[2011] UKFTT 243 (TC)

TC01107

Appeal number: SC/3071/2009

Tonnage Tax; whether Appellants operated qualifying ships; whether ships certified for navigation at sea; No; whether vessels used for estuary or harbour crossings- no; whether crossing within a harbour-no; Schedule 22 to the Finance Act 2000; State Aid; Treaty on the Functioning of the European Union Article 107, 108; Community Guidelines on State Aid to Maritime Transport (97/C/205/05); Appeal dismissed.

FIRST-TIER TRIBUNAL

TAX 

	WESTERN FERRIES (CLYDE) LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL JUDGE:	J GORDON REID, QC., F.C.I.Arb.
Member:			IAN MALCOLM

Sitting in public at George House, 126 George Street, Edinburgh on 22-26 November 2010 and 18 January 2011

Michael Conlon, QC, and Jonathan Schwarz, Barrister, (both of the English Bar) for the Appellant

Ian Artis, Advocate for the Respondents

© CROWN COPYRIGHT 2011

DECISION

Introduction
1.	This appeal relates to notices of amendment to the Appellant’s tax return issued for the accounting periods ended 31 March 2003 and 31 March 2004, issued on 20 March 2006.  However the real issues concern the proper interpretation of aspects of the legislation relating to Tonnage Tax, which was introduced by Schedule 22 to the Finance Act 2000 to revive the British shipping industry.  Under the tonnage tax regime, qualifying companies do not pay corporation tax based on their shipping profits, but by reference to the tonnage of the qualifying ships operated.
2.	The broad issue is whether the Appellant’s ships were qualifying ships during the relevant fiscal period, namely 17 February 2003 to 31 March 2004 (the “Relevant Period”).  Much of the evidence and submissions concentrated on issues which are largely questions of fact with a distinctly maritime (rather than fiscal) flavour.  In particular, the bulk of the evidence and submissions focussed on the question whether the crossing, between Hunter’s Quay, near Dunoon, and McInroy’s Point, near Gourock, traversed the estuary of the river Clyde.  Within the broad issue referred to, reside three sub-issues (more precisely defined below), namely whether (i) the Appellant’s ships were duly certified for navigation at sea, (ii) the crossing was an estuary crossing and (iii) the crossing was within a harbour.  In order to answer the issues raised in this appeal it is necessary to consider both fiscal and Merchant Shipping legislation, together with subordinate legislation both secondary and tertiary.  In addition, there are aspects of European Union law in relation to maritime transport and State aid which also have to be considered.
3.	The appeal was heard at Edinburgh on 22-26 November 2010, and 18 January 2011, when submissions were completed.  Michael Conlon QC, and Jonathan Shwarz, Barrister, both of the English Bar, appeared on behalf of the Appellant, instructed by HBJ Gateley Wareing, solicitors.  Ian Artis, advocate, appeared on behalf of the Respondents (“HMRC”).  Mr Conlon led the evidence of D Gordon Ross, managing director of the Appellant, Graeme Fletcher, the Appellant’s technical director and a former chief engineer in the Merchant Navy, Dr Donald McClusky, a former lecturer in Marine Biology at Stirling University, Dr James D Hansom, a geomorphologist from the Department of Geographical Earth Sciences, School of Geosciences University of Glasgow, James Cooper, non executive chairman of Southampton Isle of Wight and South of England Royal Mail Steam Packet Company Limited (“Red Funnel”); and also non executive director of Associated British Ports Holdings Limited (ABP), and Captain Douglas J Lindsay, a master mariner and ports consultant.  
4.	Mr Artis led the evidence of Brian Stokes, an Inspector of Taxes who has been involved with Tonnage Tax policy since May 2006, Paul Coley, Assistant Director, Seafarers and Ships at the Maritime and Coastguard Agency, Captain Bailey, a master mariner, harbourmaster and Port Security Manager at Clydeport Operations Limited, and John E Brown, a Civil Servant with the Ministry of Defence and employed as a Law of the Sea consultant.  Parties produced a joint bundle of documents consisting of five lever arch files.  A Core Bundle was also produced.  There was no dispute as to the authenticity, and where appropriate, the transmission and receipt of these documents.  A Statement of Facts not in dispute, reproduced below, dealt with some non-contentious matters.  Four lever arch folders of authorities were also produced although only a relatively small proportion was referred to in submissions.
Geography
5.	In order fully to understand some of the facts, familiarity with a number of locations on or in the vicinity of the Clyde and its environs is desirable.  In the course of the hearing, we were referred to a number of maps, plans and charts of varying size and scale.  Unfortunately, not all the locations or lines of demarcation are to be found on any one of them.  Not one is suitable to be appended to this decision.  They are, either too small (and virtually unreadable), or too large (and unmanageable).  A judicious use of any reasonably scaled map or chart (even Google Maps) should enable most of the locations to be sufficiently identified.
6.	Fortunately, there was not much dispute about the accuracy of the charts, maps or plans put before us.  Moreover, at the end of the day, our decision and our reasons do not turn on the need to identify any location with absolute precision.  We have, however, appended a list of most of the physical features referred to in this decision with their geographical locations identified by precise map or chart reference.  These have been prepared by the Tribunal member, Mr Malcolm.  They are included for convenience only and have no status as such as we recognise that they have not been put to the parties for comment.  Our findings of fact are based on the evidence, documentary and oral.
Statutory Framework
Tonnage Tax Regime
7.	Schedule 22 to the Finance Act 2000 (“FA2000”), as applied by s.82, provides an alternative regime for calculating the profits of a shipping company for the purposes of corporation tax.  Paragraphs 3 and 4 provide that such a company’s tonnage tax profits, where the qualifying company has made the appropriate election, are brought into charge to corporation tax in place of its relevant shipping profits and set out how tonnage tax profits are calculated.  A qualifying company is defined as a company which is within the charge to corporation tax, and operates qualifying ships which are strategically and commercially managed in the United Kingdom.  Paragraph 19 defines qualifying ship inter alia as follows:-
(1) For the purposes of this Schedule a “qualifying ship”, means, subject to sub-paragraph (2), a seagoing ship of 100 tons or more gross tonnage used for-
(a)	the carriage of passengers,
(b)	the carriage of cargo,
(c)	towage, salvage or other marine assistance, or
(d)	transport in connection with other services of a kind necessarily provided at sea.
19(2)	A vessel is not a qualifying ship for the purposes of this Schedule if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land.
19(3)	Sub-paragraph (1) is also subject to paragraph 20 (vessels excluded from being qualifying ships).
19(4)	For the purposes of this paragraph a ship is a seagoing ship if it is certificated for navigation at sea by the competent authority of any country or territory.
8.	Certain vessels are excluded from being qualifying ships by paragraph 20 which provides:-
20(1)	The following kinds of vessel are not qualifying ships for the purposes of this Schedule-
(a)	fishing vessels or factory ships;
(b)	pleasure craft;
(c)	harbour or river ferries;
(d)	offshore installations;
(e)	tankers dedicated to a particular oil field;
(f)	dredgers.
9.	It may be noted in passing that, in paragraph 20(5), the phrase offshore installations is defined by reference to the Mineral Workings (Offshore Installations) Act 1971.
10.	Paragraph 20(4) provides-
In sub-paragraph 1(c) “harbour or river ferry” means a vessel used for harbour, estuary or river crossings.
11.	Further provisions apply where a company temporarily ceases to operate any qualifying ships.  Paragraph 17(3) requires notice to be given of the intention to resume operation.  If due notice is given then the company is treated as if it had continued to operate the qualifying ship or ships it operated immediately before the temporary cessation.  This deeming provision does not apply where the company continues to operate a ship that temporarily ceases to be a qualifying ship.
12.	Finally, paragraph 22 deals with the situation where a qualifying ship is used as a vessel of an excluded kind (i.e. those specified in paragraph 20).  Broadly, this may be done without any adverse fiscal effect provided the company operates the ship throughout the relevant accounting period and in that period the vessel is used as a vessel of an excluded kind for no more than 30 days.
13.	Paragraphs 17 and 22 appear to be the only derogations which maintains a ship’s eligibility for the tonnage tax regime where it temporarily fails to meet the statutory qualifications.  This has or may have a bearing on the effect of the terms of the certificates which the Appellant has produced to support its claim that its ships are qualifying ships.
Safety of Ships
14.	A wide range of maritime transport legislation deals with the construction, surveying, operation and safe management of ships.  It is necessary to describe and set out some aspects of this legislation for their relevance to the Certification Issue and the Estuary Issue.
15.	Section 85(1) of the Merchant Shipping Act 1995 empowers the Secretary of State to make regulations for securing the safety of inter alia United Kingdom ships and persons on them and other ships and persons on them while they are within the United Kingdom.  To that end, the Secretary of State may make regulations with respect to inter alia the design, construction, maintenance, repair, alteration, inspection, surveying and marking of ships and their machinery and equipment, and the carrying out of any operation involving a ship.
16.	The Secretary of State for Transport is the appropriate Certifying Authority in relation to passenger ships and safety equipment of cargo ships.  He acts through the agency of the Maritime and Coastguard Agency (the “MCA”), which is an executive agency of the Department of Transport and carries out that Secretary of State’s functions by, inter alia, conducting surveys and issuing appropriate certificates.  In particular, the Secretary of State for Transport, acting through the MCA, is responsible for the issuing of various statutory certificates in relation to inter alia the seaworthiness and suitability of various classes of ships.  He is the competent authority for certification of the Appellant’s ships under the Merchant Shipping Act 1995 and for the purposes of paragraph 19(4) of FA2000.
17.	Ships may also be surveyed by Classification Societies.  These societies produce rules for the design, construction and lifetime maintenance of ships.  Classification is voluntary but, because there is overlap between classification standards and statutory requirements, a Classification Society may be authorised by the Secretary of State to carry out certain surveys and issue statutory certificates.  One such Classification Society is Lloyds Register.  In relation to a passenger ship, part of the survey may be carried out by a Classification Society.  However, the MCA completes the survey to ensure that all the statutory requirements for the survey have been completed before a Passenger Certificate is issued.  Lloyds Register carried out a survey for the Shuna.
18.	The Merchant Shipping (Passenger Ship Construction: Ships of Classes III to VI(A)) Regulations 1998 relate to the classification of certain ships.  Regulation 2(6) provides inter alia as follows:-
6(a)(i) 	Subject to subparagraph (ii) below, for the purposes of these Regulations passenger ships shall be arranged in Classes as follows:-
Class III	Ships engaged only on voyages in the course of which they are at no time more than 70 miles by sea from their point of departure and not more than 18 miles from the coast of the United Kingdom, and which are at sea only in favourable weather and during restricted periods.
Class IV	Ships engaged only on voyages in Category A, B, C, or D waters;
Class V	Ships engaged only on voyages in Category A, B, or C waters;
Class VI	 Ships engaged only on voyages with not more than 250 passengers on board, to sea, or in Category A, B, C, or D waters, in all cases in favourable weather and during restricted periods, in the course of which the ships are at no time more than 15 miles, exclusive of any Category A, B, C, or D waters, from their point of departure nor more than 3 miles from land;
Class VI(A)  Ships carrying not more than 50 passengers for a distance of not more than 6 miles on voyages to or from isolated communities on the islands or coast of the United Kingdom and which do not proceed for a distance of more than 3 miles from land; subject to any conditions which the Secretary of State may impose.;
(ii)	The above Classes of ships do not include ships engaged on international voyages;
(b)(ii)	....
	“sea” does not include any waters of Category A, B, C, or D.
19.	Various other words and phrases which recur elsewhere are defined in this regulation such as passenger ship, ro-ro passenger ship, voyage, Merchant Shipping Notice.
20.	Class I relates to passenger ships undertaking international voyages and Class II relates to passenger ships undertaking short international voyages e.g. across the Irish sea.   
21.	Regulation 2(6)(b) provides-
For the purposes of this regulation the following expressions have the following meanings respectively-
“Category A, B, C or D waters” means the waters specified as such in Merchant Shipping Notice No. M.1504, and cognate expressions shall be construed accordingly;
“restricted period” means a period falling wholly within the following limits-
(i)	from 1st April to 31st October, both dates inclusive; and 
(ii)	between one hour before sunrise and one hour after sunset in the case of ships fitted with navigation lights conforming to the collision regulations and between sunrise and sunset in the case of any other ships;
“sea”	does not include any waters in Category A, B, C or D
Categories of Waters
22.	Section 313(2)(a) of the Merchant Shipping Act 1995 defines United Kingdom Waters as
The sea or other waters within the seaward limits of the territorial sea of the United Kingdom
23.	Merchant Shipping Notice MSN 1758(M) which came into force on 1 June 2001, sets out the categorisations of waters in the United Kingdom.  These categorisations are given statutory force by way of Regulation 2 of the Merchant Shipping (Categorisation of Waters) Regulations 1992.  These regulations replaced earlier regulations which categorised smooth waters.  The actual categorisation was not set forth in the 1992 Regulations.  This was achieved by Merchant Shipping Notice MSN 1504(M) which categorised all inland and sheltered waters which could be used by passenger ships.  The part of the Annex referred to below contained only very minor changes to pre-existing smooth water limits.
24.	The four categories of waters are as follows:-
Category A: Narrow rivers and canals where the depth of water is generally less than 1.5 metres.
Category B: Wider rivers and canals where the depth of water is generally more than 1.5 metres and where the significant wave height could not be expected to exceed 0.6m at any time
Category C: Tidal rivers and estuaries and large, deep lakes and lochs where the significant Wave height could not be expected to exceed 1.2 metres.
Category D: Tidal rivers and estuaries where the significant wave height could not be expected to exceed 2.0 metres at any time.
25.	The Annex to MSN 1758 (M) contains the following entry relating to the Clyde:-
“Region and Location	Category A, B or C	Category D	
The Clyde	Category C
Above Category D waters
	Outer limit; a line from Skipness to a position one mile south of Garroch Head thence to Farland Head.
Inner limit in winter; a line from Cloch Lighthouse to Dunoon Pier.
Inner limit in Summer; a line from Bogany Point, Isle of Bute to Skelmorlie Castle and a line from Ardlamont Point to the southern extremity of Ettrick Bay inside the Kyles of Bute
Note; The above inner summer limit is extended between 5 June and 5 September (both dates inclusive) by a line from a point two miles off the Ayrshire coast at Skelmorlie Castle to Tomont End, Cumbrae, and a line from Portachur Point, Cumbrae to Inner Brigurd Point, Ayrshire”	

