ANNEX

GUIDANCE ON STATE AID TO SHIP MANAGEMENT COMPANIES

1. Scope

This Chapter deals with the eligibility of crew and technical managers of ships for the reduction of corporate tax or the application of the tonnage tax under Section 3.1 of the Chapter on State Aid to maritime transport (1) (hereinafter ‘the Maritime Guidelines‘�. It does not deal with State aid to commercial managers of ships. This Chapter applies to crew and technical management irrespectively of whether they are individually provided or jointly provided to the same ship.

2. Introduction

2.1. General context

The Maritime Guidelines provide for the possibility that ship management companies qualify for the tonnage tax or other tax arrangements for shipping companies (Section 3.1). However, eligibility is limited to the joint provision of both technical and crew management for a same vessel (‘榝ull management‘�, while those activities are not eligible to the tonnage tax or other tax arrangements when provided individually.

The Maritime Guidelines stipulate that the EFTA Surveillance Authority (hereinafter the ‘楢uthority‘� will examine the effects of the Maritime Guidelines on ship management after three years (2). This Chapter sets out the results of that fresh assessment and draws conclusions on the eligibility of ship management companies for State aid.

2.2. Ship management

Ship management companies are entities providing different services to ship owners, such as technical survey, crew recruiting and training, crew management and vessel operation. There are three main categories of ship management services: crew management, technical management and commercial management.

Crew management consists, in particular, in dealing with all the matters relating to crew, such as selecting and engaging suitably qualified seafarers, issuing payrolls, ensuring the appropriateness of the manning level of ships, checking the certifications of seafarers, providing for seafarers‘�accident and disability insurance coverage, taking care of travel and visa arrangements, handling medical claims, assessing the performance of the seafarers and, in some cases, training them. Crew management represents by far the largest part of the ship management industry worldwide.

Technical management consists in ensuring the seaworthiness of the vessel and its full compliance with technical, safety and security requirements. In particular, the technical manager is responsible for making decisions on the repair and maintenance of a ship. Technical management represents a significant part of the ship management industry, although much smaller than crew management.

Commercial management consists in promoting and ensuring the sale of ships‘�capacity, by means of chartering the ships, taking bookings for cargo or passengers, ensuring marketing and appointing agents. Commercial management represents a very small part of the ship management industry. To date the Authority does not have complete information about commercial management at its disposal. Commercial management is therefore not addressed by this Chapter.

Like any maritime activity, ship management is a global business by nature. In the absence of international law regulating third party ship management, the standards in this field have been settled within the framework of private law agreements (3).

In the EEA, ship management is mainly carried out in Cyprus. There are, however, ship management companies in the United Kingdom, Germany, Denmark, Belgium and the Netherlands. Outside the EEA, the management companies are mainly established in Hong Kong, Singapore, India, United Arab Emirates and the USA.

2.3. Review of the eligibility conditions for ship management companies

Since the adoption of the Maritime Guidelines in March 2004, several maritime countries have entered the EEA, amongst them Cyprus, which features the largest ship management industry in the world.

The accession of Cyprus and its preliminary work for complying with the Maritime Guidelines, as well as a study realised by a consortium for the administration of that EEA State (4), allowed for a more complete understanding of this activity and of its evolution. More awareness has been acquired in particular in respect of the link between technical and crew management on the one hand, and shipping on the other, as well as the possibility that crew and/or technical managers can help achieving the objectives of the Maritime Guidelines.

3. Assessment of eligibility of ship management companies

Unlike other maritime-related services, ship management is a standard core activity of maritime carriers, normally provided in-house. Ship management is one of the most characteristic activities of ship operators. Nowadays, however, it is outsourced to third party ship management companies in some cases. It is because of this link between ship management and shipping that third party management companies are professional operators with the same background as ship owners, although segmented according to their specialisation, operating in their same business environment. Ship owners are the only customers of ship management companies.

Against this background the Authority considers that outsourcing of ship management should not be fiscally penalised with respect to in-house ship management, provided that the ship management companies meet the same requirements as are applicable to ship owners and that the provision of the aid to the former contributes to the achievement of the objectives of the Maritime Guidelines in the same way as the provision of aid to ship owners.

In particular, the Authority considers that, precisely because of their specialisation and the nature of their core business, ship management companies may substantially contribute to the achievement of the objectives of the Maritime Guidelines, in particular the achievement of an ‘榚fficient, secure and environment friendly maritime transport‘�and of the ‘榗onsolidation of the maritime cluster established in the EEA States‘�a href="#ntr5-L_2011318EN.01005201-E0005" id="ntc5-L_2011318EN.01005201-E0005" shape="rect"> (5)