Taxpayers miss out on ‘pandemic profit deals’

Container-shipping companies have found lots of ways to spend their enormous pandemic profits. They’re lifting staff pay, making acquisitions and returning heaps of cash to shareholders.
One person who won’t benefit much is you, the taxpayer. Based on their recent financial filings, I calculate big European container lines AP Moller-Maersk A/S, CMA CGM SA and Hapag-Lloyd AG owe just 1% or 2% of their bumper shipping profits in taxes.
This jarring outcome is due to the shipping industry’s highly unusual taxation arrangements: The companies pay a fixed amount based on the tonnage of their vessels, rather than a percentage of their earnings. More than 20 European countries have a tonnage tax system, as does Japan; Singapore and Hong Kong also provide generous tax incentives to shipping.
Already on the defensive over the world’s broken supply chains, shipping companies have so far faced remarkably little scrutiny of their taxes. Last week a former UK business minister called for a windfall tax on container-shipping profits, echoing similar demands for a special levy on oil companies such as BP Plc.
Of course, there’s a risk that one-off taxes are passed onto customers via even higher freight rates. Instead, the industry successfully lobbied the Organization for Economic Cooperation and Development to be excluded from last year’s global deal to set a 15% minimum tax rate for multinational businesses.
According to its latest accounts, Maersk owed just $138 million of tonnage and freight taxes on $17.6 billion of international shipping profits in 2021, or an effective tax rate of less than 1%. (Maersk’s group tax rate last year was 3.7%, but this mostly reflects higher taxes on land-based activities). German rival Hapag-Lloyd and France’s CMA CGM had effective tax rates of 1% and 2% respectively, in the first nine months of the year on combined pretax profits of around $17 billion.
As the container lines buy their way into shipping-adjacent sectors, their barely taxed trans-ocean profits risk distorting competition; logistics incumbents pay far higher taxes and so don’t have as much spare cash. Though the opportunity for comprehensive tax reform may have passed, tonnage taxes should be redesigned so they offer greater benefits to the public. Carbon taxes are another way to force the industry to pay its fair share. In the meantime, these companies need to show they’re spending financial windfalls responsibly.
Rather ironically, the industry won an exemption from the 15% minimum rate, in part, by emphasizing its historically low profit margins. Yet some shipping lines made more money in 2021 than in the past couple of decades combined.

—Bloomberg