26.	The foregoing Merchant Shipping Notice was replaced by MSN 1776(M) on the Categorisation of Waters, which came into force on 1 April 2003.  However, the entry relating to the Clyde is in identical terms to the earlier notice.  MSN 1776(M) also sets forth the same four categories of waters as were to be found in MSN 1758.
Certification
27.	The Merchant Shipping (Survey and Certification) Regulations 1995 contain a variety of provisions regulating the certification of United Kingdom ships except pleasure vessels and fishing vessels.
28.	A passenger ship is a ship carrying more than 12 passengers.  Provision is made for the surveying of passenger ships before they are put into service and periodically thereafter.  When the requirements of the survey are met a Passenger Certificate is issued appropriate to the ship’s class where that passenger ship is not engaged in international voyages.  The Certificate states the limits (if any) beyond which the ship is not fit to ply, the number of passengers which it is fit to carry, and any condition with which the ship has to comply.  A Passenger Certificate endures for up to twelve months.  Regulation 22 prohibits passenger ships of certain Classes (including Class VI and VIA) from proceeding on a voyage unless it has been surveyed and has an appropriate Passenger Certificate.  Certificates may be issued subject to conditions which have to be complied with before the ship proceeds on a voyage or excursion.
29.	In relation to the Shuna only the relevant provisions are a little more complex.  On 17 March 1998, Council Directive 98/18/EC on safety rules and standards for passenger ships was issued.  This Directive was amended by Directive 2002/25/EC.  These Directives were transposed into domestic legislation by the Merchant Shipping (Passenger ships on Domestic Voyages) Regulations 2000 and the Merchant Shipping (Passenger ships on Domestic Voyages) Regulations 2003.  They came into force on 23 October 2000 and 10 April 2003 respectively.  Passenger Ships were arranged in new Classes.  These included, per Regulation 3(1)-
Class A 	ships engaged solely on domestic voyages other than ships of Class B, Class C and Class D;
Class B 	ships engaged solely on domestic voyages in the course of which they are at no time 		more than 20 miles from the line of the coast where shipwrecked persons can land, 		corresponding to the medium tide height;
Class C 	ships engaged solely on domestic voyages in sea areas where the probability of significant wave heights exceeding 2.5 metres is less than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such period, in the course of which they are at no time more than 15 miles from a place of refuge, nor more than 5 miles from the line of the coast where shipwrecked persons can land, corresponding to the medium tide height;
Class D 	ships engaged solely on domestic voyages in sea areas where the probability of significant wave heights exceeding 1.5 metres is less than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such period, in the course of which they are at no time more than 6 miles from a place of refuge, nor more than 3 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
30.	Regulation 3(2) provided that for the purposes of such classification, sea areas are to be classified in accordance with Merchant Shipping Notice MSN 1747(M).
31.	These Regulations applied immediately to new United Kingdom passenger ships.  They were applied to existing passenger ships over four years between 2006 and 2010 depending on the age of the ship.  This process of harmonisation resulted in two parallel systems being in operation for a number of years.  Only the Shuna was affected during the Appellant’s Relevant Period by the harmonisation.  The old system applied to the other ships referred to above during the Relevant Period.  This was because the old system was preserved by the equivalence procedure of Article 7 of the Directive 98/18/EC.  
32.	The standards set out in the Directive differed from those applicable in the United Kingdom when the Directive was adopted.  The United Kingdom was obliged to notify the European Commission.  This was done by letter dated 7 December 2000 from Graham Zebedee, a government official, to the Commission, and accepted by the Commission by letter dated 12 September 2001.  This exchange of correspondence came to be known as the Zebedee correspondence.  The effect of the Zebedee correspondence was that, in accordance with Article 7.4 of the 1998 Directive, its requirements could be met by compliance with the legislation listed in the Zebedee correspondence instead of compliance with the standards specified in the Directive.  There is no dispute about this and nothing turns on its terms.
33.	Merchant Shipping Notice MSN 1747(M) sets out in an Annex the geographical extent of EC sea areas C and D identified as applicable in waters around the United Kingdom as is required by Article 4.2 of the 1998 Council Directive on Safety Rules and Standards for Passenger Ships and as noted in Regulation 3(2) of the 2000 Regulations.  The Notice adopts the definitions of sea areas set forth in the Directive.  These are quoted below.
34.	The Notice also records that the 2000 Regulations identify four domestic passenger ship classifications, namely Classes A, B, C, and D.  Classes B, C and D are there described as equivalent to Class III, Class VI and Class VI(A) passenger vessels respectively.
European Dimension
State Aid
35.	Tonnage tax may constitute a state aid and thus may be contrary to the law of the European Union, unless approval had been given by the European Commission.  Such approval has been granted.  The Commission has issued guidelines setting out its policy in this area.
36.	Since 1989, the European Commission has published guidelines on what they consider to be acceptable as State aid for maritime transport.  The guidelines applying when the UK introduced Tonnage Tax in 2000 were the "Community Guidelines on State Aid to Maritime Transport" published on 5 July 1997.  The guidelines set out the objectives that the Commission wished to achieve by allowing the aid.  These were to safeguard EC employment, (both on board and on shore), preserve maritime know-how in the Community, develop maritime skills, and improve safety.
37.	Revised guidelines were issued in 2004 but these can have no bearing on the underlying purpose of schedule 22 of FA2000.  The revised guidelines appear to have led to amendment of the FA2000 in 2005.  However, we do not consider that we should concern ourselves with these Guidelines as they fall outwith the Relevant Period.
38.	The 1997 Guidelines noted that it was relatively expensive to operate EC-registered ships with EC seafarers on board.  Third country operators had lower costs and there were no direct or indirect taxes or duties applicable to shipping services to ensure some comparability between EC and non-EC operators’ costs even although there was direct competition between Community-registered ships and third country vessels in international trades and in most trades within the Community.
39.	Notwithstanding various measures the Community fleet continued to decline.  State Aid Guidelines of 1989 fell to be revised.  The revised guidelines covered
any aid granted by EC Member States or through State resources in favour of maritime transport
40.	At paragraph 3.1 the Guidelines stated that 
The objective of State aid within the common maritime transport policy is to promote the competitiveness of the EC fleets in the global shipping market
41.	At paragraph 3.2 the Guidelines stated that
Support measures for the maritime sector should, therefore aim primarily at reducing fiscal and other costs and burdens borne by EC shipowners and EC seafarers .... towards levels in line with world norms......
42.	In 1999, the UK Government intimated to the European Commission that they proposed to introduce a tonnage tax.  By letter dated 2 August 2000, the Commission concluded that 
the tonnage tax was an important, necessary and justifiable fiscal measure to reverse the decline of the UK-flagged maritime fleet.
And that
the establishment of the tonnage tax in the UK is in conformity with the Community Guidelines on State aid to maritime transport.
43.	The Commission considered the aid to be compatible with Article 87(3)(c) of the EC Treaty.  In their letter, the Commission reviewed the UK Scheme at length.  They noted that 
Qualifying Ships are those which are sea-going and over 100 gross tons
Qualifying shipping activities are the transport of goods or passengers, marine assistance or the provision of services necessarily provided at sea
The Commission observed in relation to the objective of the aid that
The regime is a tax measure aimed at the shipping industry.  It is designed to promote the competiveness of UK shipping in the global shipping market by creating a positive fiscal environment for shipping in line with other major maritime countries, including other EU Member States.
44.	The Commission considered the question of which ships would qualify for the tonnage tax regime in some detail.  It stated:-
A ship will qualify for the tonnage tax regime provided that it is seagoing, 100 gross registered tonnes or over and is used for one or more of
the carriage of passengers or cargo by sea;
marine assistance (seagoing towage and salvage)
transport in connection with other services of a kind necessarily provided at sea (vessels such as dredgers would be excluded)
...............
Vessels such as fishing boats and factory support vessels, pleasure craft, harbour and river ferries, floating supermarkets, restaurants and prisons, fixed and floating oil rigs and platforms, floating production storage and off-take facilities, floating storage units and floating accommodation used in the offshore industry, as well as port service vessels, are specifically excluded from the tonnage tax regime.
45.	In relation to Article 87(1) of the EC Treaty the Commission pointed out that
Since the tonnage tax scheme outlined above grants aid through State resources in favour of certain undertakings, it threatens to distort competition and could affect trade between Member States.  For this reason, this support measure constitutes State aid within the meaning of Article 87(1) of the Treaty.
..........
Under Article 87(3)(c) of the Treaty, aid  to facilitate the development of certain economic activities or of certain economic areas may be considered compatible with the common market, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.
The 1997 Community Guidelines on State aid to maritime transport ... give details of aid to shipping companies which may be considered compatible with the common market.  These Guidelines define the general objectives of such aid as
safeguarding EC employment (both on board and on shore)
preserving maritime know-how in the Community and developing maritime skills; and
improving safety.
In addition, in paragraph 3 of section 3.1 of the Guidelines, it is explicitly recognised that the issue is not one of competition between Member States but rather one of the lack of competitiveness of the Community fleet with respect to third-country competitors.  “Flagging out between Member States is a rare phenomenon.  Fiscal competition is mainly an issue between EU Member States on the one hand and third countries on the other, since the cost savings available to shipowners through third country registers are considerable, in comparison with the options available within the Community.  Furthermore, profits in shipping, which would be subject to tax, have been depressed in recent years so that the differences between effective rates of tax in the Member States have been marginal considerations.”  The Guidelines note that “there seems to be an increasing degree of convergence in Member States’ approaches to shipping aid”.  The Netherlands and Germany already have approved tonnage tax regimes in operation.
Fiscal alleviation measures such as the tonnage tax are specifically provided for in paragraph 5 of section 3.1 of the Guidelines and can, in principle, be supported.  However, the Guidelines establish certain criteria, in paragraph 8 of section 3.1, which must be met for this purpose.  In this respect and as regards the UK tonnage tax, the guidelines make the following points:
“The objective of State aid within the common maritime transport policy is to promote the competitiveness of the EC fleets in the global shipping market. ......
46.	In its conclusion, the Commission also noted that, although tonnage tax is not a European tax (such as VAT), there is nevertheless institutional supervision of its operation by the European Commission.
47.	Maritime transport services are defined in Regulation (EEC) No 4055/86 (1) and in Regulation (EEC)No 3577/92, by reference to the transport of passengers or goods  by sea.
48.	Council Regulation (EEC) No 4055/86 applied the principle of freedom to provide services to maritime transport between member States and between Member States and third countries.  Article 1.4 provided that
For the purposes of this Regulation, the following shall be considered “maritime transport services between Member states and between Member States and third countries” where they are normally provided for remuneration;
(a)	intra-community Shipping services
The carriage of passengers or goods by sea between any port of a Member State and any port or off-shore installation of another Member State;
(b)	third-country traffic
The carriage of passengers or goods by sea between the ports of a Member State and ports or off-shore installations of a third country
49.	Council Regulation (EEC) No 4056/86 laid down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport.  The preamble contrasted inland transport with maritime transport, and referred to international maritime transport including intra Community transport.  The Regulation applied only to international maritime transport services from or to one or more Community ports.
50.	Council Regulation (EEC) No 3577/92 applied the principle of freedom to provide services to maritime transport within Member States (maritime cabotage).  The preamble notes that freedom to provide services should be applied to maritime transport within Member States.  Article 2 provides as follows:-
For the purposes of this Regulation:
1 “maritime transport services within a Member State (maritime cabotage)” shall mean services normally provided for remuneration and shall in particular include;
(a)	mainland cabotage: the carriage of passengers or goods by sea between ports situated on the mainland or the main territory of one and the same Member State without calls at islands;
(b)	off-shore supply services  ..........
(c)	island cabotage; the carriage of passengers or goods by sea between:
- ports situated on the islands of one and the same Member State;
.......................
51.	These three Regulations at least indicate that for the purposes of European legislation maritime transport relates to transport by sea between Member States, between a Member State and a third country, or within a Member State.  

