Three European shipping lines are paying virtually no tax on their record-breaking pandemic profits. Thanks to special “tonnage tax” systems, which tax shipping lines based on the size of their fleet and not their profits, Maersk, CMA CGM, and Hapag-Lloyd paid less than $330 million in taxes. Profits in the most recent quarter—an effective rate of 1.6%—on $21 billion combined in pretax.
More than 20 EU countries incl Denmark, FranceAnd Germany, home to Maersk, CMA CGM, and Hapag-Lloyd, respectively—have adopted tonnage tax schemes for shipping lines to protect their local maritime industries. The world’s largest shipping line, Switzerland-based Mediterranean Shipping Company (MSC), is considering Also adopt tonnage tax. MSC, a private company, does not report its financial results, so it is difficult to estimate its effective tax rate.
Tonnage tax systems are locked in lower rates for shipping lines.
Tonnage tax schemes are an indirect way that governments can subsidize local shipping lines by reducing their tax burden—and encouraging shipping lines to register their vessels in other low-tax countries under so-called “flags of convenience.” Can be broken. It was Greece First country to introduce tonnage tax During the economic crisis of the 1970s. Since 1990, 21 other European countries have Followed it.
Although shipping lines usually get Better termination of tonnage tax deals (pdf), governments can also benefit: In lean years, when shipping lines report smaller profits or losses, companies still have to pay hundreds of millions of dollars in taxes based on the size of their fleets. But in years when shipping lines make huge profits, tonnage tax schemes can leave billions of dollars in value. Potential tax revenue on the table.
For the past decade, shipping lines have struggled to turn a profit. As a result, the tonnage tax system was often a good deal for governments. For example, Maersk paid an effective tax rate of 876% in 2017, after recording a modest $25 million annual profit and coughing up $219 million. in tonnage tax. The following year, Maersk had to pay $398 million in taxes even though it was lost $357 million.
But as the pandemic disrupted global supply chains and drove up freight costs, tonnage tax revenue could not sustain the huge profits of shipping lines.
Since the start of the pandemic in late 2019, Maersk’s effective tax rate has fallen from 147% to 1.9%.
Governments propose windfall taxes to reduce shipping profits.
Among the legislators France And United Kingdom has called for a one-time windfall tax to recover part of the shipping lines’ profits last year. Competitions 110 billion dollars. But so far, no country has introduced such taxes or made any changes to its tonnage tax system. Instead, CMA CGM Voluntarily lower shipping rates between Asia and his native France to convince legislators.
Meanwhile, Israel-based Zim, the world’s 10th largest shipping line, is lobbying the Israeli Knesset. To Adopt a ton tax system To reduce the tax burden.