The government of Greece and its shipowners are about to revise a tax deal stitched together three years ago.
According to shipping sources in Athens, players gathering at the Union of the Greek Shipowners (UGS) on Wednesday agreed to a proposal to cut the dividend tax on repatriated shipping profits from 10% to 5%.
On the other hand, Greece’s shipping community pledges to considerably increase the state revenue generated from the tax to at least €60m ($61m) a year — from the €40m envisaged when it was introduced in 2019.
The charge applies to Greek tax residents who manage ships out of their home country, regardless of the vessels’ flag.
The hope is that a lower tax rate will encourage shipowners to repatriate more of the profits earned by the offshore companies in which they are the ultimate shareholders, partners or beneficial owners.
That seems like a tall order. Inflows would have to triple to meet the new targets.
For a 5% dividend tax to generate €60m in annual state proceeds, Greek owners will have to repatriate €1.2bn in dividends each year.
Under its current level at 10%, the dividend tax has failed to attract even the €400m of inflows necessary to generate the €40m pledged in 2019.
One key passage in the new plan may help address the shortfall. The dividend tax is supposed to become obligatory for the entire Greek shipping community, if owners representing more than two-thirds of all Greek-controlled tonnage subscribe to it.
About 85% of owners meeting on Wednesday at the UGS approved the plan.
However, it is hard to see how binding the dividend tax can really be.
It will continue to be described as a “voluntary contribution” entered into in a private agreement between hundreds of individual shipowners represented by the UGS and the Greek government — as equal partners.
In 2019, 530 Greek shipping entities subscribed to the dividend tax. Any changes to it must be agreed by all.
Voluntary taxes
To outside observers, it might seem odd to see a shipowners’ union striking tax deals on an equal footing with sovereign public authorities.
The reason for this is Article 107 of the Greek constitution, which guarantees the inviolability of the country’s shipping taxation system. In effect, the government cannot tinker with shipping taxes without shipowners’ approval.
Greece introduced the dividend charge three years ago to settle a tax row that broke out during the country’s debt crisis between the government in Athens, the UGS and the European Union.
EU states bankrolling Greece’s bailout insisted then that shipowners contribute more to their country’s financial rescue. Yielding to such pressure, Greece in 2013 doubled owners’ tonnage tax as an emergency, temporary austerity measure.
The dividend tax, introduced for perpetuity six years later, allowed Greece to scrap the doubling of the tonnage tax.
The dividend tax also helped keep EU regulators at bay.
Before its introduction, the European Commission — the EU body responsible for enforcing European law — was threatening to probe Greece’s shipping tax for violating EU taxation principles.
The EC is expected to scrutinise the dividend tax changes and Greek parliament also has to pass them.
