For a long time, the rumor has persisted that international shipping knows no taxes. However, anyone who deals with the taxation of shipping companies knows how complex the taxation of such a company can be. Ships move across the world's oceans every day, calling at ports in different countries, even on different continents. International shipping has also been an important factor in globalization and is still the most important part of the supply chains today. The importance of international shipping for global trade and the corresponding supply chains became clear to everyone, especially during the pandemic. As an important pillar for industry and trade, many countries and territories introduced corresponding special taxation regimes to incentivize international shipping in their own jurisdictions. Thus, real shipping hubs were formed around the world's major trade routes. In international tax law, shipping has its own taxation rules, which are manifested in double taxation agreements or even separate agreements on the taxation of shipping companies. They should be seen as a simplification and clearly regulate which country can tax what income. Indeed, the regional tax incentives led to low effective tax burden on shipping companies.
In principle, it can be said that companies that operate international shipping are taxed in the country or territory where the company's management is located.
The operation of merchant ships in international traffic requires not only an international network, but also a wide range of other services that make the operation of the ships possible in the first place. These include not only financing, but also technical and commercial maritime services. The global maritime economy has many ramifications, some of which also fall under the special rules of taxation.
Driven by scarce crewing resources, demographic change, as well as digitalization, international shipping has changed significantly over the past 10 years. The companies have positioned themselves differently internationally, expanded new business areas and established new structures due to changed financing requirements.
The question of the place of management of a shipping company became more difficult. The same applies to the question of income and costs that are closely economically related to shipping operations. The restructuring of the industry in all its facets made the regional taxation regimes that had been tried and tested for decades and the internationally applicable taxation rules appear outdated. The prolonged shipping crisis coupled with a lack of implementation of efficiency measures and cooperation along the supply chain led to high losses for the companies. Accordingly, there was initially no reason for tax legislators at national and international level to revise the taxation principles for international shipping.
Today, however, things look very different. Partly as a result of the pandemic, the shipping industry's earnings are at a record level. At the same time, the biggest international tax reform ever is being rolled out. The aim is to tackle low taxation of profits by introducing a minimum tax rate of effectively 15 percent and to create transparency in structures and the taxation. But what effect will this have on shipping?
The introduction of the global minimum taxation naturally has a major impact on the taxation of shipping companies. Those who think they can sit back and point to the exemption of income from international maritime transport are mistaken. Between the lines of the published guidelines on the implementation of the global minimum taxation rules, the tax risks already stand out quite clearly. Now, of course, the question arises whether they have not always been there. Yes, they were, because in the taxation of international shipping there was little black and white but a lot of grey. The industry's huge losses may just have left no one asking these questions. But there is a change. The special regional taxation regimes with subsidy character, their extent and conditions have been discussed for some time. And the international rules on the allocation of taxation rights of shipping income mostly anchored in Article 8 of the relevant double taxation treaty and the all-important question of what constitutes income from international shipping in the first place are also being discussed more and more.
This discussion will likely reach a new level with the introduction of global minimum taxation. The guidelines do not give a clear definition of income and costs from international maritime transport and further the requirement for the exemption is that strategic or commercial management of the respective fleet should be in the jurisdiction in which the business unit is located. Even this requirement leaves a lot of questions open.
Accordingly, every shipping company should put on its tax glasses and review its own structures, income and cost flows with a view to the introduction of global minimum taxation and take appropriate measures.
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