Stamp duty
In its proposal, the investigator concludes that there is reason to abolish stamp duty when granting applications for mortgages on Swedish ships. The investigator notes that stamp duty is unique to Sweden as stamp duty is not levied for ship mortgages in a similar way in other countries. The stamp duty increases the costs for Swedish shipping companies when acquiring ships and may be a reason for not choosing the Swedish flag. At the same time, stamp duty generates very little tax revenue for the state. Based on these reasons, the investigator finds that it is justified to abolish stamp duty for mortgages on Swedish ships.
Authorised speed range
In the current regulatory framework, in order to qualify for tonnage taxation, a vessel must be used predominantly, i.e. to 75 % or more in international traffic. This high requirement for international trade has caused concern, particularly for coastal and domestic shipping, which cannot fulfil the requirement. The condition has also caused problems for shipping companies that charter out their vessels on a time charter basis to a customer who later wants to use the vessels to a greater extent for transport between Swedish ports.
The high international trade requirement is now significantly relaxed. The international service requirement is lowered so that it is sufficient that the qualifying ship operates internationally to a small extent, i.e. at least 10 per cent. The significant reduction in the international trade requirement should mean that all shipping companies, except those whose ships operate exclusively in domestic traffic, can be subject to tonnage taxation.
Specialised shipping is included
The current tonnage tax regime requires that the activity relates to the carriage of goods or passengers by sea by a qualifying ship. Based on this delimitation, the whole of specialised shipping is currently excluded from tonnage taxation. The investigator's proposal is intended to enable tonnage taxation for a large number of activities within specialised shipping. These include towing, surveying, vessels servicing various types of offshore installations, vessels carrying out construction, maintenance and dismantling of wind turbines and other offshore installations. Other vessels that may be subject to the tonnage tax system are, for example, cable and pipe-laying vessels and vessels engaged in the exploration and extraction of natural resources.
The investigator notes that the vessels used in specialised shipping share significant characteristics with vessels carrying out activities that can currently be subject to tonnage taxation, such as requirements for qualified personnel, operational and safety requirements, etc. International competition in specialised shipping is also increasing and it is important for Sweden to attract this type of shipping in order to strengthen its position in global shipping. The investigator also notes that both Denmark and Norway allow various forms of specialised shipping in their tonnage tax systems. For these reasons, among others, it is proposed that specialised shipping be included in tonnage taxation.
Reduced size requirement
The current size requirement of 100 gross tonnage is reduced to 20. This reduction creates in particular the conditions for specialised shipping with its smaller vessels to be subject to tonnage taxation for their vessels. Even though many of the vessels in the specialised shipping sector are also larger than 100 gross tonnage, it cannot be ruled out that this segment uses and may come to use smaller vessels. The lowering of the size requirement to 20 gross tonnes also means the same size limit as in Denmark.
Reversal of excess depreciation
The current system means that there is no immediate write-off of excess depreciation on entry into tonnage taxation. However, there is no definitive remission of the untaxed reserves either. Instead, as a general rule, 25 % of the excess depreciation is returned to taxation every five years within the framework of tonnage taxation. This is unless the shipping company has increased its ship tonnage at the time of the five-year reconciliation, with the result that the repayment obligation is postponed for 5 years.
The system for reversing excess depreciation is now being reformed in two respects. Firstly, it is sufficient for the shipping company to have maintained the size of the ship's tonnage at the time of the five-year reconciliation for the repayment obligation to be postponed for five years, i.e. there is no longer any requirement for the ship's tonnage to have increased.
The second change is that the report proposes that binding agreements on the delivery of newly built vessels within three years be equated with the acquisition of vessels. In the current regulations, it is required that a new vessel is delivered to be taken into account in the assessment of whether the shipping company has increased its vessel tonnage. The current system thus means that it may depend on almost random reasons whether a shipping company will be forced to return previous over-depreciation of multi-million amounts for taxation in a five-year reconciliation. This is the case, for example, if a shipping company has ordered a larger vessel that would have meant an increased vessel tonnage at the time of the reconciliation, but where the delivery of the vessel has been delayed for some reason.
The proposed changes, and in particular that an order for a new ship is to be equated with the delivery of a new ship, constitute an important reform of the regulatory framework and, if nothing else, create significantly better predictability for shipping companies. At the same time, it can also be noted that the investigator did not propose any form of reduction of excess depreciation in the tonnage taxation system in his proposal. This is something that exists in both the Danish and Finnish tonnage taxation systems.
Extended bareboat possibility
In order to create some flexibility for the shipowner, for example in a recession with a surplus fleet of vessels, the current regulations allow a shipping company to hire out vessels on bareboat charter for a maximum of 3 years and with a maximum of 20 per cent of the shipping company's gross tonnage and to include the income in tonnage taxation.
The investigator is now proposing to extend this possibility of bareboat hire to a certain extent. The time period of three years is not changed. On the other hand, it is proposed that an increased share of 50 per cent of the shipping company's vessel tonnage can be leased on bareboat charter and still be subject to tonnage taxation. According to the investigator, this reform means increased flexibility and creates increased opportunities for smaller shipping companies to use the tonnage system.
Commentary
It is gratifying that the investigator in his proposal has produced a number of important changes and reforms to create more attractive rules for the taxation of Swedish shipping.
Abolishing stamp duty on ship mortgages is a simple and not very costly way of creating a more competitive maritime taxation system, and would only mean that Sweden would have rules similar to those in our immediate neighbours.
The proposed changes to the tonnage tax framework are also important reforms to create a more inclusive, predictable and competitive tonnage tax framework with conditions comparable to those in our neighbouring countries.
Significantly lowering the international traffic requirement should make the regulatory framework more predictable and provide more shipping companies with the necessary stability in their choice of tonnage taxation. An important part of creating a more inclusive tonnage taxation is that many segments of the specialised shipping industry will be able to apply tonnage taxation if they wish to do so, and this part of the proposal is perhaps the biggest single change in the system.
The adjustments regarding the reversal of excess depreciation are also important and, if nothing else, create greater predictability for shipping companies. At the same time, it would of course have been desirable if the investigator had included a proposal to phase down excess depreciation in the tonnage tax system. Then it really could have been argued that Sweden could have had a tonnage tax system that was as competitive as that of our neighbouring countries.
This is now the investigator's proposal. The proposal will now be further processed by the government and finally adopted by the Riksdag. However, before a reformed Swedish regulatory framework for tonnage taxation can enter into force, it must also be approved by the European Commission. Although it is some time before new stringent legislation for tonnage taxation can enter into force, there is reason to already now plan for an entry into the Swedish tonnage taxation so that one is prepared to enter as soon as the reformed tonnage tax regulations can be applied.
Johan Larsson
Tax lawyer / Authorised tax advisor
M: +46 734 19 39 44
T: +46 31 739 13 00