Keeping its cool

THE majority of seagoing nations apply a system in which fairway dues or similar official payments are determined according to the gross tonnage of the vessel. Finland, however, applies a unique system in which fairway dues are determined according to the vessel's net tonnage and ice classification. The most important factor, however, is ice classification. It is worth noting that the difference can amount to tens of thousands of euros for each call. For example, ice class II incurs five times' more fairway dues than ice class 1 A Super.

The purpose of the fairway dues is to cover the costs that arise from maintaining the public fairways, security levels at sea and the icebreaker fleet. The due is a tax, like an official payment, that is collected all year round. Its size bears no resemblance to the extent of assistance needed. During 2001, the State of Finland collected as much as 68 million euros in fairway dues.

This system has led to attempts at misuse which, in the past, often succeeded. Vessels normally have ice protection to a certain draught, but lack ice protection if the draught is exceeded. Some classification societies issue double certificates for vessels. One set of documents is used if the vessel only sails with ballast, while the second set is used if the vessel takes a full load. Some vessels have presented better ice classification certificates than they would have been entitled to while, in other cases, the net tonnage of the vessel has not corresponded to reality. To date, this kind of conduct has often been possible due to the inability of the authorities to thoroughly monitor the conduct of shipowners.

It should be noted that Finnish law requires an ice classification certificate to be issued by Finnish authorities. The certificate is among the documents needed for the purpose of determining fairway dues. In most cases, the decisions of the Finnish ice class surveyors follow the decisions on ice classification issued by the classification societies. This is, however, not always the case and it may come as a surprise to shipowners to learn that the Finnish authorities have taken an opinion on the ice class of the vessel which is different to that of the class society.

When determining the ice classification of the vessel, Finland applies its own standards which, although common with Sweden, differ slightly from the ones applied by classification societies. For example, according to some class societies, a vessel may have a certain ice classification up to a certain draught, while the ice classification will be automatically altered if the said draught is exceeded. In the opinion of the Finnish authorities, however, a vessel may only have one ice class regardless of how much cargo it takes during its call.

It has even been the case that a Finnish surveyor has refused to issue an ice classification certificate for a vessel due to some discrepancies in the interpretation of international conventions on classification. Technically, this would mean that a vessel without an ice classification certificate would be, at least during the winter months, unseaworthy - not because of a lack of security, but because of a lack of documentation.

This kind of approach, which leads to decisions that do not honour the rules of approved classification societies, is to some extent problematic. On one hand the state has unlimited jurisdiction within its area. On the other hand the state has committed itself to approve certificates of certain classification societies that at least partially have the status of an authority of foreign state. This, to some extent, creates understandable tension as the authorities are required to look after the fiscal interests of the state, while the classification societies are there to help their members as far as their rules allow.

The Finnish system is based on statute and decree on route fees, dating from the 1980s. During 2002, however, the statute will be updated. At the same time the legislator will try to root out ways to avoid the payment of fairway dues. It will also no longer be possible to issue ice classification certificates for an unlimited period, and the system will be amended so that the ice classification certificate will include an indication of the specific certificates it is based on. Furthermore, the customs and maritime administration have started to use electronic registers enabling improved checking of the validity and correctness of the vessel's certificates.

The line between tax planning and tax evasion is a thin one. In some rare cases it may still be reasonable for vessels that call at Finnish ports only occasionally, say no more than once a year, to alter their ice classification by, for example, lowering their load line prior to calling at Finnish ports.

It should also be noted that the law provides the possibility to apply for alteration to the fairway dues. In some cases, total freedom from the duty to pay dues can be considered, but this can only be done for valid reasons. So far, this possibility has seldom been attempted by foreign vessels but could, however, be recommended, as the possible benefits compared to the cost of drafting the application can be considerable.

At the moment, the dues in question, along with the parameters by which the dues are determined, can be individually chosen by each EU member state. The vessels are a good subject for taxation as the majority of ships can hardly avoid calling at Finnish ports. At the same time, the system provides a possibility to favour national seagoing interests by providing local shipowners with discretionary relief from paying the dues.

A taxation system that encourages misconduct is, however, not a good and functional idea. It is a proven fact that artificial and unrealistic parameters in taxation will lead to artificial solutions.

Only time will tell how long Finland will be able to maintain this unique and protective taxation system in an increasingly unified Europe.