Global shipping faces a new bulldozer coming straight at it, and it is pitifully underprepared.
The industry is already facing the likely introduction of tough carbon emission restrictions by the European Union.
Parts of the maritime world are still reeling from Covid-19, not least the difficulties of getting staff quickly on and off vessels.
This past week, a new threat arose with the G7 group of advanced economies announcing a “historic agreement” on a global tax deal.
The concept of a 15% minimum corporate tax worldwide threatens to blow apart shipping’s reliance on tax havens and flags of convenience.
The deal — reached after two days of talks between G7 finance ministers in London ahead of the G7 summit in south-western England this weekend — was not aimed at shipping. The industry has already, through its lobby groups, been pushing for an exemption from any such rules — but has been unsuccessful so far.
The global treaty, which must still be ratified by the G20 meeting in Venice next month, is aimed primarily at big data and online companies such as Facebook, Amazon and Google.
There has been mounting frustration in national governments that these digital giants have developed huge sales markets and in some case technology centres and more while avoiding paying anything other than the barest amounts of tax in those host countries.
Under the proposed deal, the “largest global companies” — still undefined — with profit margins of more than 10% would see 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries in which they operate.
Rishi Sunak, the UK finance minister, who chaired the London talks, said the agreement would ensure “the right companies paid the right tax in the right places”.
But Richard Stephens, a partner with Watson Farley Williams (WFW), said the likelihood is the rules will be “horrendously complicated” to draw up and implement.
They also offer multiple additional problems for shipping should they be introduced without exemptions, he argued in a blog on the law firm’s website.
What could scupper the deal, in Stephens’ view, is if governments wake up to the fact that it will undermine the host of national “tonnage tax” regimes that many developed countries have introduced.
Hugely disruptive
This system works well, he argued, because it “creates a predictable, consistent and usually low tax expense” for the industry.
Stephens did not point out that the UK, Norwegian and other tax tonnage regimes were only developed to try to bring back ships that had fled to offshore tax havens.
And he said shipping “may well find itself swept along with these plans for the perceived sake of the greater good of the integrity, simplicity and sense of fairness of this massive global tax reform”.
And while it would clearly be hugely disruptive to the maritime industry at a time when it has so much else to think about, it would ultimately be a good thing.
The reliance on flags of convenience and offshore bases undermines connections between shipping and its home markets and governments.
Corporate ‘capture’
So when something goes wrong — say, the inability of shipping to have its crews deemed “essential workers” during the pandemic — shipowners find little political traction with their national governments, media or public.
So too with the climate debate. Who can shipping rely on to explain its needs and arguments as the public becomes increasingly angry about perceived inaction?
The furore over Panos Laskaridis and the documentary Black Trail is a case in point. What he said about Greek shipowners not needing the Greek government may have been taken out of context and the language deemed rude, undiplomatic or embarrassing.
But the core of what he said is what everyone involved in the industry — and the Greek government, come to that — surely knows to be the truth.
The wider target of Black Trail was the way the International Maritime Organization malfunctions on climate issues due to its “capture” by corporate interests. That is a truth that few in the industry or government are willing to own up to, but it hobbles the IMO’s ability to make faster progress on decarbonisation.
And all that does is lead to regional initiatives like that expected from the EU next month on an emissions trading scheme.
Shipping is not ultimately helped by living in a demi-world of veiled truths and untruths on climate or tax. It leaves the industry exposed when regulatory bulldozers head its way.
