MARITIME AID POLICIES OF SELECT COUNTRIES

Overview:

In efforts to preserve and expand their fleets by making them more competitive, many nations are developing aggressive maritime promotional policies. Prominent among them are several European and Asian nations that have enacted measures -- including major tax incentives, direct subsidies, and ship financing schemes -- aimed at benefiting shipowners operating under their national flags, thus enhancing the appeal of their ship registries against flags of convenience. These efforts have greatly intensified in recent years.

The information that follows is not presented as an exhaustive review of all the maritime aid programs being offered by foreign governments, or even of the entire array of maritime aid measures now in effect in European Union (EU) member states and other European countries. By describing many of the key maritime aid provisions that have been adopted by several European governments, this information is intended to draw attention to the fact that other maritime nations, recognizing the immense economic importance of their national-flag fleets, are intent on strengthening those fleets by adopting aggressive promotional measures.

In short, European and other foreign nations are taking bold and effective action to enhance the international appeal of their ship registries. Without countervailing action by U.S. policymakers, the aggressive policies being pursued by European nations to attract maritime business will work to the great disadvantage of U.S.-flag cargo and passenger ships attempting to operate in international trades. However, the negative competitive impact can extend to U.S. domestic operations as well.

U.S.-flag vessels operating in U.S. domestic trades will be adversely affected when American buyers purchase goods or leisure travel services from foreign sources, preferring to ship their goods or take their vacation cruises on vessels registered in countries whose maritime policies have reduced vessel operating costs to such a degree that prices for goods and services produced in the United States substantially exceed those for the same types of goods and services obtained via foreign-flag operators.

These policies, if not matched by the United States, will have an especially deleterious effect on any U.S.-flag cruise ships attempting to operate in both international and U.S. domestic trades. This is because operators in the intensely competitive cruise industry, in which overall supply (capacity) typically exceeds demand, are competing for a fixed amount of travel/vacation dollars, the supply of which changes only gradually over time. Value-conscious cruise customers can be expected to choose the cruise line that gives them the most value for their money. Between two cruise lines providing similar shipboard amenities, they are likely to choose the one offering the lower rate. Considering that nearly all foreign-flag cruise ships are built with large subsidies and pay no U.S. corporate or crew payroll taxes, the advantage can be overwhelming.

Belgium:

(updated July, 2004)

On March 19, 2003, the European Commission (EC) announced that it had decided to approve several tax measures including a tonnage tax scheme, enacted by Belgium to aid its maritime sector.

The new tax provisions are already sparking renewed interest in the Belgian flag, which Belgian ship owners abandoned en masse in 1991.

For example, Belgian ship owner CMB, which transferred its entire fleet to the Luxembourg register in 1991, announced in May that it planned to bring about 20 ships under the national flag.

SOME KEY PROVISIONS OF BELGIUM'S TONNAGE TAX SYSTEM

The tonnage tax regime applies to Belgian companies (and Belgian branches of foreign companies) that are:

	the owner, joint owner, or usufructuary of a ship that isn't subject to a bareboat charter; or
	the bareboat charterer of a non-Belgian-owned ship.

Belgian companies or branches that are engaged in the management of ships on behalf of third-party owners can also take advantage of the tonnage tax regime. To qualify, however, they must meet additional conditions: At least 75 percent of the ships must be registered in the Belgian ship register, and the company or branch must be exclusively engaged in ship management.

The tonnage tax regime is an optional one; a shipping company must explicitly request its application. When an application is granted, the tax regime enters into effect for the year following the year in which the application was submitted. For example, if the request was filed in 2002, the regime applies to income earned in fiscal 2003 (tax assessment year 2004).

The tonnage tax regime is granted for an initial period of 10 years, with an automatic renewal every 10 years. An operator can leave the regime, provided he or she gives notice at least three months before the end of the 10-year period.

Computing the Tonnage Tax

The tonnage tax is determined on a notional tax basis, which is then subject to the ordinary corporate income tax rate of 33.99 percent.

The notional tax basis is computed per ship, per day, and per 100 net tons, in accordance with the scale below.

For Belgian companies or branches that manage ships on behalf of third-party owners, the notional tax basis is computed per ship, per day, and per 1,000 net tons, in accordance with the following scale:

Up to 1,000 tons, euro 1.00
Between 1,001 tons and 10,000 tons, euro 0.60
Between 10,001 tons and 20,000 tons, euro 0.40
Between 20,001 tons and 40,000 tons, euro 0.20
Over 40,000 tons, euro 0.05

The capital gains (or losses) on the disposition of ships are not taxable (or deductible) and are deemed to be included in the notional tax basis of a company or branch that has elected to enter the tonnage tax regime.

Cyprus

(updated March, 2004)

Cyprus offers significant tax incentives to shipping companies, including the following:

	No income tax is payable on the profits from the operation of a Cyprus-registered vessel.
	No capital gains tax is payable on the sale or transfer of a ship.
	No income tax is payable on the salaries of officers and ratings employed on Cyprus-registered ships operated in international waters.
	Vessels registered in Cyprus are subject to a very low tonnage tax.

