Ireland: Maritime Prospects Really Are Greener

 

Some of the best brains in shipping are choosing Ireland for their base. Here’s why.

By Barry Parker

The Irish Maritime Development Office (IMDO) was established in 1999 for the express purpose of promoting shipping in Ireland, and it is reaping rewards. According to Glenn Murphy, IMDO’s Director, Ireland has been successful in attracting international businesses across a range of industries because of its skilled workforce and attractive taxation arrangements for cross-border transactions. He added, “Because we are an island nation, with a long maritime tradition, we have built up a special expertise in shipping. There are currently 10,000 people employed in the shipping industry in Ireland.” The roster of liner companies with an Irish presence includes, for example, Maersk, OOCL, MSC and CMA-CGM.

Ardmore and d’Amico

In line with IMDO’s efforts to go beyond the mainstay short-sea and ferry companies connecting Ireland to Britain and the Continent, Ardmore Shipping, a specialist in the product tanker sector, set up shop in Cork this past summer. Its CEO and founder, Tony Gurnee, is an ex-U.S. Navy officer and Citibank honcho and the CFO who took Teekay public in the mid-1990s. The Chairman of the Board is Reg Jones, III, the one-time head of transportation banking at Goldman Sachs, who now runs Greenbriar Equity Group, a private equity powerhouse in transportation. Greenbriar, whose funds have logged investments from notables such as the Bill & Melinda Gates Foundation, has worked with Irish financiers on other portfolio deals as well. 

Ardmore, running several modern product tankers fixed out on time charters, is building an organization that draws on the talent pool available in Ireland. The expertise of Ardmore’s top operations man, Mark Cameron (also a Teekay veteran), in emission rules and “green” fleet practices hints at the direction in which Ardmore will add value in the increasingly regulated E.U. and elsewhere. The big boys who contract out to demanding customers in the oil business have taken notice. The Japanese-built (2004), Marshall Islands-flagged, oil/products carrier Ardmore Seamaster (46,000 dwt., ex-Formosa 12), for instance, is on charter to the listed Danish operator Norden and trades in the Norient Product Tankers Pool, a Norden venture run jointly with Cyprus-based Interorient Ship Management.

Tony Gurnee’s new entity is in the company of other well-known international shipping entities that have chosen to operate from Ireland. D’Amico International Tankers, a subsidiary of d’Amico International Shipping, is based in Dublin, where it maintains chartering and operations offices. Glenda International, a joint venture between d’Amico and the commodity behemoth Glencore International, operates nearly three dozen vessels in the Glenda Pool with headquarters in Dublin. D’Amico is also partnered with Mitsubishi Corporation and operates tankers in High Pool Tankers out of Dublin. More than merely a postal address, the Dublin-based entity’s signature is on time charters with oil majors and more than $200 million of debt with international shipping banks.

Show Me the Money

Not surprisingly, the Irish maritime cluster includes a formidable ship finance component. A recent arrival has been Northern Shipping Funds (tied to the well-known Northern Navigation), a leasing company that provides niche financing for shipowners – most recently a high-profile purchase through its Bermuda affiliate of three tankers to be leased back to New York-based General Maritime Corporation.

Paul Packard, Head of Maritime Industries at the Bank of Ireland, observed, "We believe there remain good opportunities for shipping companies to consider relocating to Ireland." Although not currently seeking new international ship finance business, Bank of Ireland provides senior and junior debt (on a limited basis) along with offerings to hedge financial, energy and freight risks. Packard added, "We believe that the combination of an E.U. jurisdiction in the Eurozone with English as the first language and an attractive tonnage tax remains as compelling as ever."

Perhaps due to the mid-2000s commodity price boom and public market interest in shipping, maritime companies have increasingly borrowed from the toolkit of structured finance, where deal architecture is optimized to benefit legally from different regulatory and taxation regimes. Catherine Duffy, a Partner at Dublin-based lawyers A&L Goodbody, sits at the nexus of aircraft and maritime finance, heading her firm's practice in both areas. She described a conscious effort on the part of the Irish government to create an environment conducive to international finance and leasing in the field of aviation through the establishment of the Shannon Free Airport Zone and subsequently the International Financial Services Centre in Dublin. Many of the fiscal and other incentives associated with those initiatives are now embedded in Irish domestic law and facilitate cross-border financing and leasing on a general scale and particularly in assets like aircraft and ships.

Duffy explained that she was a member of a committee advising the IMDO following its establishment in 1999 and acknowledged that efforts to attract shipping companies have moved at a slower pace than aviation. But she is quick to point out that "There is no reason why the Irish finance and leasing incentives that have been so successful with aviation could not work for shipping."

