Taxation by tonnage is a method that permits shipping companies to calculate the taxable profits from the operation of merchant ships not on the basis of actual earnings but according to the ships’ tonnage, i.e., their size. Tonnage tax is one of the 20 largest tax subsidies in Germany. However, the effectiveness of this subsidy, which amounts to billions of euros, is doubtful, as we point out in an advisory report addressed to the parliamentary Budget Committee.

The current subsidy report published by the Federal Government reveals that annual shortfall in tax revenue due to the tonnage tax regime has risen significantly. For the period from 2021 to 2024, these losses have reached a total of over €22 billion.

Despite the high financial volume of this tax subsidy, the number of ships owned by German shipping companies has been in decline for several years, as has the number of seamen employed.

Furthermore, our audit of the tonnage tax regime revealed the following:

• Overall subsidy volume inaccurately calculated for years: An outdated database was used to calculate the total volume of the subsidy, which led to an underestimated amount shown in the Subsidy Report.
• Inadequate evaluation: Although we have previously highlighted revenue shortfalls, the tonnage tax regime has not been subject to an independent review since 2009.

Urgent need for evaluation and redesign

Last but not least, given the difficult budgetary situation, it is essential that the Federal Government takes a close look to any revenue shortfall. This also applies to the tonnage tax regime, one of the largest tax subsidies, which the Federal Government has granted for over a decade without any review. It is crucial to evaluate and adapt the tax relief for the German maritime shipping sector in line with the economic reality. In light of this, the Government should consider ways in which it can limit the volume of the subsidy without weakening Germany's competitiveness as a marine shipping location.

For more information on the findings and recommendations, please see our advisory report addressed to the German Parliament. (Please note: The report is only available in German.)