SOME KEY PROVISIONS OF THE CYPRIOT TONNAGE TAX SYSTEM

For vessels other than passenger ships, the tonnage tax is calculated as follows:

(BASIC CHARGE + GROSS TONNAGE INCREMENT) x AGE MULTIPLIER

The basic charge is CY£100, and the gross tonnage increment is calculated as follows:

	GROSS TONNAGE	CENTS
	For each unit up to 1,600	26
	For each unit between 1,601 and 10,000	16
	For each unit between 10,001 and 50,000	6
	For each unit over 50,000	4

The age multiplier is shown below:

	AGE*	SHIP RATE MULTIPLIER
	Up to 10 years	0.75
	11-20 years	1.00
	Over 20 years	1.30
* This is calculated by deducting the year in which the keel was laid from the year of assessment of the tonnage tax

For passenger ships the tonnage tax payable is double that payable for other ships. The tonnage tax is payable in biannual installments, on 1 January and 1 July.

If a vessel's crewing and technical management is carried out by companies operating in Cyprus, a 30 percent reduction of the tonnage tax is allowed, provided the relevant documentary evidence is submitted to the Department of Merchant Shipping.

The law further provides that if Cypriot citizens are employed as members of a vessel's crew, a percentage of the tonnage tax owed on the vessel may be refunded for each month they are employed on board.

In addition, if a ship is laid up for a period of more than three consecutive months, the tonnage tax payable is reduced by 75 percent for the period during which the ship is idle. However, the maximum reduction or refund cannot exceed 50 percent of the tonnage tax due.

Denmark:

(updated March, 2004)

In its draft budget for 2001, introduced at the end of August 2000, the Danish government stated its intention to introduce a tonnage tax system, but without setting a timetable.

At the time, Danish shipowners reacted negatively to the government's proposal to combine a tonnage tax with a requirement that owners also include a "shadow calculation" of tax liability based on the regular corporation tax system. They wanted a tonnage tax without side calculations.

They now have it. Denmark's current government, elected in November 2001, offered a tonnage tax as part of a wider package of measures intended to stimulate business.

In presenting the tax proposal as part of its 2002 finance bill, the government said Denmark should still be an attractive country in which to operate shipping. "That requires that tax rules do not diverge substantially from rules offered in other countries."

Denmark's tonnage tax regime, which received approval from the European Commission in March 2002, is similar to the United Kingdom's.

Danish maritime shipping companies may opt into the tonnage tax scheme for renewable 10-year periods, allowing them to calculate their tax liability by reference to a fixed daily rate on the capacity (tonnage) of ships employed (per 100 net tonnage).

In 1989, Denmark implemented fiscal reduction measures for seafarers on board Danish vessels registered in either the ordinary register (DAS) or the second register (DIS).

Under these measures, which went into effect January 1, 1989, seafarers working on DAS- or DIS-registered vessels benefit from income tax reductions, though the income tax regime for the DAS register is less favorable.

The European Commission (EC) belatedly announced its approval of them on November 13, 2002, following a complaint that the favorable fiscal regime should be limited to European Union nationals.

The EC noted that all seafarers on board both DAS- and DIS-registered vessels are subject - at least in principle - to income tax in Denmark even though their fiscal treatment significantly reduces, or even eliminates, their tax liability.

"The Commission is thus of the opinion that the fiscal measures related to the income tax of seafarers in maritime transport in Denmark are so far compatible with European State aid rules," according to a press release on the subject.

SOME KEY PROVISIONS OF DENMARK'S TONNAGE TAX SYSTEM

The Danish tonnage tax regime is open to limited shipping companies registered in Denmark, EU shipping companies with a permanent establishment in Denmark, and all companies whose management is located in Denmark, provided that the company has corporation tax liability in Denmark.

Shipping companies can choose between the tonnage tax and the ordinary corporate tax. The decision, once made, is binding for a period of 10 years. Qualified companies are obliged to choose between the two options before they file their income tax for the year in which they qualify for tonnage taxation.

All qualifying shipping companies within a group are required to choose the same taxation system. However, individual companies with separate and independent management, and clearly different business activities, can apply for separate taxation.

Only income deriving from the shipping business (the transport of goods or passengers) and associated activities is covered by the tonnage tax system. Associated business includes such activities as the operation and maintenance of dockyards, passenger terminals, containers, ticket offices, and other related office facilities.

Activities not qualifying under the tonnage tax system include fishing, dredging and the extraction of hydrocarbons. Qualifying vessels include cable-laying ships, shuttle tankers and stand-by vessels, but not engineering ships.

Qualifying income is derived from vessels that a company owns or charters, including time-chartered vessels of 20 gross tons or more. The leasing of ships is not considered shipping business for tonnage tax purposes.

Computing the Tonnage Tax

Each ship's tonnage income is calculated as follows, on the basis of a fixed amount per 100 net tons:

	For each 100 tons up to 1,000 tons, DKK 7
	For each 100 tons between 1,000 tons and 10,000 tons, DKK 5
	For each 100 tons between 10,000 tons and 25,000 tons, DKK 3
	For each 100 tons above 25,000 tons, DKK 2

Tonnage income is calculated on a daily basis, regardless of the ship's operating status, and taxed at a rate of 30 percent annually, Denmark's ordinary corporate tax rate.

Capital gains related to the sale of ships are taxed at the same rate.

Finland:

(updated January, 2004)

While the Finnish-flag fleet has been stable in recent years, the industry is currently threatened with an exodus of vessels to foreign registers as owners face growing pressure to respond to the new competitive climate. For example, Finnlines and Viking Line have both announced plans to re-flag ships.

