Tonnage tax - Strict requirements for lump sum taxation
Companies with management in Germany may, upon application, determine the taxable profit of their seagoing vessels, registered in Germany, from operations in international traffic on a lump sum basis, insofar as the management of these vessels is likewise carried out in Germany. However, for this so-called taxation by tonnage option the Federal Fiscal court (Bundesfinanzhof, BFH) has set out strict prerequisites.
Chartering a seagoing vessel in international traffic
In the case in question, a German GmbH & Co KG [a German limited partnership with a limited liability company as a general partner] operated a seagoing vessel in international traffic and had (temporarily) chartered out the vessel for several years. The GmbH & Co. KG had concluded a contract with a German company that manages seagoing vessels; this company in turn had entered into various subcontracts with different foreign companies:
- a technical management agreement with a ‘Technical Manager’,
- manning agreements with crewing agencies and
- agreements with insurance brokers.
In its ruling of 6.6.2024 (case reference: IV R15/21), the BFH refused to allow taxation by tonnage because the scope of applicability of this provision is restricted to those cases where the management of the seagoing vessel is carried out almost exclusively in Germany. In this context, the BFH understands the term ‘management of a seagoing vessel’ to mean in terms of the technical, commercial and manning aspects, whereby it is possible to base this argument on the list of related activities (which is neither exhaustive nor without any overlaps) in the relevant Federal Ministry of Finance circular of 10.7.2023 (the so-called ‘Tonnage Tax Decree’). Here, the place of management of a seagoing vessel is where the relevant management decisions are taken and where their execution or implementation is monitored.
The prerequisites for the application of taxation by tonnage
Whether or not the management of the seagoing vessel is carried out almost exclusively in Germany may only be determined on the basis of an assessment of all the circumstances of a specific case. However, particular importance should normally be attached to the technical management, chartering and manning of the vessel with a captain and officers. If one of these areas is already not being carried out to a large extent in Germany then this would normally suggest that the management of the vessel was not being carried out almost exclusively in Germany. On this basis, the BFH set out in detail that, in the case in question, the technical management, manning and the area of insurance were not being carried out almost exclusively in Germany and taxation by tonnage should therefore not be allowed.
The case in question was characterised by the fact that the activities of the foreign service providers turned out to be very extensive. For example, the insurance broker was responsible for negotiating and concluding all the insurance contracts for the vessel. The crewing agencies were not merely engaged within the scope of auxiliary activities, but in fact, among other things, they screened the personnel and made an initial selection and carried out training sessions; moreover, these agencies were notably involved in the payroll accounting for the seafarers. The foreign technical manager ultimately also had to complete a wide range of tasks.