Waters
52.	Reference was made in evidence and in submissions to a number of EC Directives and United Kingdom subordinate legislation implementing them, which relate inter alia to the management and treatment of water and waste water.  The purpose of this line of evidence and argument was to examine various definitions such as transitional waters and use those definitions to show what are the likely boundaries of the Clyde Estuary.  While it is neither necessary nor appropriate to examine these Directives in their entirety or in great detail, it is relevant to quote some of the definitions in order to show how some of the witnesses, particularly expert witnesses have reached their conclusions on the boundaries of the Clyde Estuary.
53.	Article 2.6 of the Water Framework Directive defines transitional waters as
“bodies of surface water in the vicinity of river mouths which are partially saline in character as a result of their proximity to coastal waters but which are substantially influenced by freshwater flows.”
54.	The definition of transitional waters thus has a resonance with what the characteristics of an estuary might normally be assumed to have although not complete identity.  Transitional waters probably cover a wider area than an estuary.
55.	Coastal waters are defined in the same Directive as
surface water on the landward side of a line, every point of which is at a distance of one nautical mile on the seaward side from the nearest point of the baseline from which the breadth of territorial waters is measured, extending where appropriate up to the outer limit of transitional waters.
56.	Inland water is there defined as meaning
all standing or flowing water on the surface of the land, and all groundwater on the landward side of the baseline from which the breadth of territorial waters is measured.
57.	The Urban Waste Water Directivedefines estuary as
the transitional area at the mouth of a river between fresh-water and coastal waters.  Member States shall establish their outer (seaward) limits of estuaries for the purposes of this Directive as part of the programme for implementation in accordance with the provisions of Article 17(1) and(2).
58.	Coastal waters are defined in Article 2.13 of the 1991 Directive as
the waters outside the low-water line or the outer limit of an estuary
59.	The implementing Urban Waste Water Treatment (Scotland) Regulations define an estuary as
the transitional area at the mouth of a river between fresh-water and coastal waters, the outer (seaward) limits of which are shown on the maps kept in accordance with regulation 12.
60.	Coastal waters are defined in terms identical to the definition in the Directive.
61.	In Council Directive 98/18/EC, which led to the promulgation of the Merchant Shipping (Passenger Ships on Domestic voyages) Regulations 2000 Sea areas EC/C and EC/D are defined as follows:-
Sea Area EC/C: Sea areas where the probability of exceeding 2.5m significant wave height is smaller than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such a period (e.g. summer period operation), not more than 5 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
Sea Area EC/D:  Sea areas where the probability of exceeding 1.5m significant wave height is smaller than 10% over a one year period for all year round operation, or over a specific restricted period of the year for operation exclusively in such a period (e.g. summer period operation), not more than 3 miles from the line of the coast, where shipwrecked persons can land, corresponding to the medium tide height.
62.	MSN 1747(M) adopts these definitions, as discussed above, and also notes that the term Port Waters within the context of the 1998 Directive and the 2000 Regulations is interpreted by the United Kingdom as having the same meaning as categorised waters.  Sea Areas are to be found to seaward of Port Waters.  Thus UK categorised waters in MSN 1776(M) are not sea areas in terms of MSN 1747(M).  Nor are categorised waters sea.
63.	Our attention was also drawn to Council Directive 2006/87/EC which lays down technical requirements for inland waterway vessels.  The purpose of the Directive is to improve the system for mutual recognition of Community inland navigation certificates making them valid on all Community inland waterways.  The preamble notes that 
(4)	It is desirable to ensure a greater degree of harmonisation between the conditions for the issuing of supplementary Community inland navigation certificates by Member States for operations on Zone 1 and 2 waterways (estuaries), as well as for operations on Zone 4 waterways.
64.	The various Zones are specified in an Annex to the Directive.  Ferries are excluded from the Directive as are sea-going vessels which operate or are based on tidal waters.  Zone 1 contains an entry relating to “the Clyde” in the following terms
The Clyde	Outer limit:
A line from Skipness to a position one mile south of Garroch Head thence to Farland Head
Inner limit in winter:
a line from Cloch Lighthouse to Dunoon Pier
Inner limit in summer:
A line from Bogany Point, Isle of Bute to Skelmorlie Castle and a line from Adlamore Point to the southern extremity of Ettrick Bay inside the Kyles of Bute.
Note: The above inner summer limit is extended between 5 June and 5 September (both dates inclusive) by a line from a point two miles off the Ayrshire coast at Skelmorlie Castle to Tomont End, Cumbrae, and a line from Portachur Point to Cumbrae to Inner Brigund Point, Ayrshire
65.	In relation to Zone 2 there is an entry for the Clyde as follows:-
The Clyde:	Above Zone 1 waters
66.	These limits essentially reflect some of the limits of Category C and D waters.  The Crossing lies to the north of Zone 1 and therefore within Zone 2.  The basis on which the Directive describes Zones 1 and 2 in parenthesis as estuaries is unknown.
Safety Management Systems
67.	A ship must have a safety management system which must be audited.  We heard evidence about two types.  One is known as ISM and the other DSM.  There was, at one stage, a dispute between the parties about which system was appropriate for each of the five ships and whether they had they appropriate system.  In the course of submissions, it was accepted by HMRC that each of the ships was issued with certificates under the DSM Code by virtue of the Merchant Shipping (Domestic Passenger Ships) (Safety Management Code) Regulations 2001.  These certificates certified that the Safety Management System of each ship had been audited and that it complied with the requirements of the Safety Management Code for Domestic Passenger Ships.  The Appellant therefore had the appropriate certification for each ship covering the Relevant Period, namely a Domestic Ship Safety Management Certificate issued following audit in accordance with 2001 Regulations.  We need say no more about this aspect of the appeal, beyond noting that the ISM certification appears subsequently to have been required.
Issues
68.	The essential issue which we are asked to determine is whether the Appellant’s ships were qualifying ships during the Relevant Period.  
69.	Within the essential issue reside three sub-issues as follows:-
1	Whether the Appellant’s ships were certificated for navigation at sea by the competent authority in terms of paragraph 19 of Schedule 22 (the Certification Issue)?
2	Whether the route plied by the Appellant’s ships was an estuary crossing within paragraph 20(4) of Schedule 22 (the Estuary Issue)?
3	Whether the route plied by the Appellant’s ships was a harbour crossing within paragraph 20(4) of Schedule 22 (the Harbour Issue)?
70.	If the ships were so certificated, they would be seagoing within paragraph 19.  If the route was an estuary crossing then the ships would have been harbour or river ferries in terms of paragraph 20(1)(c).  If the route was a harbour crossing within paragraph 20(4) the ships would have been harbour or river ferries in terms of paragraph 20(1)(c).  Thus, the Appellant needs a positive answer to the first issue and a negative answer to the second and third issues to succeed in this appeal.  HMRC need either a negative answer to the first issue, or a positive answer to the second or third issue for the appeal to fail.
Facts
71.	The Statement of Agreed Facts is in the following terms:-
“Background

1.	The Appellant Western Ferries (Clyde) Limited (“Western Ferries”) is a company incorporated in Scotland and resident in the United Kingdom (Corporation tax ref 808/28310/02149).

2.	Throughout the accounting periods 18 February 2003 to 31 March 2003 and 1 April 2003 to 31 March 2004 (collectively “the relevant period”) the business of Western Ferries was the operation of five ships: the Sound of Sanda (“Sanda”); the Sound of Scalpay (“Scalpay”) the Sound of Sleat (“Sleat”) and the Sound of Scarba (“Scarba”) which were in service throughout the relevant period and the “Sound of Shuna” (“Shuna”) whose keel was laid on 11 October 2002 and delivered to Western Ferries  on 30 September 2003.  

3.	All five ships are and always have been registered in the British Register of Shipping.

4.	The ships operate back and forth on the route between Hunters Quay, Dunoon and McInroy’s Point near Gourock depicted in the chart number 2900.1,.5 (Document 453).

5.	The ships are each passenger/ro-ro (vehicle) ships and carry road transport in the form of cars, vans or trucks which drive on and off the vessel by their own power plus passengers, either on foot or in their own transport. 

6.	The Marine and Coastguard Agency (MCA) is the relevant competent authority for certification of Western Ferries’ ships within s 19(4) Schedule 22 FA 2000.

7.	Prior to the relevant period Sanda, Scalpay, Sleat and Scarba were certificated by the MCA as Class V ships under the Merchant Shipping (Survey and Certification) Regulations 1995 (SI 1995/1210) (the “Certification Regulations”) as sought by Western Ferries.

8.	With a view to qualifying for entry into tonnage tax within Finance Act 2000, Schedule 22, Western Ferries sought certification of Sanda, Scalpay, Sleat and Scarba by the MCA as Class VI ships under the Certification Regulations.

9.	Shuna was delivered from the construction yard validly certificated by the MCA as a Class V ship on 30 September 2003 and on 16 December 2003 as a Class D ship under the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 and Council Directive 98/18/EC (the “EC Certification Regulations”) - an EC ‘D’ certificate.

10.	Throughout the relevant period each of the ships was in possession of a valid United Kingdom Load Line Exemption certificate issued by the MCA under the Merchant Shipping (Load Line) Regulations 1998 (SI 1998/2241) (the “Load Line Regulations”). 

11.	Throughout the relevant period, each of the ships was in possession of a valid UK Oil Pollution Prevention Certificate issue by the MCA under the Merchant Shipping (Prevention of Oil Pollution) Regulations 1996 (SI1996/2154) (the “Pollution Prevention Regulations”).

12.	On 10 February 2004 the company elected to enter tonnage tax with effect from 18 February 2003.

13.	The Respondent enquired into the Corporation Tax Self Assessment returns of Western Ferries for the relevant period and concluded the enquiry on the basis that Western Ferries did not qualify for tonnage tax.

14.	Western Ferries has appealed against that conclusion.”

72.	We make the following additional findings of fact:-
General Background
73.	The Clyde is a large body of water.  We deliberately use the general and relatively neutral word Clyde for the moment.  Part of the Clyde is properly described as a river, part as an estuary and part as a firth; we shall identify more carefully our findings as to where estuary meets river, and more importantly the western or southern limit of what may properly be described as estuary.  As a generality, there may be overlap between what is properly described as part of a firth and what is properly described as part of an estuary.  Where an estuary begins and ends may also be a matter of some debate.  
74.	The Crossing is in waters categorised as Category C waters within the meaning of the Merchant Shipping (Categorisation of Waters) Regulations 1992, MSN 1504 and MSN 1778(M) referred to above.  The Appellant does not operate in sea areas as defined in the 1998 Directive and MSN 1747(M) referred to above.  The depth of the waters between Hunter’s Quay and McInroy’s point varies between about 3.5m and 60m.  
75.	Some parts of the Clyde are sheltered by islands or headlands.  Other parts are open to the forces of the elements one might expect to find in the open sea such as strong wind and rough seas.  From time to time, the weather is such that operations have to be suspended or cancelled due to the sea conditions on part of the Crossing being too rough.
76.	The Clyde is home to many jetties and harbours along its shores.  Many are controlled by Clydeport Operations Limited.  Some are controlled by Argyll and Bute Council.  A few are controlled by the Association of British Ports.  
77.	Where a vessel enters and moors at a harbour, then harbour dues or fees may be payable.  Conservancy Charges are paid by the Appellant to the Clydeport Operations Limited in respect of the operation of their vessels on the Clyde between Hunter’s Quay and McInroy’s Point.  The Appellant does not pay the Clydeport Operations Limited harbour dues for entering or mooring at Hunter’s Quay or McInroy’s Point.
The Appellant’s Operations
78.	The Appellant owns and operates the terminals at Hunter’s Quay and McInroy’s Point.  The Appellant is not, however, a statutory harbour authority
79.	The Appellant has operated roll-on-roll-off ships or ferries between Hunter’s Quay, and McInroy’s Point (a distance of about 2.5 nautical miles), since about February 1985.  The journey each way takes about twenty minutes and avoids a road journey of about 90 miles.  The Appellant achieves about 31,000 sailings each year.  There are two or three sailings per hour from each terminal each Monday to Thursday between 6.15am and 10.30pm; and from 6.15am to midnight between Friday and Sunday.
80.	All the ships are passenger car roll-on-roll-off (roro) ferries.  They are (i) the Sound of Sanda (“Sanda”), built in 1964; it is 403 tons (gross) and 211 tons (deadweight), (ii) the Sound of Scalpay (“Scalpay”), built in 1962; it is the same weight as the Sanda, (iii) the Sound of Sleat (“Sleat”), built in 1961; it is 466 tons (gross) and 224 tons (deadweight), (iv) the Sound of Scarba (“Scarba”), built in 2001; it is 489 tons (gross) and 229 tons (deadweight), and (v) the Sound of Shuna (“Shuna”), built in 2003; it is the same weight as the Scarba.  Its keel was laid on 11 October 2002; it was delivered to the Appellant on 30 September 2003.  Each vessel is in the order of 50m long and 15m wide; each can accommodate about 40 motor vehicles, depending on their size, and about 240 passengers.  
81.	Throughout the Relevant Period none of the ships proceeded to sea or embarked on any voyage under cover of a Class VI or EC(D) passenger certificate save for one excursion, on 25 June 2003, on charter to the Clyde River Steamer Club which was wholly within categorised waters around Cumbrae.
Discussions with HMRC
82.	The Appellant considered that its ships were entitled to be certificated for navigation at sea and that it was eligible to enter the tonnage tax regime.  Enquiries were made of the Marine and Coastguard Agency (MCA).  The Appellant discussed matters with the MCA and with HMRC and their predecessors, the Inland Revenue.  
83.	An application for pre-entry clearance to join the Tonnage Tax regime was made by the Appellant in 2003.  This was rejected on certification and estuary grounds.  The harbour point was not at that stage raised.  The Appellant sought formally, through their accountants, French Duncan, to join the Tonnage Tax regime in February 2004.  Sundry correspondence ensued with HMRC Tonnage Tax Unit Aberdeen.  Eventually, HMRC issued Closure Notices dated 14 February 2006.  Later that month French Duncan wrote to HMRC requesting that assessments be issued so that appeal procedures could be commenced.  Assessments were issued.  These were appealed in April 2006.  Further correspondence ensued.  By February 2007, HMRC introduced another argument relating to the Appellant’s safety procedures and their certification.  Further correspondence ensued and eventually a meeting took place at the Tonnage Tax Unit, Liverpool, on 24 June 2008 between representatives of the Appellant and officials of HMRC.  The detailed content of the meetings do not matter for the purposes of the issues we have to resolve.  Whatever was said at these meetings did not prevent anybody from expressing a different view at a later date.
Findings of Fact in relation to the Certification Issue
84.	No one certificate entitles an operator to navigate at sea.  A passenger certificate certifies that the ship is fit to ply in the waters for which it is granted.  The Appellant required (i) Passenger Certificates under either the Merchant Shipping (Survey & Certification) Regulations 1995 or the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 (implementing Council Directive 98/18/EC), (ii) Loadline Certificates or loadline exemption certificates under the Merchant Shipping (Load Line) Regulations 1998, (iii) UK oil pollution prevention certificates issued by the MCA under the Merchant Shipping (Prevention of Oil Pollution) Regulations 1996, and (iv) either DSM (i.e. domestic) or ISM (i.e. international) certificates.  There is no dispute about (ii), or (iii); the Appellant had the relevant certificates throughout the Relevant Period.  In relation to (iv) this, too, is no longer a matter of dispute as noted above.
85.	Certain commercial ships, including the Appellant’s ships, require to adhere to passage plans for navigating a harbour area.  The Appellant’s passage plans for the Crossing are a standing agreement prescribing the route of the Crossing, recommending speeds and directions, and setting out navigational features encountered.
86.	Prior to the Relevant Period the Sanda, Scalpay, Scarba and Sleat were certified by the MCA as Class V ships.  That certification continued throughout the Relevant Period although the Sleat was laid up in October 2003 when the Shuna came into service.  From its introduction into service the Shuna was also certified as a Class V ship.  There were no significant structural modifications or notable alterations to these vessels required to satisfy the minimum standards necessary to issue Class VI certification.  
87.	The MCA issued Class VI Certificates in relation to all the vessels except the Shunaas follows:-on 18th February 2003 for Sleat, 18th March 2003 for the Sanda and Scarba, and on 27th March 2003 for Scalpay.  The Shuna was issued with an EC Passenger Regulations (EC(D)) certificate on 16 December 2003 which endured until 31 March 2004 i.e. the end of the Relevant Period.  No suspension or revocation of certification during the Relevant Period was ever exercised by the MCA.
88.	Throughout the Relevant Period, there was, at any one time, valid Class VI or EC(D) certification for at least one of the five ships operated by the Appellant.  
89.	The Class V Certificates (issued for a ship plying at sea, in Category C waters), issued in relation to each of the Appellant’s five ships, certified the ships to ply 
in Category C waters, within the geographical limits shown and when carrying no more than the maximum number of passengers stated
Under the Heading Plying Limits and Conditions on the certificate was the following:-
MODE 1
BETWEEN McINROY’S POINT AND HUNTER’S QUAY (MODE 1)
MODE 2 & 3
In Summer (1 April to 31 October both dates inclusive) from Hunter’s Quay and return, with the undernoted limits, with no vehicles other than invalid carriages and with no landings or intermediate points 
Hunter’s Quay to Ardyne Point
Hunter’s Quay to Rothesay Bay
Hunter’s Quay to Gare Loch
Hunter’s Quay to Gare Loch via Holy Loch
Hunter’s Quay to Loch Long
Hunter’s Quay to north of Great Cumbrae and return following the shoreline of Renfrewshire and Ayrshire ) Between 5 June and 5 September.
....................
Mode 1 authorised 220 passengers (minimum crew 4).  Mode 2 authorised 125 (minimum crews 4) and Mode authorised 3 220 (minimum crew 5).
90.	The Class VI certificates (issued for a ship plying at sea, in Category A, B, C or D waters), issued in relation to each of the Appellant’s ships (except the Shuna), certified the ships to ply as follows:-
The ship ........... is certified to ply only 
a	in favourable weather
b	during the period from 1 April to 31 October inclusive
c	between one hour before sunrise and one hour after sunset if the ship is fitted with navigation lights conforming to the collision regulations, and if not so fitted, between sunrise and sunset.
d	within the geographical limits shown and when carrying not more than the maximum number of passengers stated below
Under the Heading Plying Limits and Conditions on the certificate was the following:-
Cruising from Hunter’s Quay or McInroy’s Point to the Ardrossan area (within 3 miles of the Ayrshire or Arran coast, no further south than the southern tip of Brodick Bay.
The Certificate also stated the maximum number of passengers. For Sleat it was 40; for Scanda 24, for Scalpay 24, Scarba 75.
91.	The EC(D) Certificate for the Shuna dated 16 December 2003 stated inter alia
Issued under the provisions of the Merchant Shipping (Passenger Ships on Domestic Voyages) Regulations 2000 and confirming compliancy of the vessel ...with the provisions of Council Directive 98/18/EC on safety rules and standards for passenger ship, under the authority of the Government of the United Kingdom of Great Britain and Northern Ireland by the Maritime and Coastguard Agency, an Executive Agency of the Department of Transport.
..............
Class of Ship in accordance with sea areas in which ship is certified to operate		D
Maximum Passengers 13
This Certificate is valid until 31 March 2004
A List of Operational Limits was appended to the Certificate and contained the following entries:-
Restrictions in Operating Areas	For making occasional voyages up to a distance of no more than one mile outside Clyde Categorised Waters, nor more than 3 miles from the line of the coast where shipwrecked persons can land, corresponding to the medium tide height	
Weather Restrictions	For operation in restricted period (daylight hours, between 1st April to 31st October
“favourable weather”
	