Under s subsidity system introduced in 1992 to compensate shipowners for the higher cost of employing local seafarers, Finnish-flag cargo vessels with a domestic crew and trading to and from Finland, in the international trade, became eligible for the repayment of seafarers' income taxes and three to five percent of social security payments. This subsidy system did not extend to ferries and passenger ships. (Under the Finnish Foreign Merchant Shipping Registry Act, only cargo vessels used primarily in international trade and passenger vessels not regularly calling at Finnish ports were eligible for state aid.)

In 2002, the government of Finland granted full restitution of all social security costs for seafarers, but again only for those employed on Finnish-flag cargo ships for seafarers. Another provision, which also applies only to cargo ships, allows up to 50 percent of a ships's crew to be hired from non-European Union countries.

On March 2002, the European Commission approved a Finnish scheme providing a subsidy to passenger vessels. The subsidy scheme gives EU seafarers working on board Finnish passenger ships a 97-percent reduction of withholding tax on their marine work income.

The tax relief benefits Finnish passenger vessels engaged in international transport and calling regularly at Finnish ports.

Also in 2002, after much debate, Finland's parliment ratified legislation implementing a tonnage tax system. The measure follows Norway's tonnage tax rules, whereby only revenues retained in a company for future investment in its shipping operations qualify for the tonnage tax; while those paid to shareholders in the form of dividends would be taxed at the normal corporate income tax rate of 29 percent. (Norway's tonnage tax system allows taxes to be deferred until such time as profits are distributed.)

The reaction among Finnish shipowners to the tonnage tax system has been generally negative, especially among large owners. Some industry representatives have been harshly critical.

"The system is a total disaster from start to finish," said Henrik Longqvist, acting managing director of the Finnish Shipowners' Association, who predicted that not a single ship would choose the tonnage tax over the traditional tax regime.

The big owners say the system does not provide satisfactory treatment of so-called "hidden tax debt" represented by depreciation.

Ferry operators complain that it does not cover revenue from duty-free sales on passenger ships.

Shipowners in Finland are also unhappy with the fact that the provision granting full refunds of crew taxes and social costs, and the one allowing up to 50 percent of a ship's crew to be hired from non-European Union countries, are restricted only to cargo vessels.

Despite the negative feedback from shipowners, the government of Finland said it had no plans to modify the tonnage tax system.

RECENT DEVELOPMENT: Helsinki announced in November 2003 that, effective from January 2004, it would revise its maritime policy to allow owners of both cargo and passenger vessels to receive a full refund for tax and social security payments made on behalf of seafarers. The "net wage" system, based on the Swedish model, also permits funds received from ship sales to be set aside untaxed if they are used to acquire replacement tonnage.

France:

(updated May, 2004)

Quirats System

In the summer of 1996, the French parliament approved a "quirats" system (which came into force in October 1996) whereby private investors could buy shares in French-flag ships in return for tax breaks. The now-defunct instrument, which was to have been available for investments subscribed up to the end of the year 2000, allowed individual investors to deduct up to FFr500,000 ($65,200)* and firms applying together up to FFr1 million ($130,400) annually from their taxable income provided the sum was invested in ships under the French flag. Ships financed under the quirats system must remain under the French or Kerguelan flag until the year 2001.

The quirats system covered both merchant tonnage and passenger ships. The ships concerned could be new or secondhand but had to be certified as having a useful life of eight years and delivered within 30 months of the investment being subscribed. In addition, owners themselves were required to provide 20 percent of the purchase cost. Each application had to be individually approved by the government. The system was the centerpiece of an attempt by the French government to strengthen the French-flag merchant fleet.

As of May 1997, some FFr3,500 million to FFr4,000 million ($456.4 million to $521.6 million) worth of ships had been financed under the quirats system. "Not too long ago there was talk of the French fleet withering to nothing," said Philippe Poirier D'Ange D'Orsay, president of the French Shipowners' Association. "All that has changed. Quirats has stirred fresh dynamism and optimism."

In December 1997, after many debates on the issue, the French parliament's lower house -- National Assembly -- abolished the short-lived quirats system over the heated protests of French shipowners. The decision came during deliberations on France's budget for 1998, and overturned a Senate vote in favor of the system. All contracts signed under quirats before September 15, 1997 were deemed legal and allowed to proceed.

Pons System

France also has in place what is known as the "Pons" system, under which a ship operating company may raise 100% of the money needed to finance ship construction from private investors, and after five years of operation acquire the ship at 50 percent of its construction cost. Investors in ships financed under the Pons system are entitled to deduct a certain amount of their investment from their taxable income. Ships financed under the Pons system must fly the French flag and operate within French territories. (Vessels ordered under the alternative Quirats system are not limited to French territories, provided they fly the French flag for a minimum of five years.) Further, the master and other senior officers of ships financed under the Pons system must be French nationals.

France also provides direct subsidies to the French shipping industry. The subsidies amounted to FFr201 million ($26.2 million) in 1997. The money is used to compensate for the high cost to French shipowners of sailing under the French flag, both in salaries and in the social charges levied by the government.

