TALLINN - Estonia's Finance Ministry announced that Tallink, the country's largest ferry operator, was unlikely to receive compensation from the state for the loss of tax-free trade on board its ships when the country accedes to the EU next May.Finance Minister Taavi Veskimagi defended the decision, saying that the ministry estimated that the shipping companies' tax burden would not increase when Estonia joined the EU.
"In order to decide whether the state should support Estonia's shipping companies, it is necessary to take into account the specific features of Estonian tax system," Veskimagi said, referring to the fact that Tallink is exempt from paying corporate income tax on reinvested profits.
The news was a blow for Tallink, the largest passenger ferry company, controlling around 50 percent of traffic between Estonia and Finland and that competes with the likes of Viking Line and Silja Line, both of which receive compensation from the Finnish and Swedish governments.
Competitors say that Tallink has important competitive advantages, such as low labor costs, since it employs Estonian crews. Viking Line was recently forced to give up its plan to transfer one of its ferries, the Rosella, under the Estonian flag after Finnish trade unions threatened to start boycotting the shipping line.
Tallink has claimed that it will lose 500 million kroons (32.2 million euros) as a result of EU accession, much of which will come as a result of losing the lucrative duty-free trade on board vessels that is due to be scrapped as of May 1, 2004.
The Tallinn-Stockholm route, however, will reportedly be allowed to continue selling tax-free goods, as ships on the route will make a brief stopover at the Aland Islands, an autonomous administrative region within the EU that will preserve its duty-free trade status.
The previous government of Siim Kallas had promised compensation to the shipping company before Estonia closed its EU accession negotiations.
Kalev Jarvelill, managing director of Tallink, said of EU accession, "I doubt whether we are in a better position than the Finns or Swedes."
In regards to the finance minister's statement that it was necessary to analyze the competitive situation in the shipping market, Jarvelill said, "This is the same as putting fire on a house and waiting to see what happens."
Last year Tallink ended with a profit of 381 million kroons on turnover of 3 billion kroons.
Enn Pant, chairman of the Tallink Group, said that no dividends would be paid this year and the entire profit would be reinvested in company development.
"Our policy has been not to pay dividends at times when the company is rapidly growing, and this growth continues. Our shareholders are more interested in the company's value and development capability," said Pant.
On Dec. 8 shareholders approved the company's financial results and elected Sunil Nair, managing director of CVC International, a representative of Citigroup Global Investments, to the supervisory board.
