Following his appointment as Chairman of the European Community Ship Owners’ Associations (ECSA) Committee on State Aid to Maritime Transport, Gold News spoke with Thomas Kazakos, Director General of the Cyprus Shipping Chamber (CSC), to discuss his new role within the Committee, and what this means for Cyprus shipping at large.
Congratulations on your recent appointment as Chairman of the European Community Ship Owners’ Associations (ECSA) Committee on State Aid to Maritime Transport. How did you become involved in the Committee?
ESCA, the European Communities Ship Owners’ Association, is the regional confederation of national ship owners associations, much like the ones we represent as the Cyprus Shipping Chamber.
The prerequisite for any association of ship owners or shipping companies to join is that its country must be an EU member state. In the case of Cyprus, however, I was allowed to attend the ECSA meetings as an observer on a personal capacity prior to our EU accession in 2004. In fact, I began attending the meetings in 1998, prior, even, to Cyprus’ submittal of an application for membership. My attendance was important, however, as the Cyprus Shipping Chamber prides itself on being particularly active in the international chamber of shipping. I was since elected a member of this working group, in 2000 to be precise. I received this Chairmanship not so much as a personal achievement but rather as a corporate recognition of the competency of the Cyprus Shipping Chamber and the Cyprus shipping industry in general, particularly as the other two bids were submitted by the prominent nations of Denmark and France. I’m very pleased to note that I have excellent colleagues; both my Danish and my French colleague will sit with me as Vice-Chairmen, which I greatly appreciate, and together we are looking forward to the challenge. This working group, I must stress, is a highly specialised committee. Its subject matter is perhaps one of the most – if not the most – important themes of the various committees that ECSA has, because it deals with the taxation aspect of shipping companies in Europe.
Walk me through the importance of European shipping taxation. What makes it so attractive to members of the international shipping industry?
The regime of shipping taxation in Europe for the last 30 years has changed from the ordinary corporate tax model which is typically applied throughout Europe. This is due to the unsuitability of a principal profits-based taxation for the shipping industry.
Let me explain this in layman’s terms: the more profits a company makes, the more tax it pays. However, in shipping, we call this corporate tax regime “unpredictable taxation,” as you cannot be sure how much profit a shipping firm will accrue in the years to come. Don't forget that shipping is a high-value asset industry; a ship could cost between a few dozen million Euros to a few hundred. Therefore, if you have a fleet of ships that are worth several billions, if not trillions, you will want to be diligent in your tax planning in order to construct your business development plan appropriately to allow for possible future expansion, diversification, and the like. Profit tax – corporate tax, that is – is therefore unsuitable in this industry, particularly in the current, volatile world economy. Nobody wants to depend on the fluctuations of the market to ensure the success of their business plan.
This is where tonnage tax came in.
The principal rationale behind the tonnage tax idea is that it is based on the current capacity of the vessel; the larger the current capacity– that is, the more cargo it can carry – the more tax you must pay. This is clearly due to the fact that the more cargo you can carry, the more money you are sure to make from your ship. This is what we call social taxation. This capacity remains the same from the first moment the vessel enters the water till it reaches 20 years old and goes for scrap, meaning that from day one you can plan ahead for the entire lifespan of the ship and both create and implement an appropriate business plan. This is why European shipping taxation is so attractive.
Moving on to national shipping legislation, how do you evaluate Cyprus’ shipping taxation?
The auxiliary structure of each of the national tonnage tax schemes within the EU are rather similar, as they are based upon the same EU tonnage tax guidelines – these exact guidelines are the primary responsibility of the working of the ECSA. We applied in 1999; following 10 and a half years, through close cooperation between the private and the public sectors, we managed create a tonnage tax system for Cyprus which is in line with the precise tax guidelines set out by the EU. I personally represented my association in the negotiating team of Dr. Vassiliou, the chief negotiator. We worked very closely with our government colleagues and on March 24 2010, over a gradual period of piece-by-piece approval, we secured the full approval of our current, very competitive, all embracing tonnage tax system for ships under the Cyprus shipping taxation system.
This must have been a great achievement.
