Danish giant AP Moller-Maersk A/S and French rival CMA CGM SA owed just 2% of their profits in taxes, according to their latest financial documents. Germany’s Hapag-Llloyd AG paid just 37 million euros ($37 million) on profits of 8.7 billion euros in the first half of 2022, an effective rate of 0.4%. The average corporate rate for member countries of the Organization for Economic Co-operation and Development is around 23%.

This astonishing and increasingly indefensible advantage stems from the way levies on shipping groups are based on the size of their vessels, not a percentage of their profits. (The Swiss-Italian group Mediterranean Shipping Company SA is private and therefore its profits and taxes are not disclosed.)

Estimating the amounts lost in the state coffers due to these very favorable provisions is complex. But it is possible that these three groups together would have had to pay up to $25 billion more in 2021 and 2022 if they had been taxed at the OECD average. Maersk said my estimate was “significantly overstated” due to depreciation effects. CMA CGM did not comment on the value of its lost taxes, saying in a statement that high profits allowed it to “support the modernization and decarbonization of its fleet”. Hapag-Lloyd declined to comment.(1)

Given the skyrocketing cost of living and the need for businesses to behave as good corporate citizens, these lenient tax regimes need to be overhauled. Otherwise, the argument for windfall taxes will become compelling.

Although short-term (“spot”) freight rates have fallen lately on recession-related worries, shipping lines’ profits remain stratospheric thanks to their success in locking desperate customers into longer-term contracts. term.

Hapag-Lloyd’s operating profit margins currently exceed 50%, and it expects to make about $18.5 billion in earnings before interest and taxes this year. Meanwhile, Maersk is on track to report around $31 billion in earnings before interest and taxes. Only four listed European companies will earn more than Maersk this year, all oil giants, according to Bloomberg data.

More than 20 European countries have implemented so-called tonnage taxes over the past three decades to help them compete with their subsidized Asian counterparts and deter companies from transferring ships to low-levy jurisdictions under so-called flags of convenience. Even today, landlocked Switzerland is preparing to introduce its own tonnage tax that would benefit MSC, the world’s largest shipping group.

In fairness, tonnage taxes solve tax distribution problems for ships operating in international waters and calling at multiple ports. Businesses are charged even when they lose money, which means they used to pay more than they otherwise would have. But because their profits are now an order of magnitude larger than before, the system distributes a huge subsidy.

With the honorable exception of France, shipping line arrangements have largely escaped scrutiny on this side of the Atlantic. Maersk told investors earlier this month that it was not aware of any exceptional tax initiatives that could harm it.

While the Biden administration has sued transportation groups for alleged anticompetitive practices, it has had little to say about their taxes because large companies are mostly foreign-owned.

Fortunately, part of the pandemic windfall from maritime transport is being reinvested in less polluting ships. The industry urgently needs to reduce its carbon footprint, and the additional fleet capacity, combined with lower demand, should also help to reduce shipping costs somewhat from next year.

However, much of this lightly taxed wealth was spent on acquisitions in adjacent areas such as logistics and aviation. Maersk and Hapag-Lloyd are also splashing out on dividends and share buybacks. Such follies make the current regime harder to justify.

To avoid a 25% excess profits tax threatened by French lawmakers, CMA CGM agreed last month to cut freight rates by 750 euros per container shipped to France from Asia. The windfall tax proposal was later rejected by Parliament. While emphasizing the tightly held group’s national investments and job creation, CMA CGM boss Rodolphe Saadé warned the Senate that it was unfair to penalize his group when its competitors would not do facing the same burden. “I don’t want to be the only one paying,” he said.

I agree – its rivals should also pay more, and they can certainly afford it: Maersk’s cash balance is on track to exceed $30 billion by the end of this year.

Unfortunately, the shipping industry managed to get an exemption from last year’s OECD agreement setting a minimum rate of 15% for companies, which would have created a fairer playing field. Ironically, the industry gained this exemption by pointing out that it historically made very little money.

Freight rates are unlikely to return to pre-pandemic lows as the industry has become much better at coordinating capacity. This coordination has been facilitated by alliances and antitrust exemptions which – surprise! — the European Union has also been reluctant to review.

Europe was right to stand up to the dominant American technology companies. But he shouldn’t overlook the pampered leviathan in his own backyard.

More from Bloomberg Opinion:

• Taxpayers are missing out on pandemic shipping profits bonanza: Chris Bryant

• A minimum corporate tax of 15% is not an economic villain: Nir Kaissar

• The $500 billion in profits from shipping can take over Amazon: Chris Bryant

(1) I applied the OECD average rate to their 2021 pre-tax profits and subtracted taxes paid, including tonnage tax. Maersk and Hapag-Lloyd’s profits are expected to be about 1.6 times higher in 2022, so I used that as a multiplier for the foregone tax in 2022.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion