In an exclusive interview with “Akti Miaouli” newspaper, European Competition Commissioner Margrethe Vestager discusses the tax framework for Greek shipping in connection to the risks of de-flagging from Europe and relocation of shipping companies outside the European Union. The Commissioner also comments on the prospects of the Greek economy and how the country could return to growth after six years of austerity and recession.
QUESTION: Has the recent Decision of DG COMP on the Greek shipping taxation regime taken into account the possibility of this action opening a “Pandora’s Box” vis-à-vis the European shipping industry in relation to the risk of de-flagging from Europe and the risk of relocation of shipping companies outside Europe due to the legal uncertainty and confusion created?
M. VESTAGER: On the contrary, the Commission’s decision should reassure the EU’s shipping community on a number of points. For instance, the decision confirmed that cruise ships are eligible for tonnage tax schemes. The decision also made clear that all customary supplementary activities provided in the context of maritime transportation are eligible for tonnage tax. Similarly, the decision gives flexibility as regards revenue from renting ships to cope with temporary overcapacity.
For the rest, the Commission was enforcing the existing explicit rules of the Maritime Aid Guidelines. These rules, notably on flagging of tonnage-taxed fleets, taxation of shareholders and tugboats, have been in force for over 10 years. The stance on tax benefits for maritime intermediaries also stems directly from the Guidelines – whose scope is limited to maritime transport providers. London, the world center for maritime intermediation, seems to be thriving without any State aid measures.
Q: Greek shipowners represent 49,96% (in dwt) of the European Community fleet. Therefore, it is a fact that Greek shipping has a leading role in the European shipping industry. In parallel, the contribution of the European shipping industry to the European economy is significant, i.e., €147 billion to EU GDP, and 2.2 million jobs. Do you think that the recent decision may be counterproductive for the interests of the European shipping industry?
M.V.: The Commission’s decision does not affect the core of the Greek shipping economy, notably the operation of bulk carriers and tankers. These can continue to benefit from tonnage-based taxation instead of profit-based taxation as long as the operators of such vessels maintain the share of the fleet they have under EU or European Economic Area flags. This is allowed by EU State aid rules, on which the Commission based its Greek tonnage tax scheme decision.
Q: The relevant press release of DG COMP regarding the Decision on the Greek tonnage tax, specifically mentions that the outcome of this case will be used as a “precedent” for the assessment of other European shipping regimes. Considering that similar provisions to the Greek regime exist in Cyprus, whose system has been approved from your services for 10 years, will the Cypriot system be re-assessed as well?
M.V.: I presume you are referring to the rules for the taxation of shareholder benefits in both Greece and Cyprus. At this stage I can only say that the tax exemption for dividends and capital gains contained in the Cypriot Income Tax Law is not caught by State aid rules because it applies to all economic sectors and so does not provide the maritime sector with a selective advantage.
As part of its control of State aid given to the shipping industry, the Commission regularly screens measures implemented throughout EU for the benefit of shipping and related industries. These procedures between the Commission and Member States concerned are confidential, as was the case with the Greek tonnage tax.
Q: The European Commission’s priorities according to President Juncker’s Agenda are: growth, employment, competitiveness. Aren’t decisions like the recent one on the Greek tonnage tax going against an important pillar of the European economy in line with the above declared policy?
M.V.: State support should go where it is justified and needed, notably to maritime transport companies in direct competition with similar companies from countries outside the EU. The recent Commission decision is fully in line with President Juncker’s Agenda, which aims at ensuring a level playing field in a well-functioning Single Market with a clear and predictable business environment. Preferential tax regimes are allowed, but within the limits laid down by EU rules.
If tax advantages meant for the maritime transport sector are extended to other sectors this simply reduces the overall tax revenue that Greece so badly needs.
Q: The State Aid Guidelines for Shipping have the form of “soft law”. They were not introduced as a Directive or Regulation which proves that the political will of their instigator, i.e., DG MOVE (1989, 1997, 2004), was to create a flexible framework. There are allegations that since the transfer of the relevant competence for the application of SAG from DG MOVE to DG COMP competition law considerations in the handling of cases override considerations concerning the competitiveness / viability of the sector. Do you agree with this view?
M.V.: I do not believe that there is any contradiction between competition law enforcement and the viability of the maritime transport sector. On the contrary, competition law aims to ensure the long-term viability of the sector by allowing the most competitive and innovative firms to prosper to the benefit of consumers. The State Aid guidelines bind the Commission to the principles it will follow in assessing State aid cases in a particular field. In recognition of the global nature of the shipping market, the Guidelines offer a very generous and flexible range of aid measures to support the European shipping industry. Also, the public consultation carried out in 2012 demonstrated that the Guidelines remain fit for purpose.
