Global minimum tax: a game changer for EU shipping?

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(Image courtesy: ETF – European Transport Workers Federation)

In light of the G7 leaders’ summit which begins this Friday, the ETF reiterates its call for an international agreement on a global minimum tax for multinational companies.

The global tax could be an important tool in combating the negative effects of the use of flags of convenience in global shipping, which allows shipowners from one country to lease the flag of another country.

FOC flags offer regulatory advantages, little or no corporate tax, and full flexibility in crew recruiting. This is fueling a race to the bottom in social, environmental and safety standards.

The OECD proposal would ensure that companies pay taxes and participate in the common societal effort wherever they base their operations and eliminate the practice of seeking the most advantageous tax regime. This would reduce social dumping practices in EU shipping by encouraging shipowners to choose bona fide flag states.

Could a global minimum tax be a game-changer for the way EU shipping is governed?

Discussions are underway at the OECD to try to reach an international agreement on a global minimum tax for multinational companies. This process has gained momentum now that the Biden administration has spoken out in favor of a global minimum tax of 21%.

What the OECD is trying to address are the challenges of “base erosion and profit shifting” and is proposing rules that would give jurisdictions the right to “reverse” when other jurisdictions do not. have not exercised their primary taxing rights, or the payment is otherwise subject to low levels of effective taxation.

In other words, the OECD proposal would ensure that companies pay taxes and participate in the common societal effort, wherever they operate.

This development is of particular interest to the shipping industry due to its ability to easily move vessels from one legal jurisdiction to another.

It is important to understand that the primary legal authority governing the activities of a merchant vessel is the State in which the vessel is registered, i.e. the flag State. Under Article 94 of the United Nations Convention on the Law of the Sea (UNCLOS), a flag State is required to exercise effective administrative, technical and social jurisdiction and control over ships flying its flag. In addition, under article 91, there must be a real link between the State and the ship.

Maritime transport is today dominated by “flags of convenience” (FOC) through which shipowners from one country can lease the flag of another country. These FOC flag states do not insist on a genuine link and are therefore unable to exercise their jurisdiction and control. As if that weren’t enough, they corrode the governance of the global shipping industry and fuel a race to the bottom of social, environmental and safety standards.

FOC flags offer regulatory advantages, little or no corporate tax, and full flexibility in crew recruiting. The three main ship registers (Panama, Liberia and the Marshall Islands), all declared “FOC” by the International Transport Workers’ Federation (ITF), represent more than 40% of the world fleet, but well over 50% of the world’s fleet. the world fleet. fleet is currently registered in FOC States. The inability of these flag states to exercise effective control has led port states to intervene to enforce international standards, thus externalizing the cost of flag state failures.

These FOC flag states have played a crucial role in increasing the profitability of shipowners to the detriment of society. For a shipowner, various factors can motivate him to seek the commercial advantage resulting from the choice to register his ships in these FOCs, in particular tax evasion, limitation of responsibilities, the lightness of respect for international maritime conventions, social, security and environmental protection and hide behind the corporate veil by invoking corporate and financial law, for example.

When it comes to employment standards, the benefits offered to shipowners are often referred to as “social dumping”. Such practices are particularly evident in European maritime transport, where it is legally possible to employ third country nationals on board ships providing regular intra-EU / EEA services and to pay for them well below European standards. Such practices undermine the EU acquis and infringe the EU principles of equal treatment for equal work and allow discrimination between seafarers in terms of employment on the basis of their residence, but in practice, it is de facto because of nationality.

The current COVID-19 crisis has exposed the complexity of a global industry with unhindered mobility of labor and capital. FOCs have not sufficiently assumed jurisdiction and control over social issues concerning their vessels. Shipowners were forced to turn to their own countries for help and many of them were ignored by their governments, leaving seafarers working on vessels registered in FOC States without access to their basic rights, social and labor.

It is estimated that 90 percent of international trade by volume is transported by sea. And yet the sailors who have been at the forefront of keeping the trade and flow of essential medical supplies, food and energy have been treated like second-class workers. Hundreds of thousands of seafarers have gone beyond their initial tour of duty, in some cases for more than 17 consecutive months or more, and often without access to shore leave or medical treatment.

Social dumping also undermines the objectives of the EU state aid guidelines for maritime transport. It is a practice which requires a comprehensive response from the Member States. Various countries have put in place favorable tax regimes under EU guidelines, known as tonnage tax systems, through which subsidies for maritime transport activities are given to support the growth of the ship register of this country. countries and promote the employment of national seafarers. These tax regimes also cover so-called ancillary activities to maritime transport such as port operations.

Including maritime transport in the OECD proposal for a global minimum tax would encourage shipowners to choose bona fide flag states, those that comply with Articles 91 and 94 of UNCLOS, while allowing them access to favorable state aid regimes and would ultimately help give workers access to decent work in the most strategic sector of world trade. This would support and strengthen the maritime resilience of the EU.

In the current context, where all Member States are struggling to recover from COVID 19 and committed at the Porto Summit to continue to deepen the implementation of the European Pillar of Social Rights at EU level and at EU level. national, the OECD proposal for a global minimum tax to ensure that public investments made by society to promote an industry are also profitable in the form of job creation, adequate training and decent working conditions.

News from the Sea, June 16


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