The Tonnage Tax Scheme constitutes a state aid to ship owning entities and it must be notified to and approved by ESA. The approval of the current scheme expired in end of 2016 but Norway was granted an exemption until end of 2017 to finalise the application process for a renewal. To avoid uncertainty as to whether the scheme complies with the EEA regulations Norwegian authorities proposed several amendments to the scheme.
On 14 December this year ESA notified that they had approved the scheme, with certain amendments, for a ten year period. In brief the amendments are as follows:
- Chartering out on bareboat terms are limited to 40 % of the total fleet (measured in tonnage) within the group in the relevant year, alternatively measured within a four year period. It is only operational chartering out which is allowed, so called financial bareboat charters are not permitted within the scheme. Financial bareboat charters are contractual arrangements where the ship owner transfers all or a major part of the market risk onto the charterer. One example is a bareboat charter where it is likely that the charterer or a third party will, upon completion of the charter period, acquire title to the ship on terms other than market terms.
- Groups owning vessels within the offshore segments can choose a set of alternative restrictions for chartering out on bareboat terms which set the maximum limit at 50 % of the total tonnage within the group. In such case the charter period may not exceed five years plus three years optional period, and strategic management must be carried out within the EEA. In order to qualify for this alternative set of restrictions the group must own vessels which are typically subject to national regulations applying to continental shelves, economic zones or territorial waters. Further, the vessels must be connected to activities in the petroleum sector, renewables, aquaculture, or ocean floor segments. According to ESA, offshore support vessels, windfarm vessels, shuttle tankers, pipe lay vessels, seismic vessels, tugboats (except if used for traditional shipping) and live fish carriers (well boats) are all considered to operate within the offshore segment.
- The limitations to bareboat chartering out does not apply to intra-group agreements. Nor would the limitations apply where the owner, through an associated company, also provides the crew. In such case the charterer effectively receives time charter services and such a structure is not considered a true bare boat charter. Such arrangement is often a legal requirement in certain jurisdictions, typically where the foreign ship owner enters into a bareboat charter with the charterer while a service contract for provision of crew and services is entered into between the charterer and a local entity controlled by the ship owner.
- The chartering in on time or voyage terms of vessels flagged outside the EEA is limited 90 % of the group's total tonnage. Consequently minimum 10 % of the group's tonnage must either be owned, chartered in on bareboat terms and/or have EEA flag.
- Non-self-propelled barges are eligible vessels under the Tonnage Tax Scheme provided that they are seagoing, above 1 000 gross tonnes, registered in an EEA register and used as a part of a transport mission.
The limitations on chartering in and out shall as a main rule not apply to existing charters. However in order to avoid that pure financial owners fall within the scheme it has been decided that this exception shall not apply to long term charters. What is considered long term depend on which set of restrictions that applies. For the offshore alternative, all charters with a contract period exceeding five years will be considered long term. While for the regular alternative, a contract period exceeding eight year is considered long term. To avoid any risk of abuse of the system, any changes to the existing contracts, made between 15 November and 31 December 2017, that influence the remaining contract period, will not be taken into consideration.
The Norwegian Ministry of Finance will implement these changes by proposing amendments to existing acts and regulations. ESA has approved a transition period until the end of October 2018 to allow ship owners to adjust to the new requirements.