Tax Update Shipping & Offshore - July 2025

July 14, 2025

Dear reader,

Since the latest update by far the biggest change happened on June 28, 2025 when the G7, comprising Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, released a statement which outlines a shared understanding of a “side-by-side” solution to US concerns on Pillar 2. The side-by-side approach would provide for the coexistence of the US system and the Pillar 2 system and would not seek to undermine Pillar 2. The statement refers to the ‘success’ of Qualified Domestic Top-up Tax in tackling base erosion and profit shifting. The statement appears to proceed from the assumption that the US system and Pillar 2 are intended to address similar concerns and achieve similar results. This, however, still leaves us with a lot of questions and on the other hand we see (ship owning) companies in the market moving from one jurisdiction to another for various reasons (for example transferring/ships assets to the US).

This update includes a number of various topics, to start with the Net-Zero Framework of the IMO, an update on the UN Model Convention’s latest update in 2025 and various other.

Enjoy the summer and enjoy reading!

Please reach out if you have any questions/remarks to your KPMG contact. Within KPMG we have specialists around the world with a focus on this specific industry.

Ernst-Jan Bioch

Content

1. IMO Net Zero Framework
2. Exemption from Excise Duties of Mineral Oils
3. 2025 update of the UN Model Convention
4. Norwegian tax refund scheme
5. State Aid Italy

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1. IMO Net Zero Framework

The International Maritime Organization (IMO) has introduced the Net-Zero Framework, a global initiative aimed at reducing greenhouse gas (GHG) emissions in the shipping industry through carbon pricing mechanisms. Adopted during the 83rd session of the Marine Environment Protection Committee (MEPC 83) in April 2025, this framework is designed to guide international shipping towards achieving net-zero emissions by 2050. It incorporates a hybrid system, reflecting a compromise among various proposals considered during its development, with two key measures: a Global Fuel Standard and a Global Economic Measure. The IMO Net-Zero Framework will be added as a new Chapter 5 of Annex VI (Prevention of Air Pollution from Ships) to the International Convention for the Prevention of Pollution from Ships (MARPOL), which currently includes 108 Parties, covering 97% of the world’s merchant shipping fleet.

Key Components of the Net-Zero Framework:

1. Global Fuel Standard:

The IMO Global Fuel Standard (GFS) targets ships over 5,000 gross tonnage engaged in international trade, which are responsible for about 90% of shipping emissions. It introduces the GHG Fuel Intensity (GFI) metric, measuring emissions per unit of energy used, including electricity and wind propulsion, using a well-to-wake approach. The GFS establishes two compliance levels:
1. Tier 1 (Base Target): Requires an 8% reduction in GFI by 2030, 30% by 2035, and 65% by 2040.
2. Tier 2 (Direct Compliance Target): Sets stricter targets of 21% reduction by 2030 and 43% by 2035.
Ships must meet the direct compliance target; exceeding it necessitates acquiring "remedial units" to balance emissions, while outperforming it generates "surplus units" for trade or offsetting.

2. Carbon Pricing Mechanism:

The Carbon Pricing Mechanism complements the GFS by financially incentivizing compliance with GFI targets. Ships that exceed GFI targets must purchase Remedial Units (RUs) as a penalty, with costs set at $380 per tonne of CO₂-equivalent emissions for those exceeding the base target, and $100 per tonne for those exceeding the direct compliance target but below the base tier.
Conversely, ships that emit less than the direct compliance target can generate Surplus Units (SUs), which can be traded or sold, creating a market-based incentive for adopting low-emission technologies.

Monitoring and Compliance:

The IMO shall oversee the implementation of the framework, including the monitoring and control of Remedial Units (RUs) and Surplus Units (SUs).
The IMO will administer the issuance and trading of RUs and SUs based on verified emissions data, thereby incentivizing vessel owners to adopt cleaner technologies and practices.
Vessels are required to monitor and report their emissions data to the IMO, utilizing standardized procedures and third-party verification to ensure accuracy and compliance.
- Reporting and trading activities are conducted on behalf of individual vessels, with the company responsible for submitting the required data. "Company" refers to the entity that assumes operational duties from the vessel owner, such as a manager or bareboat charterer, as defined in the draft amendments.
- In the event of a change in the responsible company, vessels must report aggregated emissions data to their Administration or authorized organization, ensuring continuity and compliance, as outlined in the draft amendments to MARPOL Annex VI.