In November 1999, French shipowners' association CCAF proposed a set of reforms aimed at enhancing the flag's competitiveness internationally and to safeguard the domestic fleet. The proposed measures included the introduction of a lump-sum tonnage tax, tax-exempt status for seamen's salaries, and the abolition of social charges for seafarers. Another proposal called for the government to expand on France's strategy of having three separate flags for different shipping sectors.

The French transport minister had announced months earlier that his ministry was considering a reform of existing regulations governing the French flag, without providing any details. Then, in early 2000, the French government let it be known that it would propose measures shortly to make the French flag more attractive to ship operators.

It was reported that the government planned to reform France's international registry, commonly known as the Kerguelen registry, to enhance its appeal. Under the proposed changes, shipowners would be given greater freedom in the use of non-French seafarers. Currently, crews on Kerguelen-flag vessels must be 35 percent French, but the government indicated that shipowners would be allowed more flexibility in meeting this requirement, probably by letting them apply the percentage as a fleet-wide average rather than as a minimum requirement for each vessel.

The government also announced its intention to extend existing employer social charge reimbursements to family allowance and employment pay contributions, and to review policies pertaining to taxation of capital gains from the sale of French-flag ships. Consideration was given to the possibility of exempting proceeds from the sale of French-flag vessels from the capital gains tax in the event that the proceeds were reinvested in another French-flag ship within five years of the sale. News reports indicated that the French government seemed to prefer this form of tax relief to the tonnage tax proposed by shipowners.

The French government also proposed opening the Kerguelen registry to cruise ships.

The government then decided to commission a fresh study by outside experts who, in the report they produced a few months later, agreed with the owners that the French flag merchant fleet is at a serious cost disadvantage in relation to its European neighbors and, without supportive action, faces extinction.

"Without flexibility on all sides, the future of the French merchant fleet will be inscribed under one or several foreign flags," according to the report.

While arguing that the French government has done less to help the shipping sector than its counterparts in other European countries, the report came up with surprisingly few hard-and-fast recommendations for remedying the situation.

It supported the owners' claim for exemption from social charges for crew members but suggested that the tonnage tax might not bring the benefits they expect.

Above all, it called for a revision of the Kerguelen register, making it available for all categories of ships operating in international markets.

The report accepted the need to give owners some flexibility in meeting the 35 percent requirement, but the Central Committee of French Shipowners expressed strong reservations about the further recommendation that shipping companies be obliged to give long-term guarantees regarding the maintenance of seafarers' jobs.

Overall, the report won a mixed response from the shipowners' committee.

In April 2001, after months of negotiations, the French shipowners' committee announced that it had reached conditional agreement with all the leading seafarers' unions except one in regard to manning requirements for the Kerguelen registry.

The agreement would allow shipowners to make virtually unlimited use of non-French seafarers on ships new to the Kerguelen fleet, requiring only the master and second officer to be French.

In return for this concession from the unions, French shipowners agreed to abide by the 35 percent minimum French crewing requirement on vessels in the existing Kerguelen fleet. Instead of being applied on a vessel-by-vessel basis, however, the percentage requirement would be applied on a company-wide basis, allowing variations in French crewing levels from one vessel to another.

The unions remained unwilling to conclude agreement on the 35-percent rule, however, without further progress on other aspects of the reform, which covers such areas as union representation for Kerguelen crews and social security cover for foreign seafarers employed on Kerguelen vessels.

And until shipowners and unions reached full agreement on all aspects of the reform, the French government was unwilling to put any of it into effect.

For example, an item in the 2002 Finance Bill, published in September 2001, provided for the reimbursement of seafarers' social charges not already covered by their social security system. However, the transport ministry indicated in its note of presentation of its proposed 2002 budget that this measure would not apply to seafarers aboard vessels on the Kerguelen register until talks between owners and unions had been completed - a decision which drew protests from shipowners.

But the government took what was reported to be a significant step forward in March 2002 by adopting an ordonnance giving its agreement in principle to owners' pleas for greater freedom to use foreign seafarers in vessels using the Kerguelen register. The ordonnance needs to be completed by a decree requiring approval from the Council of State.

Though French shipowners failed to persuade the government to include a tonnage tax in the 2002 Finance Bill, one was included in a package of transport measures proposed by Union en Mouvement, the grouping behind President Chirac's successful bid for re-election in May 2002.

Following the election, French shipowners' leader Philippe Louis-Dreyfus, said he was "relatively optimistic" about the prospects for French shipping under the new government.

He indicated that French owners were hopeful that the government would move to end the blockage on flag reform, allowing them greater freedom in the use of non-French seafarers on France's second register.

They attach particular importance to the total reimbursement of employer social security contributions, promised but never carried out by the previous government.

French shipowners also continue to push for tax-exempt status for seafarers' salaries.

In December 2002, the French parliament approved legislation providing for the creation of a tonnage tax, two months after the French government gave the go-ahead for adoption of a tonnage-tax system in 2003.

France's tonnage tax regime, which received European Commission approval in May 2003, is available to companies drawing over 75 percent of their revenues from commercial shipping and can be applied to vessels of 50 Universal Measurement System (UMS) units or more.

Tugs, dredgers, fishing boats and fixed vessels are not included.

Another significant development came in April 2003 with the announcement that France had agreed to set up a new international register to replace the French Southern Antarctic Territories register, more commonly referred to as the Kerguelen flag.

The proposal to create the French International Register (FIR), which would virtually eliminate the French nationality requirement aboard French-flag vessels, was made in a government-commissioned report produced by Henri de Richemont, a senator and maritime lawyer.

