Section 234
Section 234: avoidance of tax and exclusion from the tonnage tax scheme
Section 234 is the anti-avoidance safeguard for the tonnage tax scheme: it denies the scheme's benefit where a tonnage tax company is party to a transaction or arrangement that amounts to an abuse of the scheme, and gives the Assessing Officer power to formally exclude such a company.
What counts as abuse
The tonnage tax scheme does not apply where a tonnage tax company is party to a transaction or arrangement amounting to an abuse of the scheme. A transaction or arrangement is treated as an abuse if entering into it, or applying it, results (or would have resulted) in a tax advantage for a person other than a tonnage tax company, or for a tonnage tax company in respect of its non-tonnage-tax activities.
"Tax advantage" includes any determination of expense/interest allowance or cost apportionment that reduces income or increases loss from non-tonnage-tax activities, computed from the company's books for the tax year the transaction was entered into, and also includes a transaction that produces more than ordinary profits that might be expected from tonnage tax activities.
Exclusion procedure
Where a tonnage tax company is party to such a transaction or arrangement, the Assessing Officer, by a written order, excludes the company from the tonnage tax scheme.
Before passing that order, the Assessing Officer must give the company an opportunity to show cause, by serving a notice specifying a date and time, and must obtain prior approval of the Principal Chief Commissioner or Chief Commissioner.
This exclusion does not apply if the company satisfies the Assessing Officer that the transaction or arrangement was a bona fide commercial transaction and was not entered into to obtain a tax advantage under this Part.
Effect of an exclusion order
Where an exclusion order is passed, the tonnage tax option ceases to be in force from the first day of the tax year in which the abusive transaction or arrangement was entered into.
Frequently asked questions
Can the Assessing Officer exclude a company from the tonnage tax scheme without a hearing?
No - Section 234(5) requires the Assessing Officer to first issue a show-cause notice to the company and obtain prior approval of the Principal Chief Commissioner or Chief Commissioner before passing an exclusion order.
Is a genuine commercial transaction at risk of triggering exclusion?
No - Section 234(6) protects transactions the company can show were bona fide commercial transactions not entered into to obtain a tax advantage under the scheme.
From when does the exclusion take effect?
From the first day of the tax year in which the abusive transaction or arrangement was entered into, not merely from the date of the exclusion order.
Related sections
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Talk to our tax team about tonnage tax scheme complianceLast updated 9 September 2026