Sea State Restrictions	The wave height is no more than 1.2 metres	
Restrictions in Permissible Loads	No cargo will be carried on board	
.........................		
Other Limitations	No more than 13 passengers will be carried on board	

92.	None of the ships was certificated to navigate at sea in any year between 31 October and 1 April.  Such restrictions were inherent in Class VI certificates.
93.	The value of ships is enhanced by seagoing certification.
94.	Certificates were formerly issued annually and renewed each year.  At about the end of 2003 or the beginning of 2004, the MCA introduced a system of issuing a combined Class V and VI certificate which covered a five year period but which had to be validated each year.
95.	Members of the Appellant’s crew had pilotage exemption certificates throughout the Relevant Period.
96.	The Class VI certificates held by the Appellant allow it to run cruises down the Firth of Clyde as far as Ardrossan during a limited part of the year in favourable weather.  The entire journey is within the outer limits of Clydeport’s jurisdiction.   Although under the general control of Clydeport’s VTS system, the Appellant has independence of operation.  The only specific occurrence of any of the ships operating outwith the Crossing was on 25 June 2003, when the Clyde River Steam Club chartered one of the ships.
97.	By letter dated 18 May 2007, the MCA informed HMRC inter alia that 
... In order to operate at sea the Western Ferries’ ships in question required the following statutory certificates:
a	Passenger Certificate Class VI for “existing vessels” and EC(D) Certificate for the new ship “SOUND OF SHUNA”...............
The letter continued:-
	While on one hand Western Ferries had repeatedly said that the “sea going” certificates were required for tonnage tax purposes, on the other hand they did say that they vessels might occasionally proceed on such voyages
Findings of Fact in relation to the Estuary Issue
98.	The stretch of water between Hunter’s Quay and McInroy’s Point i.e. the Crossing, is fully saline.
99.	In The Political Geography of the Oceans, JRV Prescott, the author notes that coastal geomorphologists agree that it is extremely difficult to define an estuary.  He quotes a definition provided by another author or academic as follows:-
An estuary is a semi-enclosed coastal body of water which has free connection with the open sea and within which sea water is measurably diluted with fresh water derived from land drainage.
100.	The Oxford English Dictionary defines estuary to mean
The tidal mouth of a great river, where the tide meets the current of fresh water
101.	The International Hydrographic Dictionary under the heading estuary states
That portion of a stream influenced by the tide of the body of water into which it flows. 
A bay, as the mouth of a river, where the tide meets the river current.
It defines firth as
A Scottish word: an arm of the sea; an estuary of a river.
102.	The Mariners Handbook 8th edition., 2004 and the 9th edition, 2009 defines estuary as
An arm of the sea at the mouth of a tidal river, usually encumbered with shoals where the tidal effect is influenced by the river current.
It defines firth as
An arm of the sea: a river estuary.  Used principally in Scotland
103.	In the second edition of A Glossary of Geographical Terms (Longmans Green & Co Ltd, editor Sir Dudley Stamp) there appears the following comment about the word firth:-
An essentially Scottish word with no precise meaning.  The Pentland Firth is a straight, the Firth of Forth, Firth of Tay and Solway Firth are seaward extensions of estuaries, the Firth of Lorne is comparable with a fjord.
104.	In JE Allen et al 1986 “The environment of the estuary and firth of Clyde” published as Proceedings of the Royal Society of Edinburgh states inter alia that
Geomorphologically, the estuary begins just down-stream of the Erskine Bridge.... Here the river having cut a constricted gorge-like valley across the resistant lava flows that encircle the Clyde Basin upstream begins to widen.  The hydrological estuary however extends much further up-river, to the tidal weir just below Stockwell Bridge.... This marks the furthest limit to which, at extreme high tide and low river-flow, salt water penetrates.  From this point the estuary extends twenty two miles downstream to Greenock, where the fresh estuarine waters gives (sic) way to marine conditions.  The transition from the relatively shallow estuarine waters to deep marine waters occurs (at Greenock) over a distance only c 100m, .... which is unique among British estuaries.
105.	In a paper by Elliot and the witness Dr McLusky in 2002, it is stated that 
Estuaries have the predominant characteristics of being sites of spatial and temporal continua, for example, environmental variables such as salinity, and biological variables, such as community structure.  Because of this, any superimposed classification scheme is likely to be arbitrary and thus with a subjective element.  The aim of having widely accepted definitions is to remove some of that subjectivity and to remove ambiguity in discussing estuarine features.
106.	Various statutory bodies have responsibilities for parts of the Clyde and have designated various parts of the waters of the Clyde for various purposes.  
107.	The Admiralty Sailing Directions West Coast of Scotland Pilot, issued by the United Kingdom Hydrographic Office, 16th edition 2008, states that 
the River Clyde flows into the Firth of Clyde at the Tail of the Bank abreast of Greenock.  
108.	It also notes that
3.8	After periods of heavy rain or in the spring when the snow is melting the quantity of water draining into the Firth of Clyde from the land is considerable and will increase the rate and duration of the out-going flow; the in-coming flow will be correspondingly reduced... it is possible that, in exceptional circumstances, the out-going flow may set continuously, especially near to neap tides
109.	The series of Admiralty Sailing Directions are intended for the use of vessels of 150 gross tons or more.  They amplify charted detail and contain information needed for safe navigation which is not available from Admiralty charts or other hydrographic publications.  They are intended to be read in conjunction with the charts.
110.	The Pilotage Directions dated 2 February 2009 state:
“The Inner Pilotage Area means that part of the river and Firth of Clyde including Greenock. The navigable river channels Gareloch, Loch Long and Loch Goil contained within an imaginary line from Kempock Point proceeding in the direction 295°(T) to Strone Point.  The Outer Pilotage Area means that part of the Firth of Clyde, Holy Loch and Loch Striven within the area bounded by an imaginary line from Kempock Point proceeding in the direction 295°(T) to Strone Point and The Seaward Limit of Compulsory Pilotage 
111.	The Scottish Environmental Protection Agency (SEPA) have certain statutory responsibilities relating to waste water treatment and other matters.  To that end SEPA have published a map of the Transitional Waters of Scotland (required by the Scottish 1994 Regulations mentioned above) Transitional waters are defined by SEPA as 
bodies of surface water in the vicinity of river mouths which are partially saline in character as a result of their proximity to coastal waters but which are substantially influenced by freshwater flows.”.  
Such a definition embraces what would generally be regarded as an estuary but also embraces waters which would not be regarded as part of an estuary.  
112.	The SEPA map is based on all the current knowledge of the estuaries and related water bodies in Scotland.  In 2008 SEPA produced two larger scale maps which are Exhibits 3 & 4 attached to Dr McLusky’s witness statement.  These show transitional waters in the Clyde in greater detail.  In particular, the main map shows that area 27, labelled as the Clyde Estuary (Outer), has a seaward limit from Gourock to Kilcreggan.  It also shows that area 48 is labelled as the Clyde Estuary (inner).  If the seaward limit of the Clyde estuary runs along a line between Gourock and Kilcreggan as shown on the SEPA map, then about 0.6 mile of the Crossing stretching out from McInroy’s Point falls within the Clyde Estuary.  This represents about 20% of the Crossing.  Although one witness, Dr McLusky, stated that about 100m of the Crossing extended into the transitional waters, we assess the distance, from our own examination of the charts produced, to be about 0.6 nautical miles.  The transitional waters lie eastwards of this line.
113.	Scottish Natural Heritage (SNH) defines the seaward boundary of the inner Clyde Estuary SSSI (Site of Special Scientific Interest) and SPA (Special Area of Conservation) as a line from Greenock Pier to Craigendorran Pier, Helensburgh, i.e. seawards of this line lies the Firth of Clyde.
114.	The Joint Nature Conservation Committee considers the boundary of the inner Clyde Estuary (i.e. the internationally recognised boundary of the Clyde estuary) to lie east (landwards) of a line between Greenock Pier and Craigendorran Pier.
115.	The Firth of Clyde Forum (previously established in 1994 as the Clyde Estuary Forum but renamed following local government reorganisation in 1996) accept and work to the definitions of estuary widely available in the academic press.  In a letter to the Appellant dated 24 January 2006, they cited the Royal Society of Edinburgh Proceedings B: Biological Sciences, volume 90, The Environment of the Estuary and firth of Clyde (1986) which gives the following geographical areas of definition for the Clyde:
River Clyde- 	upstream of the tidal weir in Glasgow
Clyde Estuary 	Glasgow to Greenock
Firth of Clyde	Seawards from Greenock
116.	Clydeport Operations Ltd take the view (expressed through Captain Bailey) that:-
1	The Clyde river starts at No 1 buoy Greenock and runs east of this to Glasgow.
2	The inner estuary starts at No 1 buoy at Greenock and runs west and then south at Cloch Point.
3	The inner estuary ends at Clydeport’s area of jurisdiction, which is an east/west line through Corrygills Point, south of Brodick on Arran.
4	The outer estuary starts at the limits of Clydeport’s area of jurisdiction, i.e. number 3 above.  The outer estuary ends at a line between Mull of Kintyre and Corsewell Point.
117.	At the Glasgow end of the Clyde the estuary is dominated by the freshwater current of the river.  At the Greenock end the estuary is dominated by the tidal current.  In the Clyde the tide meets the river current upstream of Greenock.  The water is fully saline there.  At the Crossing there are no river currents .  The waters are fully saline there.  Loch Long and the Holy Loch are fully saline.
118.	The Tail of the Bank is on the south side of the Clyde in the vicinity of Greenock.  The process of flocculation (the aggregation of fine silt particles carried by the river into larger and heavier flocs; these heavy particles fall to the bottom in the zone of mixing) occurs at the Tail of the Bank and upstream thereof, off Greenock.  It does not occur downstream of the Tail of the Bank.  The process is induced by the mixing of fresh and salt water.  Bedload sands are also deposited as the river flow becomes progressively impeded by the tide to form shoals and sand banks.  This occurs where fresh and salt water interact.  There are a number of banks and shoals in that area.  These zones of deposition do not occur further downstream.
119.	Rivers and estuaries are mutually exclusive biologically.  Rivers involve fresh water and flow in one direction.  In estuaries, waters move in both directions.  An estuary is a mixing area.  At or in the vicinity of Greenock the current is dominated by the tide.  There is no river effect left at Greenock.  This marks the seaward end of the estuary of the river Clyde.  The Crossing is fully saline, lies well beyond and seawards of the seaward end of the estuary.
120.	The Shuna’s sea trials took place in Category C waters.
121.	The estuary control room is situated at Greenock.  The old port authority office was called the control tower, built in the 1960’s and was situated at Greenock Ocean Terminal near the Tail of the Bank.  The line of sight for control was good to the east and north but less good to the west.  It marks in general terms the seaward boundary of the estuary.  It gave a line of sight generally westwards and eastwards.  That control tower is no longer operational.  Electronic means of control are now used.
122.	The categorisation of waters as set forth in MSN 1776 (M) is based on wave height rather than upon whether the waters form part of an estuary or upon the physical features which an estuary exhibits such as the mixing of marine and freshwater, changes in salinity, and the presence of shoals or mudbanks due to the process of flocculation.  
123.	The Crossing is exposed from time to time to weather conditions which require the Appellant’s service to be temporarily suspended.
124.	Throughout the Firth of Clyde generally (we make no attempt to identify precisely the boundaries of the Firth) there is fresh water run-off from land and streams, which affect sea levels and which mariners are advised to take into account particularly in the upper part of the Firth.
Findings of Fact in relation to the Harbour Issue
125.	A harbour normally provides vessels with shelter and smooth waters for operations within the harbour.  It provides a safe anchorage.  It is a place of safety for vessels.  It has a ready means of safe access to and from the shore.  It provides a service for the land in the vicinity of the harbour, such as a point of departure or arrival for individuals or goods, coming from or destined for the harbour’s hinterland.
126.	Sullivan’s Marine Encyclopaedia 6th edition (produced by the Appellant) defines harbour as
Sometimes called Haven q.v. but not so common commercially.  It is an enclosed safe water area deep enough for ships to enter and where they can anchor, berth and shelter for various purposes such as loading, discharging, repairing and other requirements.  As the name implies it must be protected in such a way as to give complete security in case of storms, apart from the fact that it must be fully equipped and have the necessary customs sheds and port organisation. 
127.	The Oxford English Dictionary includes the following definition of harbour
A place of shelter for ships: spec where they may lie close to and sheltered by the or by works extended from it; a haven, a port.
128.	Category D waters do not always provide shelter.  Part of the Forth is an example of Category D waters providing limited shelter.
129.	Statutory harbour authorities frequently have jurisdiction over areas which lie significantly beyond the bounds of a harbour as described above.  Clydeport Operations Limited (“Clydeport”), the harbour authority with jurisdiction over the waters in which the Appellant operates i.e. the Crossing, is an example of a harbour authority whose jurisdiction extends seaward of the normal bounds of a harbour as described above.  Clydeport’s jurisdiction extends from the west side of Albert Bridge in the city of Glasgow to the seaward limits which are defined by a line drawn east from Corrygill’s Point 55o, 34’ west across the Firth of Clyde and a line drawn west from entrance to Loch Ranza 55o, 43’ N, 5o18’ W.  The area covers some 450 square miles.  
130.	Clydeport is a competent harbour authority for the purposes of the Pilotage Act 1987.  It issues Pilotage Directions from time to time.  Part of the waters within Clydeport’s jurisdiction is designated as a compulsory pilotage area with an Inner and Outer Area.  This means that vessels of 25 metres or more in length require pilotage services when navigating within the Compulsory Pilotage Area unless their master or a bona fide Mate holds a Pilotage Exemption Certificate.  As already noted, employees of the Appellant hold such exemption certificates for the Crossing, which lies in the Outer Pilotage area.  
131.	Within the waters encompassed by these limits are various ports, each of which is a harbour in its own right, for example Ardrossan and Brodick each has a harbour.  
132.	Clydeport Operations Limited levy Conservancy Charges for each movement of a vessel in any part of the conservancy Area, based on its tonnage.  The Conservancy Area is also precisely defined but for present purposes it is sufficient to state that the area is similar to the area of Clydeport’s territorial jurisdiction.
133.	The Appellant pays an annual Conservancy Charge.  The detailed regulatory basis of this charge is not important for the purposes of this appeal.  Clydeport Operations Limited also levy Ships Dues on all vessels entering the Port.  The Port for this purpose is the River Clyde between Albert Bridge, Glasgow and a line drawn across the River Clyde from the eastern end of Castle of Newark on the south bank to the mouth of the Cardross Burn on the north bank, or the Port and Harbours of Greenock and Port Glasgow or Hunterston.  The Appellant does not normally pay Ships Dues.  These would, however, be paid if, for example, one of the Appellant’s ships entered a dry dock at Greenock, such as Garvel Dry Dock or James Watt Dock for repairs or inspection.
134.	It is common to have pilotage limits set well beyond (i.e. seaward) the bounds of a harbour as described above.  This enables large vessels, whose captain and crew are unfamiliar with the general area, to be brought under pilot control at an early stage.  This is a safety matter.  To make enforcement of pilotage areas easier, it is common to have a harbour authority’s seaward limits extended to the farthest point at which pilots may be taken. 
135.	In a harbour a vessel’s operations are normally constrained to a lesser or greater extent by the presence within the harbour of other vessels.  To ensure safe navigation in the approaches to their ports, employees of harbour authorities direct the control of the movements of some vessels, commonly with a VTS (Vessel Traffic Service) system which involves the use of radar screens.  Practical considerations have led to such traffic control being extended into open waters.  Larger vessels will have tugs to assist their manoeuvres in coming to their berths.  
136.	When a vessel approaches harbour waters it normally makes its presence known by making radio contact with Clydeport Estuary Radio at its Greenock office.  Between the 1990s and about 2009 the office was known as Estuary Control.  Since then it has been known as Clydeport Estuary Radio.  
137.	The waters under Clydeport’s control are for practical purposes divided into three sections: the upper section, consists of the dredged channel from Central Glasgow to Dumbarton, where harbour conditions prevail.  The middle section is an estuary, stretching from Dumbarton to the Tail of the Bank area.  Here, vessels are under close control, operating at reduced speed and manoeuvring under pilot’s advice.  The lower section extends to seaward as far as Clydeport’s legally defined outer harbour limit.  Here, in the lower section, vessels, even if under pilotage and VTS control, manoeuvre freely under their own systems; they operate at any speed which suits them and are free to direct their course constrained only by geography, the Collision Regulations, and good seamanship.
