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International shipping income exclusion

Applies
FY2024 onwards
Reviewed
Rule
P2-SHIP-2024.1
By

Is shipping income excluded from Pillar Two?

Yes, where ships are managed from the jurisdiction, with qualified ancillary shipping income capped at 50% of international shipping income.

Per GloBE Model Rules (Pillar Two), December 2021, Article 3.3, International Shipping Income exclusion

For an MNE Group that has International Shipping Income, each Constituent Entity's International Shipping Income and Qualified Ancillary International Shipping Income are excluded from the computation of its GloBE Income or Loss for the jurisdiction in which it is located; a loss on either is excluded likewise. Both are net of the costs directly attributable to the activities and of indirect costs allocated in proportion to revenue. The aggregated Qualified Ancillary International Shipping Income of all Constituent Entities located in a jurisdiction shall not exceed the published share of those Constituent Entities' International Shipping Income. The exclusion requires the Constituent Entity to demonstrate that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where it is located.

Shipping taxed under a tonnage regime does not produce top-up tax. A shipping loss is excluded too, so it cannot shelter other income.

Six shipping activities, five ancillary ones, a cap and a substance test

International Shipping Income — Article 3.3.2

  • (a) Carrying passengers or cargo by ships operated in international traffic, whether owned, leased or otherwise at the entity's disposal
  • (b) The same under slot-chartering arrangements
  • (c) Leasing a ship fully equipped, crewed and supplied, for international traffic
  • (d) Bare boat chartering a ship for international traffic to another Constituent Entity
  • (e) Participation in a pool, joint business or international operating agency
  • (f) The sale of such a ship held for use for the published minimum period

Not international traffic

A ship operated solely between places within one jurisdiction, and transport via inland waterways within the same jurisdiction. Towing and dredging are outside; offshore service vessels carrying passengers or cargo internationally are inside.

Qualified Ancillary International Shipping Income — Article 3.3.3

  • (a) Bare boat chartering to a shipping enterprise outside the group, where the charter does not exceed the published limit — renewals counted
  • (b) Selling tickets issued by other shipping enterprises for the domestic leg of an international voyage
  • (c) Leasing and short-term storage of containers, and detention charges
  • (d) Services to other shipping enterprises by engineers, maintenance staff, cargo handlers, catering and customer service staff
  • (e) Investment income integral to operating the ships in international traffic — not a group treasury function

The cap is jurisdictional

Ancillary income of all Constituent Entities in the jurisdiction is limited to the published share of their International Shipping Income. The excess stays in GloBE Income, with its costs, allocated among the entities in proportion to their ancillary income.

One adjustment

Both kinds of income are net figures. Removing the net figure is the whole adjustment: no separate disallowance of the expenses is needed.

The substance test

Strategic management is decisions on major capital expenditure, disposals, major contracts and alliances; commercial management is route planning, bookings, insurance, financing, crewing and provisioning. The flag of a vessel is not itself a factor.

Order of testing

  1. 1

    Inputs requiring your determination

    Every input the computation reaches must be supplied; nil is entered, not left blank.

  2. 2

    Strategic or commercial management in the jurisdiction

    Article 3.3.6 — without it nothing is excluded.

  3. 3

    The shipping income of the jurisdiction

    Nil shipping and ancillary income leaves nothing to exclude.

  4. 4

    The cap on Qualified Ancillary International Shipping Income

    Article 3.3.4 — ancillary income above the published share of shipping income stays in.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

Ancillary income above the cap

The Commentary's example, in millions: shipping income of 70 and ancillary income of 40.

Computed

EUR 105,000,000 is excluded from GloBE Income or Loss for the jurisdiction as computed: International Shipping Income of EUR 70,000,000 and EUR 35,000,000 of Qualified Ancillary International Shipping Income. The ancillary income of EUR 40,000,000 exceeds the cap of 50% of International Shipping Income (Article 3.3.4), so EUR 5,000,000 stays in GloBE Income together with the costs attributable to it. Covered Taxes on the excluded income come out of Adjusted Covered Taxes. Based on the figures you supplied.

Workings

International Shipping Income or (Loss)Article 3.3.2 — as supplied, net of direct and allocated indirect costs
EUR 70,000,000
Qualified Ancillary International Shipping Income or (Loss)Article 3.3.3 — as supplied, before the cap
EUR 40,000,000
Cap on ancillary incomeArticle 3.3.4 — 50% of International Shipping Income, nil where that is a loss
EUR 35,000,000
Ancillary income excludedArticle 3.3.4 — the lesser of the ancillary income and the cap
EUR 35,000,000
Ancillary income remaining in GloBE IncomeArticle 3.3.4 — the excess over the cap, allocated among the entities in proportion to their ancillary income
EUR 5,000,000
Adjustment to Financial Accounting Net Income or LossArticle 3.3.1 — the excluded net income, removed; an excluded loss is added back
(EUR 105,000,000)

Decided by the cap on qualified ancillary international shipping income

A shipping loss

A loss of EUR 25 million on the fleet and EUR 3 million of container income.

Computed

(EUR 25,000,000) is excluded from GloBE Income or Loss for the jurisdiction as computed: International Shipping Income of (EUR 25,000,000) and EUR 0 of Qualified Ancillary International Shipping Income. The ancillary income of EUR 3,000,000 exceeds the cap of 50% of International Shipping Income (Article 3.3.4), so EUR 3,000,000 stays in GloBE Income together with the costs attributable to it. Covered Taxes on the excluded income come out of Adjusted Covered Taxes. Based on the figures you supplied.

Workings

International Shipping Income or (Loss)Article 3.3.2 — as supplied, net of direct and allocated indirect costs
(EUR 25,000,000)
Qualified Ancillary International Shipping Income or (Loss)Article 3.3.3 — as supplied, before the cap
EUR 3,000,000
Cap on ancillary incomeArticle 3.3.4 — 50% of International Shipping Income, nil where that is a loss
EUR 0
Ancillary income excludedArticle 3.3.4 — the lesser of the ancillary income and the cap
EUR 0
Ancillary income remaining in GloBE IncomeArticle 3.3.4 — the excess over the cap, allocated among the entities in proportion to their ancillary income
EUR 3,000,000
Adjustment to Financial Accounting Net Income or LossArticle 3.3.1 — the excluded net income, removed; an excluded loss is added back
EUR 25,000,000

Decided by the cap on qualified ancillary international shipping income

Managed from elsewhere

A ship-owning company whose fleet is managed from another jurisdiction.

Computed

Nothing is excluded under Article 3.3 as computed: the exclusion requires the Constituent Entity to demonstrate that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where it is located (Article 3.3.6), and you have indicated that it cannot. The shipping income stays in GloBE Income or Loss. Based on what you supplied.

Decided by the strategic or commercial management in the jurisdiction

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

1 input still need your determination:

  • Can each Constituent Entity demonstrate that the strategic or commercial management of all ships concerned is effectively carried on from within the jurisdiction where it is located? The flag of a vessel is not itself a factor.

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Thresholds

pillar_two.shipping_ancillary_income_cap
50% · reviewed 2026-10-04 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader