In a most recent decision, the Supreme Tax Court upheld the tax office’s refusal to allow a partnership to compute its income on tonnage tax principles – as these presuppose an intent to operate the ship in international waters in the long term. Furthermore, the court decided that the determination of profits by tonnage for a subsequent year requires that specific requirements laid down in section 5a (1) sentence 1 and (2) of the Income Tax Act as to time and deadlines are met.
The task of operating merchant ships encompasses all transactions and legal acts, such as supplying the ships with fuels and equipment. The Supreme Tax Court decided that to benefit from the tonnage tax system the technical and commercial management of merchant ships must be carried out almost exclusively in Germany.
The Supreme Tax Court has held on a literal interpretation of the statute that an unrealised exchange gain on opting for tonnage tax does not qualify for the trade tax privilege for shipping income when realised.
The Supreme Tax Court has held that the first year in which application for tonnage tax may be made is the year of the first voyage of the ship for the operator.
The Supreme Tax Court has held that the exercise of the option for tonnage tax on the profits of a ship sailing in international waters does not preclude regular taxation on the earnings of a partner from services to the partnership prior to the ship’s commissioning.
The Supreme Tax Court has held the 80% deduction from income chargeable to trade tax from shipping operations in international waters to be available regardless of a short or long term intention to continue the operation. If, however, the ship had already been sold prior to commissioning, the capital gain is not derived from an international operation and is chargeable to trade tax in full.
The Supreme Tax Court has held that an option to tax international shipping operations on the basis of the net registered tonnage operated depends on the intention to operate for at least a year after putting the ship into service (commissioning). A gain on the sale of a ship prior to commissioning is not an ancillary transaction to the tonnage tax operations of her replacement, even if the sale proceeds are used to finance the new vessel.
The Supreme Tax Court has held the tonnage tax hidden reserve of a shipping partnership to be taxable in Germany on the withdrawal of a Belgian partner from the partnership.
The Supreme Tax Court has held that the hidden reserve calculation on the change to tonnage tax (shipping lines) cannot include those intangibles that could not be taken up under the accounting rules prudently applied.