Under the FIR, only the captain and his second officer must be French, whereas crews on ships under the existing Kerguelen flag are required to be 35 percent French.

Other proposals offered by Mr. De Richemont include significant tax relief for seafarers' salaries, outright elimination of employer social security charges for vessel owners rather than the present policy of reimbursing them for such charges, and tax relief for road haulers willing to use maritime cabotage.

The FIR is expected to provide substantial operating savings compared to the French second register of the Kerguelen Islands.

In November, Dominique Bussereau, France's secretary of state for transport and the sea, confirmed that the FIR was on schedule to be adopted by January 1, 2004, adding that the text was almost finalized and was being reviewed by the Merchant Marine Council.

Paris rethinks plan for second register: French President Jacques Chirac, reacting to opposition party gains in regional council elections in March 2004, appointed a new government under Prime Minister Jean-Pierre Raffarin. The new government announced in April that the bill to create a new French international register had been taken off the government's legislative timetable.

While strongly favored by French shipowners, the measure drew fierce opposition from French seafarers' unions, which had waged a concerted campaign of industrial action against the proposal.

Francois Goulard, who replaced Mr. Bussereau as secretary of state for transport and the sea, asked Bernard Scemama, chairman of the Higher Council for the Merchant Marine, to act as a mediator between the unions and shipowers.

Mr. Goulard said the government's future approach to the issue would be decided on the basis of conclusions reached by Mr. Scemama following the discussions. A new bill is expected soon.

SOME KEY PROVISIONS OF FRANCE'S TONNAGE TAX SYSTEM

France's tonnage tax regime is open to companies that are liable to the French corporation tax, and which generate more than 75 percent of their revenues from the operation of commercial ships.

Owners or joint owners of qualifying ships (commercial ships of 50 or more gross tons, operated for the carriage of passengers or goods, towage in high seas, salvage activities, or maritime assistance or transport in connection with activities necessarily provided at sea) may elect to enter the tonnage tax system for a renewable and binding 10-year period if:

	They operate the ships directly.
	Ships are time-chartered or voyage-chartered.
	Ships are bareboat-chartered, provided that the bareboat charterer is a related company (as defined in article 39-12 of the French Tax Code) that also has opted for the tonnage tax.

Bareboat charterers and time charterers also may elect to adopt the tonnage tax regime with respect to the same qualifying ships, while voyage charterers are excluded from the regime.

Fishing vessels, dredgers and ships operated for port activities are excluded as well.

For existing companies that qualified for the tonnage tax system at the time of its inception, the deadline for electing to enter it is December 31, 2004. Companies that become eligible to enter the system after that date are afforded only a limited window of opportunity: If they are to enter, they must do so during the financial year in which they become eligible or the following one.

Vessels need not be registered under the French flag in order to qualify for the tonnage tax, but they must be strategically and commercially managed from France.

Computing the Tonnage Tax

The corporation tax rate (33.33%) is applied to profits, calculated on a ship-by-ship basis as follows:

STEP 1 - calculate the daily profit per ship

This calculation is made by reference to an amount of profits for each 100 net tons.

For each 100 tons up to 1,000 tons, euro 0.93
For each 100 tons between 1000 tons and 10,000 tons, euro 0.71
For each 100 tons between 10,000 tons and 25,000 tons, euro 0.47
For each 100 tons above 25,000 tons, euro 0.24

STEP 2 - calculate the profit per ship for the accounting period

Multiply the daily profit for each ship by the number of days that the ship is actually operated by the company during the accounting period.

STEP 3 - calculate the tax owed

Multiply the profit for each ship by 33.33 percent, the corporate tax rate.

EXAMPLE

For a ship of 50,000 tons, tonnage taxes for a 365-day accounting period would amount to 24,781.02 euros.

Capital gains resulting from the sale of ships that are purchased and sold while under the tonnage tax regime are exempt from taxes.

The following items of income are added back to the tonnage tax profits:

	Cancellation of debt, grants and acts of liberality made in favor of the company within the tonnage tax regime by a related company that has not opted to enter the regime.
	Income generated by pass-through entities, except in the case of joint-ownership of vessels that are eligible for the tonnage tax regime.
	Profits arising from the disposal of assets used in the operation of eligible ships.
	Gains generated by the voluntary revaluation of ships and fixed assets used in the operation of ships.
	Gains on capital contributions related to depreciable assets with respect to merger, spin off or partial business transfer - gains that benefit from the favorable tax regime of article 210 A of the French Tax Code.
	Interest calculated on the basis of the portion of shareholders' equity that exceeds twice the amount of the debts of the company plus the lease payments remaining due at the end of the financial year and the residual price of the assets leased

* Equivalent U.S. dollar amounts given herein are based on the rates of exchange for the U.S. dollar against the particular foreign currency as of June 21, 2001, as listed in The Wall Street Journal on June 22, 2001.

Germany:

(updated April, 2004)

Effective January 1, 1999, the German government adopted measures intended to bring substantial tax relief -- an estimated Dm160 million ($70 million) annually -- for the German-flag shipping industry. Following the model of the Netherlands, Germany allows shipowners to choose between a flat-rate tonnage tax and the normal income tax. Owners have three years after ordering a new vessel to decide whether they want to be covered by the normal German tax system or the tonnage tax, while owners of existing ships must decide by December 31, 2001. The choice, once made, remains in force for 10 years. Operations for vessels under the tonnage tax have to be run from Germany.