138.	The Western Ferries’ terminals at Hunter’s Quay and McInroy’s Pointare not to be found in Clydeport’s list of harbours.
139.	As a broad and practical generality, the Merchant Shipping legislation defining categorised waters marks the distinction between relatively sheltered waters around the United Kingdom on the one hand and the sea on the other hand.
Miscellaneous Findings of Fact
140.	Southampton Isle of Wight and South of England Royal Mail Steam Packet Company Limited (“Red Funnel”) was incorporated on 10 September 1861 according to the laws of England and Wales with Registered Company Number 2404 and since its incorporation has operated vessels back and forth between the ports of Southampton on the mainland and Cowes on the Isle of Wight, across the Solent.  In 2000 Red Funnel operated three RoRo (roll on roll off) ferry vessels on that route, Red Falcon; Red Eagle & Red Osprey, as well as 3 high speed catamaran passenger ferries, Red Jet 3; further vessels were subsequently acquired, namely Red Jet 4 in 2004 & Red Jet 5 in 2009. The routes are entirely within waters categorised by the MCA as Category D waters. The vessels have never operated outside of Category D waters. 
141.	By letter dated 18 December 2000, Red Funnel elected to enter the UK Tonnage Tax regime during the first 12 months of the regime’s inception.  In July 2000 all Red Funnel’s vessels were certificated by the MCA as Class VI Passenger vessels, and operated across the Solent in Category D waters.  Those Class VI Certificates were subject to the usual operational restrictions as to times and areas of operation or weather conditions, as imposed by the MCA.  Although the Class VI Certificates permitted operation of the vessels in certain conditions outside Category D waters, the routes of the vessels have never altered from those followed before Class VI certificates were obtained.  HMRC accepted Red Funnel’s election into the Tonnage Tax regime in a letter dated 21 December 2000.  Since Schedule 22 was amended in 2005, HMRC and Red Funnel have been in dispute over Red Funnell’s continuing eligibility for tonnage tax.  The dispute relates to whether their vessels are harbour ferries.
142.	The MCA has no role in the administration of tonnage tax (MCA letter 19 November 2007 to HMRC).
143.	In 1999, the Scottish Office and after devolution the Scottish Executive (now the Scottish Government) made, over a number of years, grants and granted favourable financial conditions to its maritime companies CalMac and NorthLink for the operation of ferry services on routes between the Scottish mainland and the Hebrides and Northern Isles.  The European Commission received complaints about unfair State aid to these publicly owned companies.  Following an investigation, the Commission drew the preliminary conclusion that it had doubts as to whether the aid in question or at least some of it constituted public service compensations that were compatible with the common market.  The Commission decided to open formal investigation procedures with respect to all financial transactions between the Scottish authorities and CalMac.  In paragraph 20 of its report, the Commission notes that
CalMac has virtually no competition on the routes it serves.  Its sole competitor, Western Ferries, operates only on the Clyde estuary between Gourock, situated on the upper Firth of Clyde, and Dunoon, located on the Cowal Peninsula... 
144.	The nature and bounds of an estuary were not discussed in the Commission’s report.
Other Matters relating to Findings of Fact
145.	We have set out these findings of fact under various headings for convenience.  Some findings under one issue may be relevant to another issue.  In resolving the issues we have considered the relevant evidence and consequent findings of fact as a whole.  Simply because a finding of fact is recorded under one issue does not mean we have disregarded it when considering other issues.
146.	We have also, at various places, added comments or views.  These are plainly not findings of fact but have been inserted at a suitable point in the narrative for convenience.
Submissions
147.	Both parties produced detailed Skeleton Arguments.  Not all the points made in these documents were discussed during closing submissions.  What follows is a short summary of the main points advanced by each party.
Appellant
148.	Mr Conlon reminded us of some basic principles of European law under reference to Article 288 of TFEU, Becker v Finanzamt Munster-Innenstadt (8/81)and Marleasing SA v. La Comercial Internacional de Alimentacion SAHe took us through the legislation referred to above and various definitions of the sea, referring to The Salt Union Ltd  He pointed out that there was no challenge to the vires of the Merchant Shipping Notices before the Tribunal.  Some MSNs contained guidance and some parts have the force of law.
149.	On the Certification Issue, Mr Conlon submitted that the matter was straightforward.  All the passenger ships except the Shuna were certified as Class VI and were seagoing.  The Shuna had an equivalent certification.  All the ships in question were therefore qualifying ships for the purposes of Schedule 22 of the FA2000.  Parliament had intended a simple test for qualification.  He reviewed the evidence on this topic.
150.	On the Estuary Issue Mr Conlon submitted that (i) estuary in paragraph 20(4) of Schedule 22 should be given a narrow construction adopting a canon of construction similar to the eiusdem generis rule and the noscitura sociis rule to the phrase harbour or river ferries, as defined, (ii) the dictionary definition was only the starting point, (iii) the case law recognised that salinity and topographical features were relevant, (iv) a principled approach should be adopted taking account of geomorphological matters as well as local custom and usage, especially maritime usage.  This leads to the conclusion that the estuary extended between the Tail of the Bank and Dumbarton; east of Dumbarton was the river. There was no river effect left at Greenock.  There were no banks or shoals beyond (i.e. west) of the Tail of the Bank.  The Crossing was very deep as was the water on either side of it.  He pointed out that HMRC wish a narrow construction on the Certification issue yet, inconsistently, they seek a wide definition of estuary.
151.	He referred to Wilhelmsen which he said recognised that the Tail of the Bank marked the end of the estuary and the beginning of the fairway.  He analysed the evidence and submitted that it fell into three categories namely the scientific, the master mariner view point and, the categorisation of waters.  Whether the Crossing lies within the estuary was a question of fact for the Tribunal to determine.
152.	On the Harbour Issue, he submitted that what was being referred to was a place of shelter that has identity; crossing referred to crossing the same harbour, not crossing from one harbour to another harbour.  The statutory provision was a composite phrase.  A distinction fell to be made between a harbour and a harbour area such as that identified in the Confirmation Order Acts, and the Pilotage Act 1987
153.	Mr Conlon analysed the evidence in relation to the three principal issues.  He made various criticisms of the evidence led on behalf of HMRC particularly the evidence of Mr Stokes and Mr Brown.
HMRC
154.	Mr Artis submitted that we should adopt a purposive construction, construing the critical words restrictively.  He referred to Article 87 of the EU Treaty pointing out that it is nor foreign law but part of our law.  He referred to IDT, British Aggregates & Ors v Commission, Freistat Thuringen v CommissionandItalian Republic v Commission of the European Communities.  The Community Guidelines and the background to tonnage tax should be taken into account in construing the relevant provisions of Schedule 22.  This was particularly important on the Certification Issue.  He analysed what the European Union meant by maritime transport in Council Regulations EEC 4055/86. 4056/86 and 3577/92.  He also referred to Ministero delle Finanze v In. Co. GE. ‘Srl & Ors Finanzamt Koln-Altstadt v Schumacker and Minsitre de l’economie, des finances et de l’industire v GEMO SA.
155.	On the Certification Issue, Mr Artis submitted that the numerous restrictions on operation contained in the Class VI and EC(D) certificates meant that the vessels were not certificated for navigation at sea within the meaning of Schedule 22.  The tonnage tax regime made no provision for temporary cessation within any qualifying year.  What was required was certification which allowed practical use of the vessel at sea.  If the vessels were, as here, not going to sea, they were not seagoing vessels.  If the Appellant is correct the ring fencing provisions of Schedule 22 would not work.
156.	On the Estuary Issue, he advanced the ordinary meaning with a purposive construction.  Exclusions from aid should be given a broad interpretation.  He expressly declined to advance any argument on the assumption that part of the Crossing was within the estuary and part outwith it.  He referred to R v Secy of State for the Environment, the Salmon Fisheries (Scotland) Act 1868 and later legislation relating to salmon.  He relied on the evidence of Captain Bailey and Mr Brown.  Mr Artis submitted that the seaward limit of the estuary was the seaward limit of Category D waters i.e. south of Little Cumbrae.  EU terminology and Guidelines drew a distinction between maritime transport being carried out at sea and transport by inland waterways.
157.	On the Harbour Issue, Mr Artis referred to the ordinary dictionary meaning of harbour and advocated a common sense approach.  The modern concept of a harbour is not what it was in former times.  He relied on the Harbours Act 1964 section 57, the Merchant Shipping Act 1995 s 313 and Part VI thereof, the Clyde Port Authority Order Confirmation Acts of 1965 and 1969 and the Clyde Port Authority Scheme 1991 Confirmation Order 1992, the Pilotage Act 1987, and the extent of Clydeport’s jurisdiction.  The Crossing is within the outer pilotage area in accordance with Directions issued under section 7 of the 1987 Act.  Mr Artis also relied on the evidence of Captain Bailey.  Ultimately Mr Artis submitted that the whole of the area of the firth of Clyde is a harbour.  He referred to R v Hannam.
158.	Finally, Mr Artis submitted that any evidence that the Appellant was being unfairly treated by HMRC compared with certain other operators should be rejected as it was not now being founded upon by the Appellant. 
Discussion
159.	We consider each issue in turn.
The Certification Issue
160.	The Appellant’s ships had the benefit of certificates.  Although much documentation was produced in relation to the Appellant’s ships, parties were ultimately agreed that the certificates issued by the MCA covered all the ships over the whole of the Relevant Period, i.e. there was no part of the Relevant Period when no ship had either a Class VI or an EC(D) certificate.  If there were any gaps during the Relevant Period, this was unintentional; HMRC do not found on them and the MCA took no action in respect of them.  It is agreed that the MCA were and are the competent authority for the purposes of paragraph 19 of Schedule 22.  It was recognised by the parties that, in some circumstances, the competent authority might be a foreign body or institution such as an equivalent agency of an EU member state.  
161.	The Class V certificates enable the Appellant to ply its trade between Hunter’s Quay and McInroy’s Point.  The Crossing is entirely within Category C waters.  Such waters are not sea (1998 Regulations, regulation 2(6)(b)).  Nor are they sea areas.  The Class VI Certificates were obtained for the purpose of entering the tonnage tax regime.  The Appellant did not need a Class VI certificate for any of its ships to carry on its everyday business.  A Class VI Certificate entitled the Appellant’s ships (except the Shuna) to engage on a voyage to sea.  However, the circumstances in which this could be done were severely restricted.  The EC(D) Certificate for the Shuna entitled it to engage on occasional voyages of no more than one mile outside the Clyde Categorised Waters.  The circumstances in which this could be done occasionally were also severely restricted.
162.	It can be said, however, that, on their face, these certificates entitled the Appellant’s ships to engage on voyages at sea.  Mr Coley accepted as much in cross examination when he said that the Class VI and EC(D) certificates were regarded as seagoing certificates.  In that sense, the Appellant’s ships were, over the Relevant Period, certificated for navigation at sea by the competent authority, and were therefore seagoing ships.  If that is the correct approach to the meaning of certificated for navigation at sea, then the facts established show that the Appellant has brought itself within paragraph 19(4) of Schedule 22, and the Certification Issue must be decided in favour of the Appellant.  That was the approach elegantly and persuasively urged upon us by Mr Conlon.  It would have been very easy for Parliament to identify, by reference to the Merchant Shipping legislation, the classes of certification which would meet the certification requirements of tonnage tax but it chose not do so.  We are therefore left to determine whether certification subject to numerous qualifications under one statutory regime is sufficient for certification under another statutory regime.
163.	Ultimately, however, we do not consider Mr Conlon’s approach to be correct.  Our task is to apply a construction which gives effect to the legislative purpose; we have to ascertain the true meaning of what Parliament has said.  The context of the enactment including its history may be relevant.  The Appellant’s approach is somewhat superficial.  It pays little or no regard to the underlying complexities of the statutory certification or the function of the MCA.  It pays little or no regard to the European dimension and what may be said to be the underlying purpose of the introduction of the tonnage tax regime.  These matters cannot be ignored; they must be given consideration and due weight within the overall application of the principles of statutory interpretation.  It is true that Schedule 22 is not transposing an EU Directive or Regulation.  Nevertheless, it is plain that the intention of Parliament must have been to enact a provision which was consistent with the Commission’s views on tonnage tax, which did not fall foul of its Treaty obligations in relation to State aid and which would not lead to infraction proceedings by the Commission against the United Kingdom.
164.	It was argued forcefully on behalf of the Appellant that the certification provisions were deeming provisions to make the certification process simple.  While we agree that the Parliamentary Draftsman should always strive for simplicity and clarity as part of the overall aim of achieving legal certainty, sometimes that is difficult to achieve or simply not achieved because of drafting inadequacies; it may not be achievable because of the instructions given to parliamentary draftsmen.  We do not consider that treating the provision as a deeming provision makes the task of statutory interpretation any easier.
165.	We do not regard compliance with paragraph 19(4) as a matter of form.  If the competent authority issued a certificate stating the Appellant’s ships were entitled to embark on a voyage at sea only on mid-summer’s day for three hours and provided the sea was becalmed at all times, would that be sufficient for the ships to be classified as seagoing ships.  We think not.  Why?  Because the Appellant’s entitlement to embark on a voyage at sea, on that hypothesis, is so restricted; the ship cannot, in any realistic sense, be described as seagoing if it can only go to sea once a year in perfect weather.  If that is so, that means that the word seagoing or at sea on the certificate may not be sufficient.  It is the underlying substance which matters.  We must view the facts realistically to see whether they apply to the statutory provisions construed purposively.
166.	No restrictions or limitations are placed on the statutory phrase certificated for navigation at sea.  The phrase cannot mean certificated for navigation at sea on an occasional basis, or only a few months or even one day a year, or only in particular weather conditions, or only within a minimal distance from the coast or a port of refuge.  Rather, we consider that it means certificated for navigation at sea without any significant restrictions or limitations as to the mode, location or circumstances of navigation imposed by the certifying authority.  This approach gives substance to the certification process which otherwise could lead to absurd results such as the midsummer’s day example.  The appellant puts forward the Shuna as a qualifying ship.  However, it was certificated for only part of the Relevant Period, namely from about 16 December 2003 (following the completion of its construction) to 31 March 2004, the end of the Relevant Period.  The EC(D) certificate covered the period between 16 December 2003 and 31 March 2004 but the restrictions and limitations endorsed on the certificate prevented it from operating in sea areas between November and March.  Accordingly, as a matter of form it was certificated for navigation at sea during part of the Relevant Period, but at no point during the Relevant Period could it actually engage on a voyage at sea. 
167.	All the Certificates relating to the Appellant’s ships have significant restrictions or limitations as to the mode, location or circumstances of navigation imposed by the certifying authority.  To say that this is inherent in the class of certificate is nothing to the point.  Whatever their origin, the restrictions and limitations are significant.  The Appellant’s ships are not certificated for navigation at sea if that phrase is given a purposive construction and applied to the facts viewed realistically.
168.	It might be said that our conclusion will lead to uncertainty, and that the mere fact of certification, howsoever qualified, by a competent authority would be sufficient and would have the advantage of eliminating any such uncertainty.  However, the uncertainty lies within the phrase certificated for navigation at sea.  Parliament could have defined with some precision what was meant by that phrase e.g. by cross reference to particular classes of certification in the Merchant Shipping legislation and a requirement that certification by a foreign authority permit navigation at sea in substantially the same terms.  It chose not to do so although it did define the phrase offshore installations by reference to the Mineral Workings (Offshore Installations) Act 1971.  The result is that each case has to be determined on its own facts.  The terms of certificates will have to be examined to determine on which side of the line they lie.  On that basis, the intention of Parliament can be given a purposive construction and certification applied not as a matter of form but as a matter of substance.  This view is also generally consistent with what constitutes maritime transport for the purposes of various EU instruments described above.
