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Nautilus International and the Swiss Shipowners Association plead for tonnage tax to 'save' flag

20 September 2023

Nautilus International has made a joint statement with Swiss shipowners urging the Swiss government to save the Swiss flag. They reject the Swiss government's current proposed draft framework for shipping which misses the opportunity to ensure ships register under the flag.

It is well known that the number of ocean-going vessels flying the Swiss flag has been dwindling for years. At present, only 14 ships are still part of the Swiss fleet. After the expiry of the respective guarantee granted by the Confederation for each ship under the now abolished guarantee system, these 14 ships will also leave Switzerland in the next two to five years. This will seal the end of the Swiss flag.

From the workers' point of view, this is a great loss, as ships under the Swiss flag offer good working conditions thanks to a binding social partnership and there is a high level of protection against specific dangers at sea such as accidents, piracy, and criminalisation.

In fact, the Swiss flag has not been attractive for shipping companies for a long time. Shipping companies are therefore increasingly switching to so-called offshore flags with low profit tax rates or registering in flag states that want to be attractive for shipping companies through the so-called tonnage tax.

There is a worldwide competition between maritime nations and offshore flag registries for the business of shipping companies, which leads to 'flag shopping' – choosing a flag state that offers the most benefits and advantages for the ship owner – in many circumstances. This is of course very regrettable and should be stopped by a global joint effort.

The opportunity to stop 'flag shopping' was within reach when the Organisation for Economic Co-operation and Development (OECD) minimum tax of 15% on corporate profits above €750,000 million was agreed. Some 138 countries agreed to this binding directive in 2021. Unfortunately, however, under pressure from shipping associations, ocean shipping was excluded from this minimum tax. Certain states also pleaded for this special treatment, as Achim Pross, one of those involved in the process of shaping the OECD tax treaty, confirmed to German television.

Nautilus regrets that the community of states has thus missed the chance to stop global tax dumping for the maritime industry and renew our demand that Switzerland must offer shipping companies better, more attractive framework conditions, such as a tonnage tax.

As is well known, the government is currently planning a tonnage tax. However, since in the meantime it is not imposing any obligation on shipping companies under the Swiss flag if they take advantage of this, we reject the current draft.

Fortunately, in August Nautilus was able to agree on a joint position with the Swiss Shipowners Association (SSA), which has now been sent to the authorities and politicians so that they can still influence the law. We document it below.

Commodity trade must not benefit from the tonnage tax

Apart from the link to the Swiss flag, a law on the tonnage tax must prevent the commodity trading industry, which is closely linked to shipping, from being able to book its huge profits as ship transports.

This danger is very real, as Switzerland is traditionally home to many large commodity traders such as Glencore or Trafigura, some of which currently contribute up to 20% of tax revenues in cantons such as Ticino, Zug, Vaud or Geneva. If these companies were to pay tax on their profits from commodities trading, including stock exchange profits, at a tonnage tax rate of 3%, for example, instead of the cantonal tax rates such as 10% or the 15% OECD minimum tax, this would lead to tax losses in the billions for the public sector.

The demand for a clear and effective demarcation between shipping and commodity trading has been made to the government by various organisations and is part of the current 'final' clarifications of the law.

Nautilus is in close contact with the critical experts and Non-Government Organisations (NGOs) on this issue and will also tie its approval of the tonnage tax to this demarcation.

The container capacity and not the profit is taxed in the tonnage tax. Image: Nautilus International/Basel port
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Joint Statement: Nautilus International and Swiss Shipowners Association

The Union Nautilus International and Swiss Shipowners Association have exchanged views on the future of the Swiss merchant fleet in connection with the Swiss tonnage tax and the Swiss maritime strategy.

Both parties recognise the importance of:

  • providing a level playing field for the Swiss shipping sector with other major maritime nations, including all EU countries having a merchant fleet, which would benefit the Swiss economy and ensure that the sector with over 2,000 employees will grow
  • maintaining the Swiss merchant flag and increasing the number of vessels thereunder, thus ensuring seafarers' rights and their wellbeing onboard the vessels and increasing Switzerland's influence on the international regulatory bodies such as at the International Labour Organization (ILO) and the International Maritime Organization (IMO)

The parties reached the following conclusions:

  • tonnage tax is essential for the sector to remain competitive
  • there should be a link between the tonnage tax and the Swiss flag in order to maintain the flag and increase its influence on international bodies

Nautilus International and the Swiss Shipowners Association will jointly work with relevant and political stakeholders to define this link. Nautilus and the Swiss Shipowners Association agree that the Swiss maritime law should be rewritten to reflect a modern Flag, which is attractive to have new vessels registered.

The parties have for years been maintaining a transparent and strong social partnership for the benefit of seafarers. However, this partnership can only exist as long as a Swiss fleet exists under the Swiss flag.

Basel, Renens, Zürich August 2024

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