Under the special tax regime, taxable income is determined on the basis of a ship's tonnage, and the income so determined is taxable (federal corporation tax and municipal trade tax) at ordinary rates. The annual income for each ship is deemed equal to the following flat rates: Dm1.80 per 100 net tons per day for ships under 1,000 net tons, Dm1.35 for vessels between 1,000 net tons and 10,000 net tons, Dm0.90 up to 25,000 net tons, and Dm0.45 for tonnage above 25,000. The tonnage tax has to be paid even if the vessel produces a loss.

German shipowners are allowed to retain 40 percent of the income tax, which is deducted at source, for seafarers that work at least 183 days a year on German-flag ships in international trades.

In addition, the German government has appropriated more than $128 million (to be paid out between 2001 and 2006) to subsidize the non-wage labor costs of operating German-flag vessels.

In May 2002, the European Commission (EC) approved a euro4.1M ($3.7M) aid scheme to help maritime shipping companies finance the training of seafarers on German merchant ships.

EC approval cleared the way for the German government to allocate up to euro25,500 ($23,000) per trainee.

Aid contributions will be given to seafarers on German-registered ships. European citizens qualify for the training grant if they are trained as additional crew members on merchant ships suitable for training purposes.

The German aid scheme, which aims at safeguarding and developing European maritime expertise while reducing labor costs, is in line with the objectives and principles outlined in the guidelines on state aid to the maritime transport sector that were adopted by the EC in 1997.

The EC ruled that the German aid plan is non-discriminatory, transparent and compatible with European competition rules.

RECENT DEVELOPMENTS: In May 2003, German Chancellor Gerhard Schroeder announced that the share of the income tax paid by seamen that owners can keep as a subsidy would increase from the current 40 percent to 80 percent. (Under European Union guidelines for state aid to maritime transport, owners can be allowed to keep up to 100 percent of the income tax paid by seafarers.)

Germany's latest budget, passed on July 2, includes financial aid for German shipping companies in the amount of 45M euros ($51.7M) a year in 2004 and 2005. The aid, in the form of income tax relief and crew social payment concessions for owners flying the German flag, fulfills the promise made by Chancellor Schroeder in May, the German transport minister said.

SOME KEY PROVISIONS OF GERMANY'S TONNAGE TAX SYSTEM

To qualify for the tonnage tax regime, an applicant must:

	Operate merchant ships in international shipping operations
	Be a German shipowner
	Be a commercial business having its management in Germany
	Make an irrevocable application
	Meet the relevant provisions of the German Income Tax Act

Merchant ships are deemed to be operated internationally if they are mainly used to transport passengers or goods to or between foreign ports, within a foreign port, or between a foreign port and the high seas; or if they are mainly used outside German territorial waters for towage, the survey of energy deposits located below the sea bed, salvage or mineral exploration. Their operation includes incidental and auxiliary activities. They may be owned or chartered.

Ships are considered as being mainly used for international shipping operations if they are so used for more than half of the total number of operating days. (Lay-up days are counted as operating days, provided that "loss of hire" insurance was taken out. So are brief shipyard stays. Extended shipyard stays, for reconstruction or major repair work, are not counted as such.)

Vessels are required to be primarily registered in Germany.

Upon being accepted into the tonnage tax system, an applicant must remain in it for a period of 10 years, and may not exit from it voluntarily during that period.

Ownership of a vessel by a German shipowner includes the commercial, technical and staffing management of the ship. In particular, the following activities are included:

	Entering into contracts for use of the ship
	Equipping ships and providing food and drink
	Recruiting of captains and ship's officers
	Providing cargo for the ship
	Entering into contracts for bunker fuel and lubricating oil
	Maintaining the ship
	Entering into an insurance contract on ship and equipment
	Keeping books of account
	Accounting
	Effecting and implementing the resolution of co-owners of the ship

These major activities must be carried out almost exclusively in Germany.

In the case of partnerships, entry into the tonnage tax system may only be applied for on a joint basis, with each member of a corporate group qualifying individually for tonnage tax.

With respect to the operation of merchant ships, a distinction is made between ships that are owned by a company and ships that are chartered by it:

	In the case of ships that are owned by a company, the operation of merchant ships includes both independent use and chartering, provided the chartered ships are equipped - i.e., staffed with crew and otherwise made operational - by the charterer. Accordingly, "bareboat" chartering is excluded. In addition to use and chartering, the operation of merchant ships, as previously noted, also includes any incidental or auxiliary activities that are directly related to the use and chartering of ships. These activities include the sale of merchant ships, as well as the sale of assets that directly serve the operation of merchant ships.
	In the case of chartered ships, their use in international shipping operations may be covered by the tonnage tax system if the following additional requirements are met:
		In the case of chartered vessels registered in a German ship register, they are covered only if the merchant ships that are owned by the company are simultaneously operated in international shipping transactions
		In the case of chartered ships not registered in a German ship register, there is the additional proviso that the net tonnage of the chartered ships does not exceed three times the net tonnage of the merchant ships that are owned by the company

If a company conducts other activities in addition to operating merchant ships in international trades, profits from those activities are subject to the ordinary corporate tax.