169.	The temporary cessation provisions mentioned above, also support our conclusion on this issue.  On one view, the Appellant’s ships are not certificated for navigation at sea between November and March.  Although they ceased to qualify, they continued to operate.  The temporary cessation provisions do not apply in those circumstances.  These provisions tend to support the view that certification should endure in a practical sense throughout the year or at least the relevant accounting period.
170.	Although we have not deliberately set out to construe certificated for navigation at sea restrictively as Mr Artis submitted we should, that may well be the effect of our decision on this issue.  If that is so, then we consider that there is justification for that approach.  The statutory tonnage tax regime does not, in any real sense, impose a fiscal liability on the taxpayer.  Rather, it exempts certain of his profits from liability to mainstream corporation tax, and substitutes a regime which appears to impose minimal liability; putting it another way it relieves the taxpayer of a substantial fiscal liability.  Generally, exemptions tend to be construed restrictively rather than broadly.  Exceptions to an exemption tend to be construed broadly otherwise the scope of the exemption may be unintentionally expanded.
171.	We were referred to a number of authorities none of which we found particularly helpful in the process of statutory interpretation.  Freistat Thuringen v Commission concerned state aid which the Commission decided was unlawful.  Various German public authorities had granted state aid in the form of loans, guarantees and investment allowances in relation to a compact disc production plant and CD accessories established in Albrechts, Thuringia.  This formed part of the restructuring of the undertakings of the German Democratic Republic to ensure the transition from a planned economy to a market economy.  The regulatory framework for these activities, which the Commission had approved, constituted derogations from the general principle laid down in Article 87(1) EC that State aid is incompatible with the common market.  The term privatisation had to be construed narrowly in the context of the aid schemes.  The Court of First Instance annulled part of the contested decisions.  This case therefore provides some support for a narrow construction to be given to schemes of derogation (here, the Tonnage Tax regime).
172.	British Aggregates & Ors v Commission concerned the question whether the Community Guidelines on state aid relating to environmental protection were fulfilled in respect of an initial statutory exemption for Northern Ireland from aggregates levy introduced by the Finance Act 2001 for the rest of the United Kingdom, and subsequently applied to Northern Ireland on a gradual basis, and thereafter on a different basis which resulted in 80% relief being obtained on certain conditions.  The Commission approved the levy.  The General Court annulled the contested decision of the Commission.  In the course of its judgment the Court observed that Member States are allowed to establish 
a differentiated tax system for certain products only in so far as that differentiation is compatible with Community Law.
173.	Further support for this approach can be found in Finanz Koln-Alnstadt v Schumacker.  There, the European Court of Justice considered the compatibility with the Treaty’s freedom of movement provisions of German income tax rules under which taxpayers were treated differently depending on whether they resided within or outwith Germany.  In holding that with regard to the free movement of persons within the Community, the Treaty required the abolition of any discrimination based on nationality between workers of the member states, the Court observed at paragraph 21 that
Although, as the Community law stands at present, direct taxation does not as such fall within the purview of the Community, the powers retained by the member states must nevertheless be exercised consistently with Community law........
174.	In similar vein, the European Court of Justice made it clear in Minstero delle Finanze v In. Co. GE90 Sri and Ors (which related to the consequences of the incompatibility of a domestic charge or levy with Community law) that
every national court must, in a case within its jurisdiction, apply Community law in its entirety and protect rights which the latter confers on individuals, setting aside any provision of national law which may conflict with it, whether prior or subsequently to the Community rule.
175.	The Commission in Thuringen also decided that the member state had to demand repayment of the aid found to be illegal from the beneficiaries thereof.  The principles on which recovery is ordered are set out at paragraphs 307-10.  The main purpose is to eliminate the distortion of competition caused by the competitive advantage afforded by the unlawful aid.  We mention this as there was some suggestion by Mr Conlon that the Appellants could never be ordered to repay anything if the Tonnage Tax regime were to be the subject of infraction proceedings by the Commission.  Moreover, University of Sussex v C&CEC concerned inter alia an argument about unlawful state aid, in the context of late repayment of input tax, upon the assumption that domestic time bar provisions applied to payment traders but not to repayment traders.  Neuburger J observed under reference to Ideal Toruisme SA v Belgium that the appropriate remedy for the taxpayer was to seek an order that the state aid was stopped and possibly for an order that the beneficiary of the aid pays it back.  An argument that this would be difficult to achieve was held to be irrelevant.
176.	Minsitre de l’economie, des finances et de l’industire v GEMO SA related to a public carcass collection service which was free to farmers, slaughterhouses and the like and was mandatory.  It was paid for by a retail meat purchase tax.  GEMO sought reimbursement of payments of the tax on the basis that it was part of an arrangement which constituted state aid.  The ECJ held that the system introduced by the French authorities constituted an advantage for French exports and affected intra-Community trade.  It was classified as state aid.  We did not derive much assistance from this case, which was cited by HMRC.
177.	We were also referred to Italy v Commission.  There, the Italian Republic sought to annul the Commission’s Decision concerning aid granted by Italy to promote employment.  The issue concerned the age limit for workers entering into employment under training and work experience contracts.  The Commission’s interpretation of their guidelines authorised such contracts for, broadly, young persons under twenty five years of age.  The national authority argued for an older age limit.  The ECJ though not bound by the Commission’s approach, followed it.  The Court also commented on the recovery of state aid noting that, as a general rule, the Commission will not, save in exceptional circumstances, exceed the bounds of its discretion, if it asks the Member State to recover the sums granted by way of unlawful aid.
178.	Our conclusion that the Certification Issue falls to be decided in favour of HMRC is reinforced when one examines more closely the underlying purposes of the tonnage tax regime.  In his Budget Statement in March 1999, the Chancellor of the Exchequer, in response to the shipping industry’s proposals, appointed Lord Alexander of Weedon to conduct an independent study of the case for and the design of a lower-rate ring-fenced tonnage tax and additional enhanced training incentives.  Lord Alexander reported in July 1999.  In his report he notes the decline in the British Shipping Industry and the government’s resolve over a number of years to do something about it.  In British Shipping- charting a new course, the Government, in December 1998 set out its policy and objectives for the shipping industry.  That document noted that what was required was the sustained recruitment and employment of British seafarers, which in turn depends heavily on the continued participation and viability of British companies in international shipping.
179.	Lord Alexander observed that the critical importance of international fiscal competitiveness to the shipping industry was highlighted in Charting a new course.  Lord Alexander was clear that for the industry to be internationally competitive it required a virtually tax-exempt and user-friendly fiscal regime.  At paragraph 40 he notes that what all parties envisaged was that a package of measures should make the UK shipping industry internationally competitive.  He discussed European considerations and said with reference to the 1997 Community Guidelines 
The fact that these directions are clearly designed to allow the shipping industries of EU member states to compete internationally provides additional support for the view that a virtually tax-exempt environment is integral to the opportunities for success of a national shipping industry.  Without the tax regimes permitted by these or similar guidelines, the countries of the EU would have no prospect of competing internationally for a share of a shipping industry.
180.	On the question of eligibility, Lord Alexander’s Report envisaged that qualifying ships would be seagoing.  We also refer to the Commission’s Guidelines referred to above.  We consider that it is legitimate to have regard to this material in order to determine the true meaning of the words used by Parliament.  
181.	For many years, courts including the House of Lords and more recently the Supreme Court have taken into account a wide range of materials in order to ascertain the true meaning of statutory enactments.  Thus Explanatory Notes, Government White Papers, Reports of Royal Commissions, Law Commission Reports, ministerial statements and the like have all been scrutinised from time to time in order to give a purposive construction to statutory provisions.  For example, in Wilson v Dunbar the Inner House had to construe a statutory provision relating to interest on damages.  In order to do so the Court considered an Interim Report of the English Law Revision Committee, an analogous Scottish Report, and a statement in Parliament by the sponsor of a Private member’s Bill.  In Scottish Widows plc v HMRC Lord President Hamilton observed that taxing statutes have to be construed purposively noting that the context and the scheme of the relevant Act as a whole and its purpose should be regarded.  The legislative ancestry of a provision may assist and in some circumstances.  These authorities leave us in no doubt that it is legitimate to have regard to the “State aid” background to the enactment of schedule 22 to the FA2000 in order properly to construe the relevant provisions purposively, viewing the applicable facts realistically.
182.	The authorities demonstrate the potency of the law of the European Union where it forms part of the landscape or context of a national legislative provision, whether in the foreground for example in the form of a Directive or in the background in the form of Treaty obligations and related guidelines or similar material.
183.	We also record that we were referred to The Salt Union Ltd v Wood  This was a statutory claim for damages for breach of contract against an employee under the Employers and Workmen Act 1875.  The employee was a member of the crew of a steamer which was exclusively used to carry salt upon the rivers Weaver and Mersey from Winsford to Liverpool where it was transferred to ocean-going vessel.  Her voyages, so far as upon the Mersey were in tidal waters but did not extend in such tidal waters beyond the limits of the port of Liverpool.  The issue was whether the respondent was a workman to which the 1875 Act applied or a seaman to which that Act did not apply, the Merchant Shipping Act of 1854 being the relevant Act under which to proceed.  This in turn depended on whether the ship was a sea-going ship.  The court held that a sea-going ship was one which does go to sea.  The ship, in question, on the facts, did not go to sea.  Therefore the 1875 Act applied.  The court endeavoured to provide a simple answer to the question in the face of argument that as it was capable of going to sea that was sufficient.  That argument was rejected.  We do not think this case is much assistance in construing certificated for navigation at sea and determining whether the Class VI and EC(D) certificates fall within that phrase.
The Estuary Issue
184.	It is apparent from the evidence and submissions that waters may be and are classified in different ways for different purposes.  The sea, internal waters and inland waters are labels based essentially on geography.  The high seas, territorial seas and internal waters are classifications based on international law.  Tidal waters, non-tidal waters, navigable waters and non-navigable waters are also phrases which have legal significance.  One may add to this the labels formerly used in Merchant Shipping legislation namely smooth waters and partially-smooth waters.  Now, we have controlled waters and more recently transitional waters, coastal waters, and even marine waters and estuarine waters.  The entire coastline of the United Kingdom is in tidal waters.  Schedule 22 of FA2000 refers to vessels used for estuary or river crossings.  This, we consider, must be a reference to a commercial activity carried on by means of a vessel operated at a particular location, namely from one part of an estuary to another part of the same estuary.  If a vessel is so operated, it does not qualify for tonnage tax that is to say the relevant profits derived from that commercial activity and tax liability on those profits are computed in the ordinary way rather than in accordance with Schedule 22.  We say relevant profits because of the provision of paragraph 19(2).  Thus, a seagoing ship which is used mainly as a casino or restaurant would not qualify as these are the provision of goods or services of a kind normally provided on land.
185.	We find that the word firth is a somewhat ambiguous and unhelpful word.  Its derivation and association with the word fjord, an arm of the sea, while interesting does not take us very far.  How far does the arm extend?  Where does a firth end and an estuary begin?  As Dr McLusky said in evidence in the course of his cross examination there are firths which are not estuaries and firths which are estuaries.  It is a word which is used loosely to describe a variety of different bodies of waters.  The Moray Firth for example, he said, is not of an estuarine nature.  Nor is the Pentland Firth.  Dr Hansom agreed, pointing out that he did not regard the Pentland Firth as either an estuary or an arm of the sea.  Charts and maps designating part of the Clyde as the Firth of Clyde do not establish that those parts are not part of the Clyde estuary although they may constitute an indication that they are not.
186.	Dr McLusky is the author of the “The Estuarine Ecosystem” and was until recently the editor of the journal Estuarine Coastal and Shelf Science.  He was formerly Head of the Department of Biological Sciences and senior lecturer in Marine Biology at Stirling University.  He has written papers on the estuarine environment and ecological systems.  He is currently the chief editor of a 12 volume publication Treatise on Estuarine and Coastal Science
187.	We agree with Dr McLusky that the vicinity of the Tail of the Bank is the seaward end of the estuary is supported by the terms of the Hydrographic Dictionary, which refers to the tide meeting the river current and the Mariner’s Handbook which also emphasises that an estuary is a mixing zone between sea and river.
188.	Dr McLuskey’s views on where an estuary begins and ends were essentially salinity based and ultimately reliant on various EC Directives and their implementation in the form of statutory regulations.  His view, in summary, was that various definitions of estuaries emphasised an estuary as an area of reduced and/or variable salinity, and that the seaward end of the Clyde Estuary was at the Tail of the Bank; if not there, it lies further west along a line between Cloch Point and Barron’s Point at Kilcreggan.  The latter view would place part of the Crossing within the Clyde Estuary but about 80% would be beyond the seaward end of the Clyde Estuary.
189.	Dr Hansom is a member of the Earth Systems Research Group and is a former Director the Coastal Research Group at the University of Glasgow.  He is a reader there in the Department of Geographical and Earth Sciences.  As a geomorphologist, his main interests lie in the understanding and management of coastal environments.  He, too, relied on the same EC Directives, the SEPA maps, the SSSI and SPA designated by Scottish Natural Heritage and the Joint Nature Conservation Committee.  He also stated that mixing of sea and fresh water occurred at Greenock and that seaward of Greenock the water was essentially saline and barely distinguishable from the sea.  He described the process of flocculation induced by the mixing of fresh and salt water, the aggregation of fine silt particles carried by the river into larger and heavier flocs.  These heavy particles fall to the bottom in the zone of mixing.  Bedload sands are also deposited as the river flow becomes progressively impeded by the tide to form shoals and sand banks, again at the locus of fresh and salt water interaction.  In the River Clyde this zone of deposition only occurs at and upstream of the Tail of the Bank, off Greenock.  Dr Hansom described the coincidence of mixing zones and deposition zones as a classic and unmistakeable sign of where the tide meets the river current.  We accept that evidence.  His view was that that both the scientific and operational limit of the Clyde Estuary is at the Tail of the Bank, off Greenock and that the Firth of Clyde is seawards of that point.
190.	Mr Brown’s qualifications and experience related principally to the international law of the sea, and related maritime zones and boundaries, although he did have some experience of identifying the boundaries of some English estuaries for another government department, namely DEFRA.  He regarded firth and estuary as broadly interchangeable.  He pointed out that the United Nations Convention on the Law of the Sea contained no definition of an estuary, and that the Crossing lies within the internal waters of the United Kingdom as opposed to the territorial sea adjacent to the United Kingdom.  One of his charts depicted the territorial limits of the United Kingdom.  The Firth of Clyde is shown as internal water.  
191.	Captain Lindsay regarded the Firth of Clyde as extending as far as Greenock.  His view was that the seaward end of the estuary ended at the Tail of the Bank.  He described seagoing conditions as having three aspects; the first was weather equivalent to open sea conditions such as substantial waves and strong gales; the second was clear water for manoeuvring; the third was the applicability of the Collision Regulations, which he said applied to the Crossing.