Indeed, it was – and continues to be – a great success for Cyprus, because the system has withstood the test of time; the recent financial turbulence in the region, not to mention the particularly unique economic challenges faced in Cyprus, led to no particular damage to our taxation system. Moreover, no fault was identified in our current legislation by the island’s Troika of international lenders – comprised by the IMF, ECB and EC – who systematically evaluated the entirety of the Cyprus economy with an aim of optimising all practices and laws. This I can happily accredit to the extremely diligent work that went into composing the taxation system.
The Cyprus tonnage tax system is frequently referred to as one of the most competitive in Europe. How might the TTS become more attractive yet?
Shipping is a constantly evolving industry, simply because it is international. Therefore, we have to improvise, adapt and overcome – to use the US coastguard motto – and this is what we would also like to do in terms of this situation in Cyprus. We are very happy with what we have; in fact we have perhaps one of the most all-embracing systems, which covers the three main international maritime activities of ship owning, ship management and ship chartering. The Cyprus tonnage tax system is one of the very few EU approved systems which covers all three. We offer the possibility for shipping operators to apply under each, and even cross section, these three major international shipping activities.
Further to this, we must simply ensure to continue correctly implementing our unique system and make sure we never inadvertently fall short of any EU specific guidelines or developments. We must also concurrently boost its promotion, attracting more quality ships and sound companies to Cyprus and thus enhancing our financial contribution to the local economy to help reduce unemployment and pass on all of these benefits that our industry brings to Cyprus. Following our successful implementation of the new tax system, we should also review it and evaluate whether there are any niche areas that we may develop and receive clarifications from the EU regarding how we can expand it further.
The Committee monitors how the European Commission regulates the specialised taxation system of shipping companies in the European Union. To your knowledge, is the EC planning any alterations to EU shipping taxation legislation?
We have been closely following the developments over the course of the past 10 years, making sure that whatever the EU commission decides on this matter will not be detrimental to EU shipping as a whole, safeguarding – by extension – the interests of national shipping. There are no immediate moves being made by the European Commission to change any aspects of regional shipping legislation, primarily because the systems in place have been proven to provide a sound tax foundation, encouraging European shipping firms to remain within Europe. It is important, however, to remain vigilant and ensure that ongoing developments in Europe have no negative effect on our system; the European economy in general is not at its best, and we have a brand new commission taking over as of this month.
What are your aspirations for the Committee under your Chairmanship?
We aspire to maintain the sound EU shipping tax basis that has been developed over the years and, if at all possible, to improve it further, making it more focused and specialized in particular, carefully inspecting the possibilities of expanding it. I have already written to my colleagues and affirmed that we wish to achieve these goals through a collective effort with all members and are dedicated to operating in a complete transparent way to facilitate this cooperation.
Having been bestowed the overall responsibility for all European national shipping systems, we recognize that this is an added responsibility of particular significance and we trust in our ability to live up to our members’ high expectations. This is added to our list of committees; the CSC collectively covers 45 committees, though, of course, ECSA will receive more of our attention and priority. Our first steps to achieving our aspirations for the Committee include meetings with not only the new European Union Commissioners and their Cabinets but also with the responsible permanent staff of the EU commission, in charge of EU shipping and taxation. The first of these meetings has been scheduled for the coming weeks.
You have frequently commented that Cyprus’ shipping sector demonstrated great resilience during the most challenging period of the financial crisis. How was this achieved?
Let’s put things into perspective; though Cyprus shipping companies were widely unaffected by the financial crisis, a small number of Cyprus Shipping Chamber members were banking with the two affected banks and consequently suffered severe haircuts of several millions.
We worked very closely with the government and the Central Bank, however, and managed to reduce this exposure. Through this cooperation, we were able to allow our companies to work through the period when the banks were closed and thus enabled the industry to operate as usual, despite economic turbulence on the island. We managed, therefore, to prove to our colleagues and competitors that even at the worst of times, Cyprus national shipping was still able to row the boat and go against the tide of economic hardship; shipping companies were able to pay wages of seafarers on the other side of the world – even when the banks were closed. Our taxation system, moreover, remained intact. This shows that shipping is a reliable industry, one of the few that offered Cyprus credibility among its international partners when it needed it most. If nothing else, I would like to believe that this was well-appreciated and recognized by the state.
