaining 90% of profits remaining outside Greece.
This article is part of our Business Focus on Greek shipping. Read the full report in next week's edition.
