The influence of the tax regime on the flag choice of shipowning companies based on fleet size

Abstract

This thesis analyses the influence of tax minimization as a business motive for choosing a ship registry for the most important in terms of fleet size listed companies of each shipping segment. It is argued that the ship registry choice is a multifactorial business decision, with many recent studies focusing nowadays on other more profound reasons than tax regimes’ differences between registries, such as manning restrictions. The variation in the cost of the total tax for each company of the ones in the decided pool is calculated by a screening of the tax regime of each flag for the average age of the companies’ fleet. In order to better evaluate the effect of the tax minimisation incentive on the final ship registry choice, we also compare it with the relevant results of the best-performing flag incentive. We have also added the fleet percentage variable in order to take into consideration in the analysis the phenomenon of the flag differentiation of the companies’ fleets and the different confidence levels towards a flag choice that is indicated by the percentage of the fleet the shipowner flies with it. Using a mixed-effects logistic regression (melogit) on data from 70 companies (1,108 observations), the results show a non-linear relationship between the tax cost and the performance of a flag regime and the probabilities of it being chosen. The inclusion of company-level random effects captures heterogeneity across firms. The findings suggest that both fiscal incentives and performance outcomes shape flag-selection strategies, offering policy implications for competitive maritime governance but not necessarily in the intuitively expected ways.This thesis analyses the influence of tax minimization as a business motive for choosing a ship registry for the most important in terms of fleet size listed companies of each shipping segment. It is argued that the ship registry choice is a multifactorial business decision, with many recent studies focusing nowadays on other more profound reasons than tax regimes’ differences between registries, such as manning restrictions. The variation in the cost of the total tax for each company of the ones in the decided pool is calculated by a screening of the tax regime of each flag for the average age of the companies’ fleet. In order to better evaluate the effect of the tax minimisation incentive on the final ship registry choice, we also compare it with the relevant results of the best-performing flag incentive. We have also added the fleet percentage variable in order to take into consideration in the analysis the phenomenon of the flag differentiation of the companies’ fleets and the different confidence levels towards a flag choice that is indicated by the percentage of the fleet the shipowner flies with it. Using a mixed-effects logistic regression (melogit) on data from 70 companies (1,108 observations), the results show a non-linear relationship between the tax cost and the performance of a flag regime and the probabilities of it being chosen. The inclusion of company-level random effects captures heterogeneity across firms. The findings suggest that both fiscal incentives and performance outcomes shape flag-selection strategies, offering policy implications for competitive maritime governance but not necessarily in the intuitively expected ways.