Q: DG COMP has already announced the prolongation of the existing SAG. However, the investigation of national shipping regimes, i.e. Greek, Maltese etc., seems to undermine the core of SAG. What is your opinion?
M.V.: I don’t agree. The Commission’s analysis of the Greek tonnage tax scheme is simply implementing the provisions of the Guidelines, in particular by making sure that tonnage tax benefits genuine shipping activities, no more no less.
Q: Greece is experiencing a deep financial crisis. Greek shipping is one of the most productive economic pillars in Greece. In particular, according to a recent Study of the Foundation for Economic and Industrial Research (IOBE) (January 2013), Greek shipping contributes over 7% of the country’s GDP, offers employment to approximately 200.000 persons and in percentage terms covers over 30% of the trade deficit. Are you aware that maritime authorities of non-EU States are seeking to attract Greek ship owners and their companies for relocation of their activities? Do you think that the timing is right to undermine a vital sector for the Greek economy?
M.V.: The Commission’s decision does not affect the core business of Greek shipping. State aid rules do not impede tonnage tax schemes in the EU; on the contrary they allow such schemes by foreseeing a specific framework that treats all companies in the shipping sector equally.
Q: EU Member States, e.g. Germany are reportedly in the process of adopting most generous new fiscal initiatives in order to support and maintain their shipping sector. Does DG COMP anticipate examining such measures in view of the fact that such measures may distort intra-EU competition?
M.V.: Indeed, we are expecting a notification from Germany concerning additional personal income tax relief for seafarers. The Maritime Aid Guidelines allow for full tax relief of seafarers’ income. It is up to individual Member States to decide to what extent they wish to or can use the possibilities offered by the Guidelines.
In any case I do not believe that this measure will have any noticeable impact on competition, as German-owned ships, like Greek-owned ships, are mostly crewed by non-EEA nationals employed through Asian agencies. Such seafarers are obviously not concerned by national support measures that EU Member States put in place.
Q: Some years ago, Europe lost its shipbuilding industry due to its policy on state aids to European shipyards, i.e., lack of support, and, thus, offered a gift to Far East economies. Would you say that European policymakers have learned the lesson from their erroneous decisions of the past?
M.V.: Since adoption of the 2004 Maritime Aid Guidelines, the EU-controlled fleet has grown by more than 70%. This shows how effective the Guidelines have been. Therefore, I consider that today we have a very good State aid framework for the European shipping industry.
Q: We are not aware of any official complaints against the Greek tonnage tax system submitted to the services of DG COMP. What is the reasoning for such an in depth investigation?
M.V.: The Commission has the responsibility to enforce competition rules in the EU’s Single Market to ensure, among other things, that companies can compete fairly against each other on a level playing field. All economic operators should be subject to the same rules. In performing this task, the Commission not only acts on complaints, but often takes the initiative to look into possible breaches of the rules. The credibility of the Guidelines would be undermined if the Commission did not check how the main shipping economy in the EU, namely Greece, complied with the Guidelines.
Q: Do you believe that after six years of austerity and recession in Greece the country could return to growth this year?
M.V.: I sincerely hope so. I will play my part in ensuring that all matters related to competition concerning Greece are dealt with in the most effective and fair manner to enable the markets to play their part in creating the growth and jobs that Greece so urgently needs.
Q: Greece has the highest unemployment in the EU. What is required in order for investors to trust the country again and new jobs to be created?
M.V.: The unemployment rate is estimated to have fallen in 2015 and should continue to do so in 2016 due to the lagged effects of previous improvements in labour market flexibility and job creation schemes financed by the EU structural funds.
To complement the adjustment programme and to give its comprehensive reform package the best chance of success, the Commission on 15 July presented a Jobs and Growth Plan for Greece. If the country makes best use of available EU funds, €35 billion could be available to invest in people and businesses by 2020, providing a powerful additional stimulus
Investors’ confidence is expected to improve following progress with programme reform implementation in labour and product markets and the privatisation plans. The timely bank recapitalisation and the gradual restoration of domestic confidence in the banking system are also expected to improve credit conditions.
Q: Do you believe Greece has definitely moved away from the possibility of “Grexit” now?
M.V.: The Commission is strongly committed to safeguarding the integrity of the euro area. Throughout the negotiations towards the new macroeconomic adjustment programme for Greece, the Commission has been and remains now in a continuous and very close contact with the Greek authorities at all levels, with the view to help ensure a successful return of Greece to financial stability, jobs and growth to prosper in the euro area. This is not only in the interest of Greece, but also in the interest of its European partners.