Section 228: relevant shipping income and exclusion from book profit

What makes up relevant shipping income

Relevant shipping income is the sum of a tonnage tax company's profits from "core activities" and its profits from "incidental activities". Where the aggregate of incidental-activity income exceeds 0.25% of turnover from core activities, the excess does not form part of relevant shipping income and is instead taxable under the Act's other provisions.

Core activities

Core activities are the company's activities from operating qualifying ships, plus other ship or inland-vessel related activities such as:

• Earnings from pooling arrangements (agreements between two or more persons to operate ships/inland vessels through a pool and share earnings or operating profits on mutually agreed terms)
• Contracts of affreightment (service contracts to transport a specified quantity of goods at a specified rate between designated ports over a specified period)
• On-board or on-shore activities of passenger ships or inland vessels, comprising fares and food/beverages consumed on board
• Slot charters, space charters, joint charters, feeder services and container box leasing of container shipping

Incidental activities and non-qualifying ships

Incidental activities are those incidental to the core activities, as may be prescribed. The Central Government may, by notification, exclude any core activity listed above or prescribe limits up to which such activities are included as core activities - such notifications must be laid before each House of Parliament for thirty days, subject to modification or annulment by both Houses.

Where a tonnage tax company operates a ship or inland vessel that is not a qualifying ship, income attributable to that non-qualifying vessel is computed under the Act's other provisions, not under this Part.

Related-party and internal transfer rules

If goods or services are transferred between the tonnage tax business and any other business of the same company at a value that does not correspond to market value, relevant shipping income is computed as if the transfer had occurred at market value (the price the goods or services would ordinarily fetch in the open market).

If the Assessing Officer finds computing relevant shipping income under this market-value rule presents exceptional difficulty, he may compute it on any reasonable basis he considers fit.

Where, owing to a close connection between the tonnage tax company and another person, business between them is arranged so as to produce the company more than ordinary profits, the Assessing Officer may compute relevant shipping income on the income that may reasonably be deemed to have been derived.

Losses, common costs and book profit

If relevant shipping income for a tax year works out to a loss, that loss is ignored for the purpose of computing tonnage income - it cannot reduce tonnage income.

Where a tonnage tax company also carries on other business, common costs attributable to the tonnage tax business are determined on a reasonable basis, and depreciation on any non-ship asset not exclusively used for the tonnage tax business is allocated by the Assessing Officer on a fair proportion, having regard to actual use.

The book profit or loss derived from the activities covered by this section is excluded from the company's book profit for the purposes of Section 206(1)(c) (the MAT-type book-profit provision).

Frequently asked questions