For example, when President Anastasiades went to Germany recently to meet with Chancellor Angela Merkel in Berlin, he added an extra day to his trip so that he could organize a working lunch between the Cyprus Shipping Chamber and one of the top 30 German ship owners; he attended the event as a guest speaker. Such actions and efforts – in the eyes of shipping industry professionals – bear significant weight, because they indicate that the administration and political leadership of the country appreciates the industry’s contribution and is interested in its representation abroad. Don't forget; shipping is a truly foreign direct investment industry. Even local ship owners who live in Cyprus receive income is sourced from freight that comes from outside of the country. Therefore, any money coming into the industry must come from abroad. As such, shipping proves to be an prime advertisement for the country overseas and who better to facilitate this advertisement that the country’s political leader?
Whilst on the matter of political leadership, Nicos Anastasiades promised to appoint a Shipping Undersecretary prior, even, to his official election as President in March 2013. What are your comments regarding the delay in the fulfillment of this proposed role?
The CSC tabled several suggestions to the three main presidential candidates before the actual election in March 2013, included the strong recommendation for an upgraded maritime administration in Cyprus.
This suggestion was certainly not an indication that we are not happy with the current Minister, Permanent Secretary or Department of Merchant Shipping; these are our closest allies and colleagues, whose great cooperation we deeply value. We simply believe in the great potential of the Cyprus shipping industry and remain dedicated to realizing this potential. Following years of focused efforts, the Chamber, along with both our private and public sector colleagues and associates, has managed to elevate the standard and reputation of Cyprus shipping internationally, creating a sound foundation for the industry’s growth in the years to come. We believe that a specialized administration, available to cater to the needs of the local industry 24 hours a day, 365 days of the year, will facilitate this development very efficiently.
Let me stress that the international shipping industry never sleeps; the ship engines never switch off, whether at port or at sea. National holidays aren’t applicable to shipping; Ramadan, Christmas, Easter – shipping works throughout. Therefore, one cannot possibly expect any super-charged Minister or Permanent Secretary to have the time, the energy and the commitment to be able to live up to an international industry like shipping, alongside the other duties of their position. It is not realistic; only a specialized administration could achieve this. We are grateful to President Anastasiades, who, four days after taking office had already prepared a bill which went to parliament on March 7, 2013. The matter currently remains in the hands of the House of Representatives and we hope to hear news of its approval soon.
Finally, as 2014 draws to a close, so does the 25th anniversary of the Cyprus Shipping Chamber. How significant has this year been for the CSC, and what have been its highlights?
Indeed, this year was our 25th anniversary and to commemorate this significant achievement we planned a number of events throughout the year. I am pleased to report that we are successfully coming to the end of this set agenda; our remaining event is a yet another blood drive due to take place in December, arranged as part of our corporate social responsibility. For us, this anniversary was not to be a year of glamorous celebrations – we are still in a challenging environment internationally as well as nationally – however we did want to mark the milestone and honour those who have worked tirelessly to ensure the association’s continuation on its successful course.
The main highlight of the year, of course, was the CSC’s hosting of the Annual General Meeting of the International Chamber of Shipping in June. This was a great honour for us; despite the fact that our country is still under economic review and in spite of the fact that various other members and associations bid to host the event, international fraternity decided to select Cyprus as the location for the AGM. I believe that this is a direct recognition of both our industry and our association.
The meeting, which concluded with great success, was very well-received by the many persons who attended from all over the world. I must also note that I am particularly grateful to President Anastasiades who hosted the formal gathering at the Presidential Palace. This demonstrated, once again, that the head of state pays particular attention – and respect – to an otherwise small industry in comparison to others in Cyprus in terms of size, also reinforcing the excellent relationship between the public and private sector. The first shipping company in Cyprus was registered in 1972, and that company is still here with us, a full member of the Cyprus Shipping Chamber. The Chamber currently has 160 members and is still growing; in 2013 we welcome 8 new full members. This alone is an indication of the strength of our association and its potential for the future.