Deadlines and Timelines:

Formal Adoption: Scheduled for October 2025.
Detailed implementation guidelines: To be approved in spring 2026.
Implementation Start: Most measures will take effect in 2027, with full implementation expected by 2028.
First Parameter Review: Set for 2031, which could become a turning point for scaling up ambition.

ETS & this scheme

The EU Emissions Trading System (ETS) has been applied to international shipping since January 1, 2024. However, the interaction between the EU ETS and the IMO Net-Zero Framework is still being determined. The European Commission plans to thoroughly assess the IMO's mechanism to ensure regulatory alignment and prevent double taxation. This evaluation will focus on harmonizing efforts and avoiding additional financial burdens on shipping companies subject to both systems. Adjustments to the EU ETS may be considered to align with global standards and support competitiveness within the industry.

Implications for Stakeholders:

Ship Producers: Encouraged to develop energy-efficient and low-emission vessels to meet demand from ship owners seeking compliance.
Companies: Referring to the owner, manager, or bareboat charterer responsible for the ship's operation. They are tasked with meeting GHG Fuel Intensity (GFI) targets and handling the financial impacts of the carbon pricing mechanism, potentially requiring retrofitting of vessels or investment in advanced emission-reducing technologies.
Countries: Nations with significant shipping industries may implement supportive policies to align with the framework, including financial incentives and infrastructure development for low-emission fuels.

Challenges and Criticisms:

The timeline of the IMO Net-Zero Framework has sparked concerns regarding potential delays in achieving significant emissions reductions by 2030, a critical period for climate action. Additionally, uncertainties persist about how the framework will interact with the EU Emissions Trading System (ETS), raising questions about regulatory alignment and potential overlaps. Stakeholders are awaiting the release of detailed implementation guidelines, expected in spring 2026, to fully understand the operational aspects and implications of the framework.

Contact: Betjes.Merijn@kpmg.com or Zurawska.Weronika@kpmg.com

2. Exemption from Excise Duties of Mineral Oils

ECJ Decides on Exemption from Excise Duties of Mineral Oils Used for Propulsion of Vessels: Alsen (Case C-137/23) (Excise)

The conclusion of this ruling by the Court of Justice of the European Union (Fifth Chamber) is that Article 15(1)(f) of Directive 2003/96/EC, in conjunction with Article 1 of Directive 95/60/EC, opposes national legislation that denies excise duty exemption for gas oil when it is not marked according to EU requirements, even if it is established that the gas oil is used for commercial navigation on EU inland waterways and there are no indications of fraud, misuse, or tax evasion. In other words, the Court holds that the exemption cannot be denied solely due to the absence of proper marking, as long as there is no fraud and the gas oil is indeed used for the intended purpose.

3. 2025 update of the UN Model Convention

The United Nations (UN) is continuing its attempt to have a more prominent role in the global landscape. The UN Committee of Experts on International Cooperation in Tax Matters (“UN Tax Committee”) is spearheading work on the UN Model Tax Convention and updated UN Transfer Pricing Guidelines, which provide an alternative to similar guidance issued by the OECD. The UN Tax Committee’s Model Tax Convention generally seeks to allocate greater taxing rights to source countries, such as through permitting higher rates of withholding tax or creating new withholding taxes. The 30th Session of the UN Tax Committee, held in New York March 24 – 27, 2025, focused on various topics, including the digitalized economy, extractive industries, transfer pricing, taxation of crypto assets and international shipping business.

