Will global tax on corporations end this widespread negative phenomenon in sea transport?

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Will global tax on corporations end this widespread negative phenomenon in sea transport?

The decision to introduce a global tax on corporations could have far-reaching implications for the transport sector. It can put an end to the phenomenon of ships from one country flying the flag of another country that offers favourable tax arrangements.

Last week the finance ministers of the world’s 7 largest economies met in London and agreed to support the idea of taxing multinational corporations at a minimum rate of CIT.

The G7 countries have agreed to introduce a global tax on the largest corporations at a minimum rate of at least 15% on income. In addition, corporations are to be taxed in places where they conduct sales and operations. This is quite significant news for the sea transport sector.

Dark side of flags of convenience

The European Transport Workers’ Federation (ETF) stresses that a global tax on corporations could be an important factor in combating the use of so-called ‘flags of convenience’. This has been criticised for eroding accountability and oversight in the sea transport sector and undercutting social, environmental and safety standards.

“It is estimated that 90% of world trade takes place by sea. At the same time, seafarers, who are on the front line of the struggle to maintain trade and supplies of essential medical supplies, food and energy, are treated as second-class workers,” argues the ETF.

The organisation adds that it is not uncommon for seafarers to work for several months without any leave, and often without medical care.

A global tax could reduce the practice of flying foreign flags for tax purposes. It would also curb social dumping by European shipowners flying flags of convenience.

Is this the end of tax havens for shipowners?

As the ETF explains, the flags of convenience countries have in fact no jurisdiction over the vessels flying their flags, nor does the country from which the vessel actually originates. As a result, workers on these vessels (who are often non-EU nationals) are deprived of the social and labour protection that workers in EU companies enjoy.

“Including maritime transport in the proposal for a minimum tax for corporations would encourage shipowners to choose state flags in line with Articles 91 and 94 of the United Nations Convention on the Law of the Sea (which speak, inter alia, of the jurisdiction of the flag state over the ship, as well as the need for a genuine link between the ship and the flag state) and would still enable them to access favourable state aid schemes and ultimately contribute to ensuring that workers have access to decent work in the most strategic sector of global trade,” the ETF concludes.

The three main flag of convenience countries (Panama, Liberia and the Marshall Islands) concentrate more than 40% of the global maritime fleet. It is estimated that well over 50% of the world fleet sails under various flags of convenience.

Photo credit @ Pixabay

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