Pillar II – Federal Ministry of Finance publishes ministerial draft bill for a Minimum Taxation Directive Implementation Act – significant changes for maritime shipping companies

Amendments regarding the consideration of slot charter income within the scope of profits or losses from international maritime traffic to be excluded from the determination of the minimum tax profit or loss (Section 27 MinBestRL-UmsG)

Hamburg, 15 August 2023

In the ministerial draft bill on the Minimum Tax Directive Implementation Act, the German legislator has made a very welcome clarification that slot charter income also explicitly belongs to the income from international maritime traffic within the meaning of Section 27 of the Minimum Tax Directive Implementation Act and is consequently to be excluded from the determination of the minimum tax profit or loss. This is particularly welcome in view of the fact that in the draft law, Germany has for the first time made a clear legal clarification for the area of global minimum taxation corresponding to the treatment of slot charter income by the tax authorities in the context of tonnage tax profit determination (tonnage tax decree), which prevents legal uncertainties.

After the Member States agreed on Directive (EU) 2022/2523 to ensure a global minimum level of taxation for multinational enterprise groups and large domestic groups within the Union (Minimum Taxation Directive - MinBestRL) on 15 December 2022, the Federal Republic of Germany was obliged to transpose it into national law. 

Thus, the Federal Ministry of Finance (Bundesfinanzministerium (BMF)) published a discussion draft for a German Minimum Taxation Directive Implementation Act (MinBestRL-UmsG) on 21 March 2023.

Section 27 MinBestRL-UmsG regulates the determination of profits or losses from international maritime traffic that are to be exempted from the calculation of the minimum tax profit or loss. The profits or losses from international maritime traffic to which the exemption applies are legally defined in Section 27 paragraph 2 MinBestRL-UmsG. 

According to section 27, paragraph 2, No. 2, this includes profits or losses from the "carriage of passengers or cargo on an ocean-going vessel in international maritime traffic under a time charter contract".

The corresponding passage of the underlying European Union Minimum Tax Directive, on the other hand, speaks of the net income from the "carriage of passengers or cargo on a seagoing vessel in international traffic under slot charter arrangements" (Art. 17 (1) (a) (ii) MinBestRL).

Due to the considerable practical importance of maritime transports, which take place within the framework of slot charter agreements, for the operational business of maritime shipping companies, the linguistic deviation contained in the discussion draft was associated with considerable uncertainties for the companies concerned, especially since profits from these transactions are compensated for tax purposes under national law due to the determination of profits according to tonnage pursuant to Sec. 5a German Income Tax Act (Einkommensteuergesetz (EStG)) (so-called "tonnage taxation"). Not taking slot charter income into account in the context of determining profits or losses from international maritime transport, which are to be excluded from the calculation of the minimum tax profit, would thus have led to considerable qualification conflicts and incongruencies between the regulations on the determination of tax profits for assessment purposes and the determination of the minimum tax profit for the purposes of filing the minimum tax return under the MinBestRL-UmsG. These conflicts of qualification would have led to a significant minimum tax burden.

In its statement dated 21 April 2023 and submitted via the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer (IDW)) on the discussion draft of the BMF, the Hamburg PwC team around Marcus Blömer, Head of Tax & Legal Maritime Competence Centre at PwC Germany, pointed out this linguistic discrepancy and the considerable consequences for the shipping industry. 

This submission was taken into account in the draft ministerial bill of the Minimum Tax Directive Implementation Act published by the Federal Ministry of Finance on 10 July 2023.

The legal definition of Section 27 (2) of the Minimum Tax Directive Implementation Act - Ref-E now contains the clarifying passage in Section 27 para.2 No. 2 that profits or losses from the "carriage of passengers or cargo on a seagoing vessel in international maritime transport under a slot charter contract" count as profits or losses from international maritime transport. 

In addition, the amendment to Section 27 para. 2 No. 3 MinBestRL-UmsG - Ref-E clarified that the passage, unless otherwise specified, applies generally to rental income from charter contracts and not exclusively to rental income from time charter contracts, as still provided for in the discussion draft from March 2023. 

The adjustments made are very welcome, as they avoid legal uncertainty with regard to the qualification, allocation and taxation of income that is important in practice within the framework of the Minimum Tax Directive Implementation Act.

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