To Tax or Not to Tax

Jim Healy, Director of the accounting firm KPMG’s transportation practice in Dublin, has also worked closely with the IMDO. He explained the tax advantages of doing business in Ireland and the two main choices available to companies considering moving there: the normal tax regime, where a 12.5 percent tax rate applies, or the tonnage tax regime, where taxes are assessed based on a vessel’s net tonnage and irrespective of profitability. For regular taxpayers, the ability to depreciate maritime assets over eight years for tax purposes and a capital gains tax rate of 25 percent enable shipping companies to build up cash.

The Irish tonnage tax, which is sanctioned by the E.U., offers a permanent saving, unlike the tax “deferral” possible with accelerated depreciation. Companies electing this method of taxation are not subject to capital gains. It’s very competitive compared with other, more restrictive tonnage tax regimes for reasons that include no connection to national cadet training programs and the ability to lease vessels in under various financial arrangements. Importantly, the vessels need not be flagged in Ireland, and the tonnage tax can also apply to ship managers without a requirement that they own the vessels. Beyond seagoing boxships, tankers and drybulkers, other segments that qualify include ferries, passenger ships, and certain vessels in the towing, salvage and offshore support areas. The numbers themselves, with annual tax bills based on the vessel’s net register tonnage, sell the advantages: Healy cited €10,000/year as the tax liability for a Suezmax tanker and about half that for a Panamax bulk carrier.

IMDO’s Murphy pointed out that the interaction of a 12.5 percent corporate tax rate, which he said was “the lowest in the E.U.,” with the Irish tonnage tax offered potent benefits for shipowning companies. “Under some circumstances,” he stated, “shipowners are effectively paying under two percent in taxes.” He emphasized that the 12.5 percent rate will remain despite recent widely reported problems in the Irish financial markets.

The Nexus Between Aviation and Shipping

KPMG’s Healy is adamant that Ireland’s network of international tax treaties, which has been so attractive to aircraft owners, would be equally applicable for vessel-owning companies. Healy works closely with financiers, lawyers, and vessel owners on structuring deals and says there is no withholding required on lease payments out of Ireland, or on rents coming in from a charterer based in most of the jurisdictions which have signed a reciprocal tax treaty with Ireland (more than 50 countries). Healy noted, “The favorable tax treatment on aircraft leases works the same way for vessels.” Building on the example of the Irish lessor, Healy described the attractiveness to providers of both debt and equity: Because there is usually no withholding tax on either interest payments or dividends coming out of Ireland when the recipient is situated within the tax treaty network, financiers have the flexibility to fund their operations in the most suitable manner.

Another ongoing but less well-known success story from the aircraft sector may also be applicable to shipping. A&L Goodbody’s Catherine Duffy is Chair of the Legal Advisory Panel to the Aviation Working Group to the 2001 "Cape Town Convention." The Convention (officially the United Nations Convention on International Interests in Mobile Equipment) provides for an international and uniform set of rules and remedies applicable to interests in mobile assets listed on the international registry established under the Convention. The Convention is to be read in conjunction with protocols specific to particular types of mobile equipment. The aircraft protocol was the first to be put in place and has been up and running since 2006. The protocol in respect of rolling stock followed with space on its way.

There is provision for a protocol on shipping too, but it has been slow to get off the ground. The Convention does not override the parties’ ability to contractually agree to the terms of their financing; but it does, through a series of rights and remedies applicable to an interest registered against the aircraft, introduce an element of certainty, making financing more accessible and less costly. Describing the successful uptake in the aviation sector, Duffy pointed out that "A uniform code of rights and remedies that apply does not take away from the provisions that are already there. It enhances the ability to do business." In the context of Ireland, she said, "For a Contracting State where it has in the past been difficult or expensive to raise finance, the Convention would apply and make it easier and more cost-effective to raise money. The same benefits could apply to the shipping sector if they were to put together a protocol.”

Putting It All Together

All of these factors have contributed to Ireland’s ability to attract new business. A 2006 transaction in which BNP Paribas financed 12 vessels for the liner giant CMA-CGM included an Irish borrower in the capital markets and a dozen special-purpose Irish shipowning entities, which then put the vessels on bareboat charters to CMA-CGM. In Tony Gurnee’s deal, individual special-purpose Irish LLCs chartered the tankers to Ardmore, which then leases them to users such as Norden. 

With the global reach of bluewater vessel operators and ship’s service providers, who operate amid increasing regulatory scrutiny, Ireland has proven to be an excellent base of operations. Clearly, the smart money agrees. – MarEx 

Barry Parker writes frequently about maritime matters.