20th January 2024 – 26th January 2024
- LOCAL NEWS
No news reported.
- INTERNATIONAL NEWS
- OECD Pillar 2 - Update on Implementation and ECJ Case law
Further to our Union’s related reports on the OECD Pillar 2, the EU General Court recently examined the issue of conflicting issues between the Pillar 2 Directive and EU-approved shipping and tonnage tax regimes.
The EU Court published an Order regarding an action (Case T-144/23) brought by the Company Fugro NV, established in Netherlands, seeking the partial annulment of the EU Global Minimum Tax Directive, Council Directive (EU) 2022/2523 of 14 December 2022, due to conflicting issues between the Directive and EU-approved shipping and tonnage tax regimes.
In particular, Fugro was originally subject to corporate income tax in the Netherlands, however, it requested to be taxed under the Dutch tonnage tax scheme and the Netherlands tax authorities granted that request with effect from the 2014 tax year.
In its Court Application, the aforementioned Company claimed that the Court should annul the contested Global Minimum Tax Directive, in so far as:
– first, Article 17 of that directive excludes from its scope income from a shipping activity covered by a Member State’s tonnage tax scheme authorized in accordance with State aid rules, other than ‘international shipping income’ and ‘qualified ancillary … income’;
– secondly, Article 17 of that directive applies only if ‘the constituent entity demonstrates that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where that entity is located’;
– thirdly, that directive does not lay down transitional measures for taxpayers that made substantial investments relying on a tonnage tax scheme;
In essence, the applicant alleged that the Pillar Two Directive, by not fully excluding income from a shipping activity covered by an EU Member State’s tonnage tax scheme when computing the qualifying income or loss of a constituent entity, offsets the corresponding benefit from the application of the Dutch tonnage tax regime – authorized by the European Commission in 2010 and 2019 – through a potential top-up tax.
It should be noted that Article 17(2) of the directive provides that ‘the international shipping income and the qualified ancillary … income of a constituent entity shall be excluded from the computation of its qualifying income or loss, provided that the entity demonstrates that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where [that] entity is located’.
The EU General Court held that the action must be dismissed as inadmissible because Fugro was deemed to have no standing as it would not be individually impacted (concerned) by the Directive due to the shipping income exclusion.
However, in its Decision, the EU Court recognized that, in the present case, it is not disputed that the contested directive is of general application, in that it applies to objectively determined situations and produces legal effects with regard to a category of persons envisaged in general and in the abstract.
According to the Court, this includes the provisions of the contested directive which provide, in principle, for the minimum effective taxation of multinational enterprise groups and large-scale domestic groups. First, those provisions apply where the objective conditions linked, in particular, to the group concerned earning an annual revenue of EUR 750 000 000 or more and to one or more constituent entities being low-taxed are satisfied. Secondly, those provisions have legal effects for all the parent entities and constituent entities which satisfy those objective conditions.
Therefore, the Court found that the contested directive, and in particular Article 17 thereof, applies to all economic operators that satisfy certain objective conditions and, in particular, those carrying out an activity in the maritime sector, irrespective of the Member State in which those operators are established and of their tax scheme, which may be a normal scheme or a tonnage tax scheme introduced by a Member State and authorised by the Commission.
However, the Court held that the applicant has not shown that it forms part of a limited class of persons within the meaning of the case-law, therefore, it must be held that the applicant is not individually concerned by the contested directive and it does not have standing to bring proceedings.
It was also reiterated in the judgment that the fact that the applicant may suffer taxation as a result of an EU act does not suffice for establishing an individual concern.
The present judgment can still be appealed before the Court of Justice, which will have the final saying. Nevertheless, the compatibility of (aspects of) the Pillar Two Directive with EU law can still potentially be assessed by the Court of Justice through the preliminary ruling procedure initiated by national courts.
This is the first judgement of the European Court regarding the implementation of the OECD Pillar 2 rules.
