Following our most recent newsletter which put a spotlight on the shipping sector, here’s a round-up of the latest national and international developments.
In a final judgment released on 31 March 2022, the Luxembourg Supreme Court (Cour administrative) denied the qualification of contribution in account 115 for the purposes of the application of the Luxembourg parent-subsidiary regime (i.e. not considering account 115 contribution as a component of the purchase price of the participation).
This may impact Luxembourg shipping companies with more than one shareholder, in particular minority shareholders with less than 10% in the share capital which rely on account 115 for acquisition price purposes.
Read this tax alert for more information on recent Court decisions in Luxembourg.
New double tax treaty with the UK
On 7 June 2022, a new double tax treaty (DTT) was signed between Luxembourg and the United Kingdom, but has not entered into force yet.
This new DTT notably contains a revised definition of Permanent Establishment (in line with OECD model conventions) which may impact shipping companies.
The proposed ATAD 3 (Anti-Tax Avoidance Directive 3) or “Unshell Directive” aimed at combatting the misuse of shell entities for tax purposes is expected by 30 June 2023. Based on recent discussions at EU level, it might be postponed as it is still not clear if the current anticipated implementation date of 1 January 2024 will be met.
Companies failing to meet all substance indicators would be deemed shell entities. The tax consequences for shell entities would be the denial of benefits from double tax treaties, or the parent-subsidiary Directive and the interest/royalties Directive.
Following the recent developments surrounding Pillar 2 and the maritime sector, the OECD has now published its technical commentary. Although an exemption has been included for international seagoing vessels, it is far from certain that the maritime sector will not be affected once the rules take effect. The rules will, without a doubt, result in a heavier administrative burden, not to mention the fact that the substance requirements are out of step with what is customary under, for example, tonnage regimes, while offshore vessels and dredgers do not actually fall under the exemption, etc.
Fit for 55
The EU ambition for the emission trading system (ETS) is to include 100% of emissions from ocean transport routes within Europe from 2024; extra-EU routes would be covered 100% from 2027 onwards under the proposals. Overall, free allowances would be phased out from 2026 and gone by 2030, five years earlier than proposed previously.
On 14 July 2021, the European Commission published its plans for the “Fit for 55” package to reduce greenhouse gas emissions in all sectors, including shipping, by 55% by 2030 compared to 1990. The ambitions of the Fit for 55 package for the maritime sector require rapid greening and enable shipowners to invest in clean ships. Part of the proposed legislation is to amend the EU’s ETS to include shipping emissions.
Various adjustments have been proposed and resulted in a draft report. The draft report (PDF, 0.5MB) includes several ambitious amendments to emissions trading for the maritime sector.
During the 6 – 9 June 2022 EU Parliamentary plenary session, a heated disagreement on the proposed revised ETS report resulted in a 53% majority vote rejection of the report.
Although the EU Parliament has adopted the amended proposed reports on 22 June 2022, the texts are not final EU legislation, and may be subject to further amendments based on the outcome of the trialogue between Parliament, the Council and the Commission.
Greece: Guidance on controlled foreign corporations
The Greek tax administration released Circular E.2018/2022 which provides detailed guidance regarding controlled foreign corporations (CFCs). The guidance specifically addressing the CFC provisions do not apply for companies with substantial economic activity and shipping companies. Read this March 2022 report (PDF, 1MB) by the KPMG member firm in Greece.
Switzerland: tonnage tax for maritime activities
On 4 May 2022, the dispatch on the act governing the tonnage tax was adopted by the Swiss Federal Council. These rules provide for the taxation of profits from the operation of qualifying vessels at a flat rate based on the net tonnage. Here’s a bit of background from our Swiss colleagues.