Nautilus International and Swiss Shipowners Association have jointly appealed to the Swiss government to intervene in order to preserve the Swiss flag within the shipping industry.
he number of ocean-going vessels flying the Swiss flag has been decreasing for years, with only 14 ships remaining in the fleet. After the expiry of the guarantee granted by the Confederation for each ship under the abolished guarantee system, these 14 ships will leave Switzerland in the next two to five years, sealing the end of the Swiss flag.
This loss is significant for workers, as ships under the Swiss flag offer good working conditions and high protection against specific dangers at sea. Shipping companies are increasingly switching to offshore flags with low profit tax rates or registering in flag states that want to be attractive through the tonnage tax, Nautilus adds.
The global competition between maritime nations and offshore flag registries for the business of shipping companies leads to ‘flag shopping’, choosing a flag state that offers the most benefits and advantages for the ship owner.
According to Nautilus, 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 upon by 138 countries in 2021.
However, ocean shipping was excluded from this minimum tax under pressure from shipping associations. Nautilus regrets that the community of states missed the chance to stop global tax dumping for the maritime industry and renews their demand that Switzerland must offer better, more attractive framework conditions, such as a tonnage tax.
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, Nautilus notes.
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.
In summary, 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, and
- 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