Swiss tonnage tax

Switzerland, a maritime nation

A recent study run by Oxford Economics requested by the STSA outlines the importance of this economic sector in Switzerland. This study also unveils the positive impact that the introduction of a tonnage tax would have for the country’s competitiveness and attractiveness for businesses.

Switzerland currently represents:

- The 11th commercial operated fleet in the world from a volume stand point (GT). Comparable to the fleet operated from the UK, or Norway (Switzerland ranks number 5 among the EU countries).
- A fleet made of 812 ships in 2016.This is the equivalent of a volume of 42 million tons (GT).
- Approximatively 65 Shipping companies and Shipping services companies, located in 12 cantons, most of them being based in Geneva, Zurich, Basel, Vaud, Ticino and Zug.[1]
- The headquarters of major players in this sector, such as the second largest container-ship operator in the world, MSC, but also companies such as Massoel, Suisse-Atlantique, ABC Maritime or Swiss Maritime Services.

The Shipping sector contributes yearly to the Swiss GDP with CHF 2.4 billion (approx. 0.4% of total GDP). It represents approximatively 2000 direct jobs.

[1] Clarkson List 2017

An opportunity for the shipping industry in Switzerland

The introduction of a tonnage tax in Switzerland would strengthen the Swiss shipping sector. Job creations can be expected. Furthermore, this would contribute to aligning Switzerland with international standards. It would allow for Switzerland to be aligned with international standards. It would also boots the country's economy and reinforce its attractiveness.

If a tonnage tax is introduced in Switzerland, the following could be expected as of 2027:[2]

- 9000 jobs (a very strong additional of 7000 jobs)
- Between 400 and 450 million of additional expected fiscal entries and social security contributions.
- An annual contribution of CHF11.6 billion from the Shipping sector to the national GDP.
- A fleet growth rate of approximatively 400% (GT).

This high potential represents an important factor, just like the competition of other countries getting stronger in this field: The UK through the Brexit, France recently granting incentives and also Luxembourg, where the introduction of a tonnage tax is being discussed. This illustrates the need for Switzerland to boost its attractiveness for this largely unknown sector.

The introduction of a tonnage tax would send a strong signal that Switzerland is taking measures to enhance its ability to compete.

[2] According to median scenario of study Oxford Economics 2017 (first results)

Basic principles of tonnage tax: a simple, effective and recognized method of taxation

Tonnage tax is a tax on profits that can be applied to shipping companies including ship management companies. The tax is calculated based on the Net tonnage of the ships incorporated into the fleet of vessels operated or managed by a company. It is therefore independent from the volume of material transported and the operating profit of a shipping company. Taxation through this means is therefore independent of the volume of material transported and the operating profit of a shipping company.

In the form currently debated, ecological criteria will also be considered. This will encourage investments into modern and safer fleets, that are also more respectful of the environment.

The tonnage tax's several advantages are :

- A simplified management of taxation, for both the tax authority and the companies in the sector. This method of taxation is based on an objectively measurable variable - net tonnage - by independent certifying bodies that determine the transport capacity of the vessels.

  • - A greater stability and predictability of the level of tax revenues for the cantonal and federal government. A company that decides to adopt the tonnage tax as a taxation method is linked to apply this method for a period of 10 years (lock-in).

The adoption of tonnage tax by a shipping company is not compulsory but optional. Once available, this method of taxation can or cannot be adopted by a given company.

Infographic on Swiss Tonnage Tax principle

Tonnage tax – an internationally recognized taxation tool

Tonnage tax is a measure applied in 18 countries in the European Union, including France, Germany, Great Britain and Ireland, but also Norway, Japan, India and Hong Kong. The measure is in line with the principles of the Treaty of the Union, and is a significant asset in terms of supporting the competitiveness of the European maritime transport sector.

The OECD published a report on the topic of tonnage tax in 2004, considering that Tonnage Tax regimes are"not considered [...] to constitute harmful tax practices". This statement has been once again confirmed in 2017.

State of political discussions: CTR III and the consultation procedure for tonnage tax

(Situation as of August 2017)

Following the parliamentary debates on the third corporate taxation reform (CTR III), it was decided in June 2016 to continue examining the future implementation of a tonnage tax outside of this reform. Tonnage tax is therefore not affected by the rejection of the text on 12 February 2017, by 60% of Swiss voters.

Currently, based on a text provided by the Economic Affairs and Taxation Committee of the National Council (EATC-N) the tax administration is currently preparing the basis of a legal text about the introduction of a tonnage tax in Switzerland. A consultation process will be open, during which all key players in the sector will have a chance to be heard: associations, cantons, umbrella organizations, political parties.

Because of the rejection by the people of the CTR III, the opening of this consultation procedure is expected to happen in the second half of 2018.