No depreciation or equivalent allowances are available under the tonnage tax system.

Computing the Tonnage Tax

Taxable profit, calculated on the basis of net tonnage, is determined as follows:

STEP 1 - calculate the daily profit per ship

This calculation is made by reference to an amount of profits for each 100 tons, as follows:

For each 100 tons up to 1,000 tons, euro 0.92
For each 100 tons between 1,000 and 10,000 tons, euro 0.69
For each 100 tons between 10,000 and 25,000 tons, euro 0.46
For each 100 tons above 25,000 tons, euro 0.23

STEP 2 - calculate the profit per ship for the accounting period

Multiply the daily profit for each ship by the number of international operating days during the accounting period.

STEP 3 - calculate the corporate tax owed

Under Germany's tonnage tax system, ship profits are taxed at the ordinary rate applicable to corporate profits.

German business profits are subject to two taxes: federal corporation tax and municipal trade tax. Corporation tax is levied at a uniform rate of 25 percent and is then subject to a surcharge (the "solidarity levy") of 5.5 percent. The trade tax rate varies by location from just under 12 percent to 20 percent (around 18 percent for most larger cities). The local tax is deductible as an expense for corporation tax.

Germany's effective tax rate on corporate profits, as quoted by KPMG International in its 2003 tax rate survey, is 39.58 percent. The rate includes corporate tax, the surcharge on the corporate tax, and trade tax.

Greece:

(updated March, 2004)

Greece established a tonnage tax system for Greek-flagged ships in 1975. The majority of the Greek tonnage tax provisions enjoy a special status: They cannot be amended or abolished (save for amendment of the tax rate) as long as the present provisions of the Greek constitution regarding Greek commercial ships remain in force.

The tonnage tax is not elective - it is the only tax imposed on the registered owners of Greek-flagged ships (no corporate tax is payable). It is calculated by reference to a ship's category, age and tonnage. (Actual profits deriving from the shipping business are disregarded for tax purposes.)

At the start of 2002, the tonnage tax on cargo ships that trade regularly between Greek and foreign ports, or exclusively between foreign ports, was reduced by 50 percent. Greek-flagged cruise vessels also received the 50-percent reduction.

At the same time, Greece reduced the tax burden on its seafarers, cutting the income tax for officers from nine percent to six percent and halving the tax rate on ratings to just three percent.

SOME KEY PROVISIONS OF GREECE'S TONNAGE TAX SYSTEM

Greece's tonnage tax law applies to all Greek-flagged ships used for commercial purposes.

Ships under the Greek flag are separated into two categories, with the first category consisting of the following:

	Bulk carriers, tankers and reefers of at least 3,000 gross tons.
	Steel dry or wet cargoes, as well as reefers of between 500 and 3,000 gross tons, which undertake voyages to foreign ports or navigate exclusively between foreign ports.
	Passenger ships that undertake voyages to foreign ports or navigate between foreign ports.
	Passenger ships of more than 500 gross tons that have undertaken, following a public announcement, regular trips exclusively for leisure purposes for a period of at least six months during the previous year.
	Floating rigs having a displacement exceeding 5,000 tons, as well as floating refineries used for exploration, drilling, pumping, refining and storage of oil or natural gas.

Under the Greek tonnage tax system, the treatment of ships in the second category (those not meeting the criteria listed above) differs from that of first-category ships and will not be considered further in this material.

Computing the Greek Tonnage Tax

The tonnage tax is calculated annually on the basis of a ship's age and gross tonnage.

STEP 1 - calculate the ship's total taxable tonnage

Multiply tonnage between 0 and 10,000 gross tons by 1.2
Multiply tonnage between 10,001 and 20,000 gross tons by 1.1
Multiply tonnage between 20,001 and 40,000 gross tons by 1
Multiply tonnage between 40,001 and 80,000 gross tons by 0.9
Multiply tonnage above 80,000 gross tons by 0.8

Example for a 20,000-ton ship

First 10,000 tons X 1.2 = 12,000
Second 10,000 tons X 1.1 = 11,000
Total taxable tonnage = 23,000

STEP 2 - multiply the total taxable tonnage by a specified rate (depending on the age of the ship), as follows:

Age of the ship	Rate (in US$) per gross ton*
	2003	2004 (116% increase on 1975 figures)
0 - 4 years	1.1236	1.1448
5 - 9 years	2.014	2.052
10 - 19 years	1.9716	2.0088
20 - 29 years	1.8656	1.9008
30 years or older	1.4416	1.4688

*The amounts payable for each gross ton have been increasing by four percent annually since 1975. These amounts will continue to rise by four percent annually until the year 2005, when the figures will be re-examined.

If a ship that is subject to the tonnage tax is not trading because of repair work, lack of employment or for any other reason, the tonnage tax payable is reduced in proportion to the number of days during which the ship was not trading, provided that this time period exceeds two consecutive months during the previous or relevant financial year.

Greece's tonnage taxation system covers any of a shipowner's income that is derived from that shipowner's use of his Greek-flagged ship(s) for commercial purposes. However, interest from bank deposits comprised of fares and other monies derived from the commercial use of ships is not deemed to constitute income from shipping activities, and is therefore taxed under the general rules of income taxation.

