Ship-To-Ship Cargo Transfers Fall Within The Danish Tonnage Tax Act

The Ministry of Taxation has withdrawn an appeal filed with the Supreme Court concerning the scope of the Danish Tonnage Tax Act. With this decision, it now clear that ship-to-ship cargo transfers of fuel to GPS coordinates on the continental shelf meet the destination requirement of the Danish Tonnage Tax Act.

The Tonnage Tax Act is a special tax scheme available to shipping companies, subject to certain conditions. Shipping companies that qualify for taxation under the scheme are taxed on the basis of their total net tonnage and independently of the shipping company's income. The scheme covers, inter alia, income earned by sailing "between different destinations".

Offering favourable treatment to shipping companies, the tonnage tax scheme is considered as State aid and must therefore be interpreted in accordance with the EU State aid rules and the European Commissions' approval of the scheme.

The case

The case concerned the question of whether companies in a shipping group qualified for taxation under the tonnage tax scheme. The companies operated as ship-to-ship suppliers of bunker oil that was loaded on the group's tankers and sailed to an agreed position at sea (a GPS position), where the oil was supplied as fuel to cargo ships.

The National Tax Tribunal found that the companies' business constituted transport of goods between different destinations. The Ministry of Taxation disagreed with the Tribunal and brought the matter before the courts.

The majority of Western High Court judges (2-1) found that the expression "between different destinations" includes both sailing between ports or facilities/structures on the continental shelf and sailing to and between destinations at sea (ship-to-ship cargo transfers). The majority therefore agreed with the National Tax Tribunal's finding. The dissenting judge found, however, that the Tonnage Tax Act does not cover ship-to-ship cargo transfers at sea.

The Supreme Court

The Ministry of Taxation appealed the decision to the Supreme Court, arguing that the Commission's approval of the tonnage tax scheme did not include ship-to-ship cargo transfers. The Ministry further argued that there was a risk that the Commission would claim repayment of illegal State aid if the case was not brought before the Supreme Court.

In a comment to the matter the Ministry notes that, following an informal dialogue, the Commission has indicated that it will not initiate State aid proceedings against Denmark, because ship-to-ship cargo transfers fall within the scope of the Tonnage Tax Act. The Ministry has therefore withdrawn its appeal to the Supreme Court, making it clear that ship-to-ship cargo transfers are covered by the Tonnage Tax Act.