192.	  Dr McLusky noted in his witness statement a reference in the Herald Magazine of 20 June 2009 describing the Clyde Estuary as ending somewhere between Greenock and Gourock.  For what that may be worth, it can at least be said that it is consistent with our views.  Our views are also consistent with the statement of the Firth of Clyde Forum and the views of the Joint Nature Conservation Committee referred to above.
193.	We do not consider that the acknowledgement by Captain Lindsay in cross examination that he had heard the area to the south of the Tail of the Bank being described as an estuary to be sufficient to negate the other evidence to the effect that the seaward side of the Clyde Estuary ends at or about the Tail of the Bank.  Nor do we attach much weight to Captain Bailey’s evidence that approaching vessels contact Clydeport’s Greenock office which was known as estuary control and now is known as Clydeport Estuary Radio.  This is plainly simply a matter of convenience rather than based on the application of any considered view as to where the estuary begins and ends.  All the relevant areas for Clydeport’s purposes are delineated in Pilotage directions and the like.
194.	We were referred to R v Secy of State for the Environment  That case related to a challenge by judicial review of the Secretary of State’s decision under the Urban Waste Water (England and Wales) Regulations 1994 of the outer estuarine limits of the Humber and Severn Estuaries.  The issue related to the degree of treatment (primary or secondary) required for urban waste water discharged into the two estuaries; secondary treatment is the more stringent and expensive.  The Directive did not impose any criteria for determining the outer limits of an estuary boundary.  It was noted that there was no definition of an estuary in United Kingdom legislation.  It also noted (whether correctly or not) that in Scotland a definition based on salinity had been used traditionally to define the seawards limits of large estuaries.  In holding that irrelevant considerations (namely the high costs of waste water treatment) had been taken into account which vitiated the decision, Harrison J held that salinity and topography were relevant considerations.
195.	While these may not be the only relevant considerations, they do seem to be, on the material presented to us, the principal matters which repeatedly feature in the discussion of the boundaries of and the definition of an estuary.  Thus the OED refers to the tide meeting the current of fresh water.  The International Hydrographic Dictionary speaks of the influence of the tide where it meets the river current.  The Mariner’s Handbook refers the mouth of the tidal river usually being encumbered by shoals (a form of sandbank reducing the depth of water); Allen refers to the transition from relatively shallow estuarine waters to deep marine waters at Greenock.  The policy of the Water Framework Directive is to improve the ecological quality of Community surface waters.  This required water bodies with different characteristics to be identified and discretely labelled so that a set of measures, appropriate to bodies of water with particular characteristics could be consistently applied.  The Water Framework Directive and the Urban Waste Water Directive and their implementing regulations all have definitions of transitional waters and estuary which refer to the meeting of saline waters and fresh waters.
196.	Moreover, none of the literature examined or evidence heard attempted to identify the boundaries of an estuary by reference to wave height.  Equiparation of controlled waters and estuary is therefore illogical and an unsafe method of identifying the general boundaries of an estuary. 
197.	Overall, our assessment is that the burden of the evidence, which we accept, points to the seaward end of the estuary being at or about the Tail of the Bank or to put it more broadly in the vicinity of Greenock.  It is only there that the mingling of sea and fresh water begins.  Seaward of this area the water is entirely or almost entirely saline.  The historical presence of the lookout tower in this area provides some support that the seaward limit of the estuary is in this area.  The mud banks and shoals are also an indicator of the seaward end of an estuary.  Accordingly, the Crossing does not lie to any extent within the Clyde estuary.
198.	We were not greatly assisted by the references in other statutory provisions to the limits of the Clyde estuary.  For example, in the Salmon and Freshwater Fisheries (Consolidation) (Scotland) Act 2003, section 23 deals with the protection of young salmon.  Section 36 provides definitions of estuary limits.  Where none arise expressly fixed, the estuary limits of a river are to be the natural limits which divide a river (including its estuary) from the sea.  Commissioners appointed under the Salmon Fisheries (Scotland) Act 1862 were given power to fix and define for various statutory purposes the natural limits which divide each river in Scotland including its estuary from the sea.  The Salmon Fisheries (Scotland) Act 1868 s10 and Schedule B contain deemed Byelaws.  Schedule B fixes and defines the limits which divide various rivers including their estuaries from the sea.  In relation to the Clyde the limits of the estuary are defined as
a straight Line drawn East from Toward Point Light
199.	If the foregoing definition were to be adopted, the Crossing would be well within the estuary.  However, interesting though this provision is we have simply no idea what led Parliament to draw the line at Toward Point Light for salmon fishing purposes.  It may have had something to do with the migratory habits of salmon or it may have been a convenient jurisdictional line.  Without some understanding of the basis on which the line was drawn we cannot be influenced by it to any great extent.
200.	We should add that we did not find the discussion of and comparison with the Thames estuary and the Solent to be of any real assistance to us.  The evidence on these topics was not detailed and our assessment of those chapters of the evidence did not leave us sufficiently confident to make any findings of fact which would at the end of the day be of any use or value in determining any of the three issues before us in this appeal.  There is also a very considerable doubt about the admissibility of this chapter of evidence.  The function of this appeal is to determine the relevant facts applicable to the Appellant and apply those facts to the law, properly interpreted.  Our task is not to hear evidence of the similar circumstances of other taxpayers and complaints that the Appellants should be but are not being treated similarly.  We are concerned only with the rights of the present Appellant.  We refer also to paragraph 213 below.
201.	We were also referred to two Scottish cases for their facts rather than any principle of law.  In Trs. of Clyde Navigation v Wilhelmsen the facts concerned a collision between two vessels which took place opposite Fort Matilda.  The issue was whether the locus was a narrow channel within the meaning of the Regulations for Preventing Collisions at Sea 1897.  The locus was described by the Lord President as part of the fairway of the Clyde.  He referred to this part of the river being only half a mile from Fort Matilda Pier to the Roseneath Patch.  Lord Johnston noted that the river Clyde ended 
technically at Newark Castle near the east end of Port Glasgow but from that point the fairway, whether properly of the river or of the estuary is confined to a comparatively narrow space between Greenock and what is known as “the Bank”- the “Tail of the Bank” or its seaward end, extending as far down as the point opposite Greenock.  From the Tail of the Bank to Roseneath Patch is nearly 2.5 miles but though across that space there is a wide stretch of water between Greenock and Helensburgh at the mouth of the Gareloch....
While the description is of some interest, it is reasonably clear that the locus is in the vicinity of Greenock and considerably east of the Crossing.  The case sheds no light on any of the issues in the present appeal.
202.	In Buchanan v Clyde Lighthouse Trs a vessel struck a sandbank as she was entering Fairlie Harbour, which the Lord Justice Clerk said was on the estuary of the Clyde.  Whether that is the same Fairlie which lies south of Largs opposite the Cumbraes is unclear.  However the observation is of no assistance to us in determining where lies the seaward limit of the estuary.  The limits of the estuary were not in issue in the case.
203.	Finally, it was not suggested in argument by either party that, if we concluded that the Crossing lies outwith the estuary, the Crossing must be a crossing at sea, and accordingly the Appellant’s ships must be treated as having been certificated for navigation at sea.  We would have rejected such an argument.  In the first place, the Crossing lies within controlled waters which are not generally regarded as sea.  In the second place, the Appellant’s ships ply their trade by virtue of Class V certification; neither party regarded such a certificate as amounting to certification for navigation at sea.  The Appellant, in submissions, regarded the Class V certificates as irrelevant.
Harbour Issue
204.	In our view, HMRC’s arguments have no merit.  We decide this issue in favour of the Appellant.
205.	This issue was introduced at a late stage.  We refer to our Directions dated 28 June 2010.  In our view, the suggestion that the whole of the Clyde from Dumbarton to say Skelmorlie constitutes one harbour for the purposes of Tonnage Tax is an extreme proposition which would required to be supported by cogent evidence.  In the first place such a large area does not fit easily with any ordinary notion of what a harbour is.  None of the ingredients of a harbour discussed above is present; if any of them is present, they are so minimal as to carry no significant weight.  In the second place it seems obvious that within the large area contemplated there are numerous discrete harbours such as the Clyde dockyard Ports, Greenock, Hunterston Ore and Coal Terminal, Ardrossan, and Brodick.
206.	When the Appellant’s ships ply between Hunter’s Quay and McInroy’s Point, they are not crossing between one part of a harbour to another.  It would be straining language to breaking point to say that they were.  Hunter’s Quay and McInroy’s Point are either each a harbour or neither is.  Either way, the Appellant’s vessels are not used for harbour crossings.
207.	We do not consider that the statutory functions of Clydeport Operations Ltd or various definitions of harbour in other statutory provisions have any significant bearing on the proper construction of the phrase harbour, estuary or river crossings in paragraph 20(4) of Schedule 22.  The fact that Captain Bailey regards the whole area within his jurisdiction as a harbour is nothing to the point.  His views on what constitutes a harbour were heavily influenced by the statutory jurisdiction of Clydeport.  If Parliament had wished to incorporate a statutory definition from another statute it would have done so in Schedule 22 or elsewhere in the FA2000.  However, parliament did not do so and we therefore presume that it intended the ordinary meaning of harbour to apply.  Applying the ordinary meaning of harbour cannot, on any stretch of the imagination, lead to the conclusion that Hunter’s Quay and McInroy’s Point are two terminals or points of embarkation within a single harbour and that the Crossing is therefore a harbour crossing with the meaning of Schedule 22.
208.	We were referred to section 14 of  the Clyde Port Authority Order Confirmation Act 1965 which identifies the extent of the jurisdiction of the Port Authority and the harbourmaster within the Clyde.  That jurisdiction extends from Albert Bridge in the city of Glasgow to a line drawn due east and west true across the river or firth of Clyde at the southernmost point of the island of little Cumbrae from the coast of Ayrshire to the coast of Kintyre including the sea lochs and channels within those limits.  This definition tells us nothing about the extent of the harbour for the purposes of tonnage tax.  If we accepted it as determinative, which we do not, the Crossing would plainly fall within the bounds of the harbour.  The definition of Clyde Port Authority’s territorial jurisdiction in the Schedule to the Clyde Port Authority Order Confirmation Act 1969 does not provide any further assistance. 
209.	In similar vein, we derive little assistance from the Pilotage Act 1987.  Sections 1, and 31 define competent harbour authority by reference to a harbour authority.  Here, that is Clydeport Operations Limited.  A harbour authority’s harbour is
the area or areas inside the limits of which its statutory powers and duties as a harbour authority are exercisable...
210.	This simply defines the area of jurisdiction for pilotage purposes which for modern practical operational reasons has become quite extensive and well outwith the bounds of the ordinary notion of a harbour, as an area providing essentially shelter, anchorage, and commonly loading and unloading facilities all in a location where there is access to some hinterland.  The other statutory provisions to which we were referred do not assist us.
211.	In R v Hannam referred to by Mr Artis,the Court of Appeal said of the word harbour in one of the provisions of the Harbours & Piers Passing Tolls Act 1861, that it was used in its ordinary sense.  The Master of the Rolls said
A harbour in its ordinary sense was a place to shelter ships from the violence of the sea, and where ships are brought for commercial purposes to load and unload goods.
212.	In our view, far from supporting the HMRC argument, this case goes some way to destroying it.  While the Firth of Clyde (whatever its precise boundaries or limits may be) may be within a statutory harbour area, that does not mean it is a harbour in the ordinary sense (or indeed, virtually any other sense) of the word.  What is the answer to the question What is the name of the harbour:  And if it had a name, where would we be taken if we asked to go there?  Dunoon, Gourock, Greenock, Cloch Point, Toward Point?  We should also add that the definition of harbour in section 57 of the Harbours Act 1964, also cited by Mr Artis, does not help either.  We were also referred to the Clyde Navigation Consolidation Act 1858.  However the definitions of the limits of the Harbour of Glasgow (east of the River Kelvin and to the West of Hutchesontown Bridge) or the River Clyde (as far down the said river [Clyde] as to a straight Line drawn from the eastern end of Newark Castle on the South Shore of the said River to the Mouth of Cardross Burn on the North Shore of the said River).  Do not assist HMRC.  Under the latter definition, the River Clyde lies to the east of the Crossing.
Unfair Treatment
213.	There is a theme running through the correspondence that the Appellant has been unfairly treated in comparison with other operators.  The evidence of James Cooper and the Red Funnel’s activities were perhaps led with that in mind.  Ultimately, however, Mr Conlon did not seek to support his submissions on any of the issues by reference to this chapter of evidence.  Insofar as it is admissible at all we do not rely on it.  However, it is perhaps appropriate to point out that is said to be a cardinal principle of public administration that all persons in a similar position should be treated similarly.  Strasbourg jurisprudence under reference to Article 14 of the Convention and domestic legislation have developed the law relating to discriminatory treatment in public law in recent years.  These are not matters which we need to consider for the purposes of this appeal.
Other Evidence
214.	We did not find the evidence of Mr Stokes, a policy adviser with HMRC to be particularly helpful in determining the issues.  Much of his evidence related to background government policy on tonnage tax and may well have been inadmissible insofar as it went beyond what could be gleaned from relevant and admissible official documents.
Summary
215.	We summarise our decision as follows:-
(1)	It is plain that the intention of Parliament must have been to enact a provision which was consistent with the Commission’s views on tonnage tax, which did not fall foul of its Treaty obligations in relation to State aid and which would not lead to infraction proceedings by the Commission against the United Kingdom.
(2)	Compliance with paragraph 19(4) is not a matter of form.  We must view the facts realistically to see whether they apply to the statutory provisions construed purposively.
(3)	The phrase certificated for navigation at sea cannot mean certificated for navigation at sea on an occasional basis, or only a few months or even one day a year, or only in particular weather conditions, or only within a minimal distance from the coast or a port of refuge.  Rather, we consider that it means certificated for navigation at sea without any significant restrictions or limitations as to the mode, location or circumstances of navigation imposed by the certifying authority.
(4)	The statutory tonnage tax regime does not in any real sense impose a fiscal liability on the taxpayer.  Rather, it exempts certain of his profits from liability to mainstream corporation tax, and substitutes a regime which appears to impose minimal liability; putting it another way it relieves the taxpayer of a substantial fiscal liability.
(5)	The authorities demonstrate the potency of the law of the European Union where it forms part of the landscape or context of a national legislative provision, whether in the foreground for example in the form of a Directive or in the background in the form of Treaty obligations and related guidelines or similar material.
(6)	The certification of the Appellant’s ships contained significant restrictions and limitations.  Accordingly, the Appellant’s ships were not certificated for navigation at sea by the competent authority in terms of paragraph 19 of Schedule 22 (the Certification Issue).
(7)	The burden of the evidence, which we accept, points to the seaward end of the estuary being at or about the Tail of the Bank or to put it more broadly in the vicinity of Greenock.  Accordingly, the Crossing does not lie to any extent within the Clyde estuary.  We do not consider that the statutory functions of Clydeport Operations Ltd or various definitions of harbour in other statutory provisions have any significant bearing on the proper construction of the phrase harbour, estuary or river crossings in paragraph 20(4) of Schedule 22.
(8)	The route plied by the Appellant’s ships was not an estuary crossing within paragraph 20(4) of Schedule 22 (the Estuary Issue)
(9)	Hunter’s Quay and McInroy’s Point are not two terminals or points of embarkation  within a single harbour.  The Crossing is therefore not a harbour crossing with the meaning of Schedule 22.
(10) The route plied by the Appellant’s ships was not a harbour crossing within paragraph 20(4) of Schedule 22 (the Harbour Issue).

