Marianne Brynjulfsen Overaa
On 30 October 2025 the Court of Justice of the European Union (CJEU) upheld the General Court’s decision that Fugro’s action for annulment of the Pillar II Directive must be dismissed because the company was not “individually affected.” The CJEU did not rule on the substantive compatibility of the Directive with EU law.
The Fugro case
The Dutch company, Fugro NV, argued that parts of the Pillar II Directive were invalid. The company pointed to the exemption for shipping income under the Pillar II Directive as being incompatible with the EU‑approved tonnage tax regimes. The company argued that the Directive therefore undermined the tonnage tax regime by potentially imposing a top‑up tax on shipowners despite tax exemptions already granted under national tonnage tax schemes approved in accordance with the EU State aid Guidelines. The consequence, it argued, is unjustified differential treatment between shipping companies.
The General Court dismissed the claim on the ground that the company was not “individually affected” since the Directive has general application. In the appeal the CJEU in particular considered whether Fugro belonged to a “limited class of persons” of persons who were individually affected. The Court concluded that companies subject to tonnage tax regimes do not constitute such a closed and limited class of persons and therefore that Fugro was not “individually affected” by the Directive.
The CJEU’s decision is final and not subject to appeal. Companies with tax‑exempt income under tonnage tax regimes that are part of a group in scope of Pillar II, may therefore still face the risk that all or part of that income will be taxed under the Pillar II rules.
Relationship to the Norwegian tonnage tax regime
In several areas the shipping income exclusion in Pillar II is substantially narrower than the range of income that is tax‑exempt under the Norwegian tonnage tax regime. We find this to cause very unfortunate consequences for a number of companies active in both traditional shipping and offshore shipping. Because all or part of the income of such companies may effectively be subject to up to 15% taxation under Pillar II, these companies are placed at a significant disadvantage compared with competitors that benefit from tax exemptions under the Norwegian tonnage tax regime but fall outside the scope of Pillar II due to the income threshold.
We see key differences between the shipping income exclusion rule in Pillar II and the Norwegian tonnage tax regime in the following areas:
- Management: Pillar II requires that the strategic or commercial management of all the covered ships be exercised from the jurisdiction in which the group entity is located. The Norwegian tonnage tax regimes do not require that commercial or strategic management take place in Norway or within the EU/EEA.
- Shiping income: Income that is tax‑exempt under Pillar II is far more limited than under the tonnage tax regime.
- “International shipping income”: The Norwegian tonnage tax regime does not require that the ships operate in "international” traffic". The Norwegian tonnage tax regime also covers domestic voyages provided that the sailed distance requirement is met. The requirement of "international traffic" is particularly significant for companies within offshore services, wind‑farm activity and wellboat operations.
- “Transport of passengers and goods”: The Norwegian tonnage tax regime also covers activities other than pure maritime transportation, for example income from support vessels and construction vessels (under certain conditions) in petroleum activities, and installation and repair of offshore windmills.
- Sale of assets: The shipping income exlusion in Pillar II broadly covers operating income. Gains on the sale of ships are also covered if the seller has owned the ship for a minimum of one year. This means that sales of newbuilding contracts are not covered by the Pillar II exemption. The same applies to other ship‑related assets, such as transfer of charter contracts. The Norwegian tonnage tax regime has no such limitations and gains on the sale of such assets are tax‑exempt without any ownership period requirement.
- Ancilliary shipping income: a number of income types that are fully tax‑exempt under the Norwegian tonnage tax regime are subject to limitations under Pillar II:
- Scope: Aggregate income from “Qualified Ancillary International Shipping Income ” for all constituent entities located in a jurisdiction shall not exceed 50% of those constituent entities’ international shipping income. Any excess income will in that case fall outside the shipping income exclusion rule in Pillar II.
- Definition of "Qualified Ancillary International Shipping Income": Includes, among other things, external bareboat chartering not exceeding 3 years. Bareboat charters exceeding 3 years will not qualify for the shipping income exclusion in Pillar II. Bareboat charters less than 3 years are regarded as Qualified Ancillary International Shipping Income and subject to the 50% income limitation referred to in the bullet point above.
The Norwegian tonnage tax regime does not have such limitations other than the general restriction that the portion of the tonnage of the corporate group chartered to others on bareboat terms cannot exceed 40 percent of the total tonnage of the group (traditional shipping). For offshore shipping the limit is 50%. The Norwegian tonnage tax regime also contains a definition of bareboat which results in a number of formal bareboat contracts not being treated as bareboat contracts in relation to the abovementioned limitation, e.g. charters where a group‑affiliated company provides the crew. Pillar II contains no such definition.
Please contact us if you wish assistance with an assessment of how the Pillar II rules may affect your operational activities and whether the rules will have specific consequences in any potential transactions.
Latest status on Pillar II and the «side‑by‑side» solution
We refer to earlier newsletters regarding the US’s position on Pillar II and proposals for retaliatory taxes against persons and companies that are tax resident in countries which the US claims impose extraterritorial and discriminatory taxes on US companies. (here, here and here)
As a consequence of this, on 28 June 2025 the G7 published a joint statement on a “side‑by‑side” solution which means that US parent companies may be exempted from the global minimum tax under the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR). The background to the side‑by‑side solution is that US domestic rules for taxation of low‑taxed income, e.g. Global Intangible Low‑Taxed Income (GILTI), are to be recognized as equivalent to Pillar II.
There remains uncertainty regarding the details of the rules, including whether the rules also will cover US subgroups where the ultimate parent is tax resident outside the US. The intention is that a negotiated solution shall be in place by 31 December 2025. There are also ongoing discussions as to whether such rules in the US are, in substance, equivalent to the GLoBE rules. The US has indicated that if a side‑by‑side solution is not achieved, they will again consider introducing retaliatory taxes as previously proposed.
