Greece and its shipowners formally agreed to modify a key maritime profit tax, lowering headline rates but broadening the base on which it is collected.
Under the new deal signed on 23 November by Greek Prime Minister Kyriakos Mitsotakis and Union of Greek Shipowners (UGS) president Melina Travlos, the charge on shipping profits, whether from dividends or capital gains, has been cut from 10% to 5%.
Despite the lower rate, state proceeds under the scheme are projected to increase to at least €60m ($62.7m) per year — from the €40m ($41m) envisaged in the original deal between the two sides in early 2019.
The charge applies to Greek tax residents managing ships out of their home country, regardless of their vessels’ flag and offshore ownership.
Several factors make the higher revenue target credible.
If the lower tax rate fails to encourage owners from repatriating profits, a claw-back mechanism ensures that eventual shortfalls are covered retroactively.
Under the scheme, UGS and Greek tax officials review proceeds every two years. Whenever the amounts raised are found lacking, shipowners are obliged to make up for the shortfall with top-up payments.
Another, more groundbreaking provision broadens the base of the dividend tax.
A new “collective action clause” makes the charge mandatory for the entire Greek shipping community — if owners representing at least 90% of all Greek-controlled tonnage agree to be subjected to it.
This clause is important because it weakens the voluntary nature of the tax, which results from the fact that it is the product of a private agreement between the Greek government and the hundreds of individual shipowners represented by the UGS.
The reason for this odd legal construct is Article 107 of the Greek constitution, which guarantees the inviolability of the country’s shipping taxation. This effectively ensures that governments cannot tinker with shipping taxes without the approval of shipowners.
The voluntary character of the dividend tax has so far allowed some owners to ignore it, if they didn’t feel like paying it. However, the “collective action clause” changes things.
The clause has already been triggered, as owners representing about 92% of tonnage subscribed to the deal last week. More than 480 maritime entities adhered to the arrangement, including all major, well-established shipping names managing vessels out of Greece.
However, introducing the collective action clause was not smooth sailing. When some elements of the tax amendment were leaked in the summer, the threshold was set at a much lower level of two-thirds.
In another sign that opposition from holdouts was not negligible, 483 shipping companies subscribing to the deal — a marked drop from the 530 that gave their blessing to the previous deal nearly four years ago.
Defending the tonnage tax
Behind these legal contortions is a need to iron out differences between Greek national law and European Union rules.
The particularities of Greece’s shipping tax regime, at the centre of which is a tonnage tax system valid since 1975, have been causing friction between Athens and the EU for years. Tension was particularly high in the past decade, when the debt-laden country had to be saved by a European bailout.
In response to the debt crisis, Greece temporarily doubled its tonnage tax and then introduced a dividend charge on shipping profits.
The latest shipping tax rejig again serves to keep EU regulators at bay.
“It is a necessary measure ... to avoid an unfavourable decision by the European Commission on the Greek tonnage tax,” the finance ministry said in an explanatory text to the legislation, which parliament was due to start debating on 29 November and expected to pass in the following days.
In one of the measures that Greece is taking to comply with EU guidelines, the scope of the dividend tax widens to apply to income from bareboat-chartered ships.
In another, fishing and tug boats are to be excluded from the tonnage tax regime and subjected to regular corporate taxation.
The new Greek law even threatens to kick oceangoing vessels outside the tonnage tax. If their owners wish to continue enjoying it, they must fly the flag of an EU member state — or that of the European Economic Area (EEA) — on at least 25% of their ships.
However, the exact timing of the flag requirement is left open. Perhaps a new battleground with the EU is being formed.