Here you can find the approved text in relation to international shipping which outlines proposed revisions to Article 8 of the United Nations Model Double Taxation Convention. Key changes include:

Source Taxation for Shipping and Air Transport: The new provision allows source taxation for both shipping and international air transport, becoming Alternative A under Article 8. The previous Alternative A, which provided for exclusive residence State taxation, is now Alternative B.
Clarifications Needed: The Subcommittee was tasked with clarifying the commentary and text of Article 8 (Alternative A) concerning multi-leg air journeys, circularity issues with definitions, and implications if one or both parties do not tax on a net basis.
Circularity in Definitions: The second sentence in the definition of "income from international traffic" was deemed unnecessary and proposed for deletion to avoid circularity issues.
Paragraph 2(a) Adjustments: Modifications were proposed to address situations where a country does not tax income from international traffic on a net basis. The changes aim to ensure the rule operates correctly under such circumstances.
Multi-leg Air Journeys: Additional clarity was provided for multi-leg air journeys, emphasizing the overall contract between the customer and the transportation company rather than individual legs.
Technical Issues: Other technical issues addressed include the treatment of profits from vessels engaged in fishing, dredging, or hauling activities and the definition of "international traffic."

Also interesting to read in this context is How the UN Model Tax Treaty shapes the UN Tax Convention behind the scenes - Tax Justice Network

4. Norwegian tax refund scheme

Amendments to the Norwegian tax refund scheme for employing seafarers

The EFTA Surveillance Authority (ESA) has assessed amendments to Norway's tax refund scheme for employing seafarers, determining that these amendments constitute State aid under Article 61(1) of the EEA Agreement. ESA decided not to object to the measures, as they are compatible with the EEA Agreement's functioning under Article 61(3)(c).

Key Points:

Background: The tax refund scheme, approved initially in 2016, allows shipping companies registered in Norway to receive refunds on taxes and social security contributions for employed seafarers, covering various categories of vessels.
Amendments: The amendments include increases in the maximum aid amount per seafarer over several years, with a new aid ceiling introduced for all categories except one. These changes aim to adjust for inflation and ensure fiscal sustainability.
State Aid: ESA confirmed that the scheme constitutes State aid, as it involves State resources, provides selective advantages to the maritime sector, and affects trade by strengthening beneficiaries' positions in a global market.
Lawfulness: The aid was deemed unlawful for the period from January 2017 to April 2025 because Norway implemented the measures before ESA's final decision.
Compatibility: ESA found the scheme compatible with the EEA Agreement, as the amendments do not alter the original compatibility assessment. The introduction of an aid ceiling is seen as a tightening of criteria and does not affect compatibility.
Conclusion: ESA has no objections to the implementation of the amendments, though future changes to the scheme will require separate assessments.

5. State Aid Italy

State Aid: European Commission Approves Re-Introduction of Italian Scheme Supporting Maritime Transport

The European Commission has approved, under EU State aid rules, the re-introduction of Italy's “International Registry” scheme. The scheme, as re-introduced, aims at encouraging shipping companies to register their ships in Europe, which ensures adherence to higher social, environmental and safety standards. The Commission approved the original scheme in 1998, and again in 2004. On 11 June 2020, the Commission approved a prolongation of the scheme until the end of 2023.

Italy notified to the Commission the re-introduction of the scheme until the end of 2033. Under the scheme, eligible shipping companies that register their vessels in the International Registry are granted a corporate tax reduction and other benefits, such as an exemption from payment of social security and welfare contributions for seafarers, a reduction on the tax on vessel insurance contracts or a reduction on the tax on the registration of labour contracts for seafarers. The scheme has an overall budget of €5.4 billion and will be in force until 31 December 2033.

The Commission assessed the re-introduced scheme under EU State aid rules, in particular its Guidelines on State aid to maritime transport. The Commission found that the scheme is necessary and appropriate to achieve the objectives pursued, namely boosting the competitiveness of ship owners and operators, supporting the development of the maritime sector, and encouraging the registration of vessels in EU/EEA ship registers. In addition, the Commission found that the scheme is proportionate as it is limited to the minimum necessary and has a limited impact on competition and trade between Member States. On this basis, the Commission approved the re-introduction of the Italian scheme under EU State aid rules.

The non-confidential version of the decision will be made available under the case number SA.111368

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