On a related note, KPMG recently published an overview summarizing the state of play regarding the implementation of the Pillar 2 rules.
As can be seen in the aforementioned overview, Cyprus consented to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework), QDMTT (Qualified Domestic Minimum Top-up Tax) and Transitional UTPR (Undertaxed Profit Rule) Safe Harbours.
Related Publications:
Attach 1:KPMG PILLAR 2.0 – State of Play
Europa/juris/15.12.2023/ FUGRO -EU COUNCIL
- ECSA EU ETS Task Force - mapping out of the issues linked to the criteria of the Innovation Fund 2023
The ECSA EU ETS Task Force took place on the 18th January 2024. Among other issues, the Task Force examined and discussed “Shipping under the Innovation Fund”, focusing on the eligibility criteria of shipping companies under the Fund.
With respect to geographical restrictions for maritime projects, the provision that “ships must have 30% of annual port calls in EU / EEA” has been retained among other criteria.
Although the abovementioned criterion of 30% port calls in EU / EEA excludes the largest part of shipping sector (i.e. tramp trades), to our surprise the requirement of the EU/ EEA Flag of eligible ships was missing from these criteria. However, the EU / EEA Flag is a valuable criterion showing a European dimension of the project and European added value. EU flag ships nowadays endanger their existence under most dangerous geopolitical constraints in order to transport EU trade around the globe. At the same time they are not considered eligible for funding under the Innovation Fund if they don’t have 30% of annual calls in EU ports . In other words, most ships operating in tramp trades may be non eligible for funding under the Innovation Fund.
CONCLUSION
Exclusion of the European flag from the alternative eligibility criteria of the Innovation Fund will operate as a disincentive to EU flag registration .
The EC /DG CLIMA is in the process of collaborating with ECSA on the mapping out of issues linked to the criteria of the Innovation Fund, while ECSA is currently discussing internally to finalise its views to be sent to DG CLIMA/ CINEA. In this respect and in view of the next call for projects under the Innovation Fund in 2024, our Union’s Secretariat is in constant communication with both the Cyprus Environmental Department and the Shipping Deputy Ministry requesting the safeguarding of the EU/ EEA Flag criterion at a State level while it has already put forward the EU Flag Criterion in the ECSA discussion having the support of ECSA.
- Agreement in principle on the launch of an EU Operation in the Red Sea
Following the Foreign Affairs Council meeting on Monday 22 January (with the participation of leaders from Saudi Arabia, Egypt, Jordan plus the Arab League secretary-general), the EU High Representative, Josep Borrell, announced that the EU Foreign Ministers agreed in principle to organize an EU mission in the Red Sea (Operation “Aspis”).
Mr. Borrell stated that the European Union will not send its ships into combat missions in the Red Sea, clarifying that the EU is preparing a naval mission to the Red Sea, but that its “sole goal is to protect shipping”, since the Red Sea runs “a serious risk” of escalating the war in Gaza by disrupting global shipping in a vital artery.
According to the information that ECSA has from their EEAS contact, meetings of the preparatory bodies are being held nearly daily at the Council level to fast-track the decision as fast as possible. The current timeline is still set for 19 February but the EEAS is hoping to push for a written procedure at next week’s Political and Security Committee.
Related Publications:
EEAS Europa/ 22.01.2024/foreign affairs council press remarks
EU Observer.com/22.01.2024/ EU Discusses Red Sea Plan
AA/ 19.01.24/eu red sea naval mission
Middle East Monitor/2024.01.19-eu red sea naval mission
4. US TREASURY REPORT
The US Treasury Report for all actions reported is hereby attached.
Related Article:
Attachment 2: US Treasury Report for week 19 -26/01/2024
5. PIRACY REPORT
The Piracy Report for all actions reported is hereby attached.
Related Article:
Attachment 3: Worldwide Threat to Shipping (WTS) Report, for the period between 27 December 2023 – 24 January 2024
Nothing important to report from IMO, ILO and Parliament of Representatives.