If a company with ships under the Greek tonnage tax regime conducts other business activities in addition to its shipping business, an exemption from corporate income tax is only granted to the portion of the company's net profits or dividends that equals the ratio of the gross income from the company's shipping business to its total gross income.

The following exemptions apply to first category ships under the Greek tonnage tax regime:

	Ships built in Greece and registered under the Greek flag are exempt from tonnage tax until they are six years old
	Ships that undertake regular voyages between Greek and foreign ports, or exclusively between foreign ports, as well as cruise vessels, are entitled to a 50-percent reduction on the tonnage payable.
	Ships less than 20 years old that have been repaired in Greece are exempt from tonnage tax for a number of years corresponding to one year for every US$100,000 spent on the repairs. However, in order to benefit from the exemption, the cost of repairs must have been paid using imported foreign currency. This exemption cannot exceed 50 percent of the total cost of the repairs, is applicable from the year following the date of completion of the repairs, and is valid for a maximum period of six years.

These tonnage tax exemptions are only applicable to ships that are registered under the Greek flag for the first time; that is, they are not applicable to ships that were registered with the Greek shipping registry, were struck off, and were then re-registered.

Ships qualifying for more than one of the above exemptions may benefit from only one exemption, selected by the shipowner by an irrevocable declaration.

India:

(updated November, 2003)

India’s long-pending tonnage tax regime will be implemented from April 1, 2004, Minister of State for Shipping Dilipkumar M. Gandhi announced in September.

India’s parliament was expected to pass implementing legislation during the winter session, around December-January.

Ireland:

(updated January, 2003)

Prior to January 1, 2003, taxable incomes from certain shipping activities qualified for a 10 percent tax rate, as opposed to the standard rate of corporation tax (previously 32 percent).

The current corporate tax rate of 12.5 percent applies to the trading profits of shipping and shipping service companies.

In February 1997, the Irish government announced its decision to substantially reduce the levels of Pay Related Social Insurance, which employers must pay for seafarers on their vessels. Sean Barrett, minister for the marine, said: "The new system is further evidence of the government's commitment to develop and maintain a strong Irish shipping sector." He explained that the aim of the measure was to "significantly increase the employment prospects of Irish seafarers" by making it more cost-effective to employ them on Irish vessels. In April 1996, Ireland introduced a subsidy program for seafarer/trainees to enable them to compete with UK counterparts for training placements on UK vessels.

TONNAGE TAX REGIME IMPLEMENTED:

A tonnage-tax provision was included in the Irish government's 2002 budget, introduced in December 2001.

Frank Fahey, Ireland's Minister for the Marine and Natural Resources, said of the decision to adopt a tonnage-tax regime:

The government approval for this unique flat rate tax linked to tonnage will act as a catalyst to regenerate the Irish shipping industry. The industry has been stagnant in recent years and this new tax regime will ensure a more attractive and enhanced fiscal environment. It will offer certainty and clarity for future investment and ensure the industry's competitiveness with those in other (EU) member states.

Glenn Murphy, director of the Irish Maritime Development Office, also welcomed the measure, saying:

The industry was on the brink of collapse and our larger owners would have been compelled to lower the Irish flag and relocate their core business structures to another country if the tonnage tax had not been announced this year.

Irish maritime interests have welcomed the new tonnage-tax regime.

The 2002 budget also provided Irish seafarers a special income tax allowance, as well as full refunds of pay-related social insurance to their employers.

IRISH TONNAGE TAX GETS EC APPROVAL:

On December 11, 2002, the European Commission (EC) gave its approval to the introduction of a tonnage tax in Ireland.

According to the EC, the "favorable fiscal measures" will benefit the employment of European Union (EU) seafarers and enhance the competitiveness of the Irish fleet.

The new system, based on the net tonnage of the fleet for all Irish maritime companies engaged in international traffic, replaces the standard corporation tax.

The EC granted its approval once it was satisfied that the tax scheme would meet all the EU guidelines on State aid to the maritime transport industry.

"We very much welcome the announcement as this now puts us on a level playing field," said Gary O'Dea, Irish Ferries finance director.

SOME KEY PROVISIONS OF IRELAND'S TONNAGE TAX SYSTEM:

Ireland's tonnage tax is open to shipowners, bareboat charterers, and ship management companies. The scheme does not require the management company to have an ownership interest in the vessels.

The tonnage-tax system offers an alternative method by which shipping companies may calculate their profits for corporation tax purposes. The profits, once calculated using the tonnage-tax method, are subject to the 12.5 percent rate of corporation tax.

Profits are calculated by reference to the tonnage of the ships used in a company's shipping trade. Essentially, the "tonnage" profits replace the accounting profits of the shipping company for tax purposes.

The system is elective: companies may choose whether to stay in the normal corporation tax system or move their shipping activities into tonnage tax.

If a company enters the tonnage-tax system, it must stay in it for a minimum of 10 years. Companies have a three-year period, beginning from the date the minister for finance issues the order commencing the scheme, to decide whether they want to enter it.

To qualify for the tonnage-tax scheme, a company must meet three tests: 1) it must be within the charge of the Irish corporation tax; 2) it must operate qualifying ships; and 3) it must have a sufficient presence in, and economic connection with, the State to satisfy the EU requirement that a beneficiary of State aid should have its strategic and commercial management in an EU State.

All or none of the qualifying companies in a group must enter the scheme.

A "qualifying shi