Swiss tonnage tax

The importance of the shipping sector in Switzerland

Switzerland is the 23rd largest ship owner in the world. The country ranks at the 9th position of European countries, with a fleet representing around 20 million tons, which means, approximatively 3% of the European fleet.[1] This ranks Switzerland above some countries with a very strong culture of shipping related operations, such as the Netherlands, Spain, Malta, Cyprus, Portugal or Ireland. Swiss based shipping companies currently include:

- About 65 companies (Shipping and Shipping services companies)[2], geographically distributed across 12 Swiss cantons, the main ones being Geneva, Zurich, Basel, Vaud, Ticino et Zug;
- A tonnage of more than 20 million tons in 2016 – in terms of container transport, the number of units transported by Swiss companies represents a volume higher than that handled annually at Rotterdam port, the largest port in Europe;
- Companies operating more than 700 ships;
- Major players 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 Créa Institute, which is attached to the HEC faculty at the University of Lausanne, published a report in November 2015 entitled “The Swiss shipping business hub and tonnage tax.” The report examines the strength of the Swiss shipping industry cluster, the need to preserve it in the face of growing competition and the impact of the introduction of a tonnage tax on these companies.

[1] Source: UNCTAD, 2016

[2] Clarkson’s list 2017, survey STSA

An opportunity for the shipping industry in Switzerland

In the case of Switzerland, the introduction of tonnage tax would make it possible to maintain, strengthen and increase jobs in the sector by aligning Switzerland to international standards, boosting the sector and promoting its attractiveness. Simulations based on these estimates and applied to the Swiss economy indicate that such a reform would generate, in the maritime transport sector alone, up to 40 million in additional tax contributions and social levies, originating from the 640 additional jobs in relation to the “No tonnage tax" scenario for the shipping industry alone.

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. The tax is determined by the net tonnage of the entire fleet of vessels operated or used by a company. It is on the basis of this variable that taxation is applied. Taxation through this means is therefore independent of the volume of material transported and the operating profit of a shipping company. It has several advantages:

  • 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.
  • Greater stability and predictability of the level of tax revenues for the cantonal and federal government.
  • Potential positive effects on the environmental impact of the sector. The use of more modern and environmentally friendly fleets could be promoted by the introduction of specific incentives.

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

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, noting that the practice is unlikely to negatively affect tax revenues. This opinion is also held by OECD member countries within the general discussions on the Basic Erosion and Profit Shifting (BEPS) program.

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

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

The tax administration is currently preparing a document that will be open for consultation in the coming months. At that point in time, all key players in the sector will have a chance to be heard: associations, cantons, umbrella organizations, political parties.