Greek shipowners and their government hope to fend off pressure from the European Commission with an agreement on a new tax framework that will streamline a host of ad-hoc levies adopted during the country’s financial crisis.
The broad outline of the deal, unveiled on 27 February, suggests the government is about to remove some of the burden it imposed on the Greek shipping community during the national financial meltdown five years ago.
In exchange, shipowners dropped the pretence that these tax rises were temporary and accepted that some of them will continue indefinitely.
The most groundbreaking change is the introduction of a permanent 10% tax on the profits of shipping companies. This is essentially a charge on capital repatriated from offshore destinations such as Liberia, Panama or the Marshall Islands by shipowners who are Greek tax residents.
Tax fiction
Tax-free dividends have been a hallmark of Greece’s tonnage tax regime, adopted in 1975. In recent years, however, they have become a fiction that is harder and harder to sustain.
Repatriated shipping capital has been subject since 2013 to ad-hoc import charges as well as a “solidarity contribution” — an austerity tax imposed on all but the poorest Greeks that ranges between 2% and 10% of their income.
Apart from formalising a situation that more or less already exists, the new tax may even benefit shipowners, if it helps get EC regulators off their back.
The commission has been probing Greece’s tonnage tax for several years on the suspicion that it violates European Union competition law.
In 2015, the EC even threatened to haul Greece before the European Court of Justice if it failed to restructure the tonnage tax. Greece’s tax-free dividends have been a key concern for the commission, but not the only one.
“After last month’s tax agreement passes parliament, the Greek government will probably go to Brussels and tell the commission its concerns have been addressed and it should drop the probe,” one observer said.
Another, more immediate, benefit of the deal for owners will be a significant lowering of tonnage tax payments. Those traditionally applied only to vessels under the Greek flag until 2013, when the government doubled the tonnage tax and applied it to foreign-flag vessels as well, if they are managed out of Greek offices.
The revised deal abolishes the doubling of the tonnage tax. Even though its full text has not been made available yet, the tax is expected to continue to apply to foreign-flag vessels.
Weighing up the net financial effect of these changes on shipping companies is far from straightforward. The government estimated in a press release that its annual revenues from the 10% dividend tax would be at least €75m ($84m) per year.
This is less than the €105m in additional shipping tax receipts that the state was believed to be raising each year under the previous, temporary agreement the government signed in 2014 with the Union of Greek Shipowners (UGS).
To outside observers, it might seem odd to see a shipowners’ union striking tax deals on an equal footing with a sovereign government.
The reason for this is Article 107 of the constitution, which guarantees the inviolability of the country’s shipping taxation system. This in effect means governments cannot tinker with the tonnage tax without shipowners’ express approval.
“Everybody knows you could have avoided any kind of contribution,” Prime Minister Alexis Tsipras said when the deal was announced, expressing his appreciation while signing it alongside UGS president Theodore Veniamis.
Apart from a genuine desire to help their country in a difficult financial situation, shipowners accepted the tax hikes of 2013 and 2014 under pressure from Greece’s bailout creditors, primarily Germany.
Reflecting Greece’s constitutional arrangements, the 2014 tax deal took the peculiar legal form of a private agreement between the government and the 478 shipping companies separately subscribing to it.
Each of these companies has been individually responsible for sticking to the terms of the agreement. The UGS was not formally a party to it and there were no sanctions for owners who opted to stay out.
Nevertheless, almost all Greek shipping companies participated. The take-up rate for the new permanent agreement is about 95% in terms of tonnage, the shipping ministry said.
“This shows there is hope, trust, solidarity and mutual understanding” between the state and the shipping community, shipping minister Fotis Kouvelis said.
These feelings were not always mutual. When in opposition in 2014, Tsipras’ then radical leftist Syriza party said in its manifesto it would consider reviewing Article 107.
Clashes with lenders
In the first six months of the Syriza government in 2015, Greek shipowners were busy hatching plans to decamp to places such as Cyprus after Tsipras clashed with international lenders and nearly crashed his country out of the euro.
Relations, however, have since stabilised. If Tsipras had any intentions of abolishing Article 107, he would have proposed it in a sweeping constitutional revision his party set in motion last month.
“Greece has treated shipping in a much better way than we feared,” Aristides Pittas, chief executive of Athens-based shipowner Euroseas, said at last month’s Capital Link conference in Limassol, Cyprus. “Otherwise, we would be here, and many others [Greeks] as well.”