Disposal
216.	The Appeal is dismissed.
217.	This document contains full findings of fact and reasons for the decision.  Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.  The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

J GORDON REID, QC., F.C.I.Arb.
TRIBUNAL JUDGE

RELEASE DATE:  12 APRIL 2011

APPENDIX/

APPENDIX

Western Ferries	SC/3071/2009

Locations Referred to in the Decision

Most of the locations can be found on Admiralty Chart 2131 Firth of Clyde and Loch Fyne

Alphabetical Order

Albert Bridge	55˚51’.2N,  004˚14’.9W
Ardlamont Point	55˚49’.6N, 005˚12’.3W
Ardrossan	55˚39’N, 004˚49’W
Ardyne Point	55˚52’.2N, 005˚02’.7W
Arran	55˚35’N, 005˚15’W
Baron’s Point	55˚59’.3N, 004˚51’.1W
Bogany Point	55˚50’.8N, 005˚01’.5W
Brodick Bay	55˚35’N, 005˚09’W
Cardross Burn	55˚57’.6N, 004˚39’.4W
Cloch Point 	55˚56’.5N, 004˚52’.2W
Corrygills Point	55˚34’.3N, 005˚06’.4W
Corsewell Point	55˚00’.5N, 005˚09’.6W
Cowal Peninsula	55˚56’N, 005˚00’W
Craigendoran Pier	55˚59’.7N, 004˚42’.9W
Dumbarton	55˚56’N, 004˚33’W
Dunoon Pier	55˚56’.8N, 004˚55’.3W
Erskine Bridge	55˚55’.2N, 004˚27’.8W
Ettrick Bay	55˚50’N, 005˚09’W
Fairlie	55˚45’N, 004˚51’W
Farland Head	55˚41’.7N, 004˚54’.0W
Fort Matilda	55˚57’.8N, 004˚47’.4W
Gareloch	56˚01’N, 004˚48’W
Garroch Head	55˚42’.4N, 004˚58’.8W
Gourock	55˚57’N, 004˚51’W
Great Cumbrae	55˚46’N, 004˚55’W
Greenock	55˚57’N, 004˚45’W
Helensburgh	56˚01’N, 004˚44W
Holy Loch	55˚59’N, 004˚55’W
Hunter’s Quay 	55˚38’.3N, 004˚54’.5W
Hunterston	55˚43’N, 004˚54’W
Inner Brigund Point	55˚43’.7N, 004˚53’.6W
Kempock Point	55˚57’.8N, 004˚49’.1W
Kilcreggan	55˚59’N, 004˚50’W
Largs	55˚48’N, 004˚52’W
Little Cumbrae	55˚43’N, 004˚57’W
Loch Goil	56˚07’N, 004˚54’W
Loch Long	56˚00’N, 004 53’W
Loch Ranza	55o 43’ N, 005o18’ W
Loch Striven	55˚54’N, 005˚04’W
McInroy’s Point 	55˚57’.1N, 004˚51’.3W
Mull of Kintyre	55˚18’N, 005˚48’W	
Newark Castle	55˚56’.1N, 004˚40’.7W
Port Glasgow	55˚56’N, 004˚41’W
Portachur Point	55˚44’.6N, 004˚56’.9W
River Kelvin	55˚52’.0N, 004˚18’.5W
Rosneath Patch	55˚59’N, 005˚13’W
Rothesay Bay	55˚51’N, 005˚03’W
Skelmorlie Castle 	55˚51’.1N, 004˚53’.1W
Skipness 	55˚45’.9N, 005˚19’.7W
Stockwell Bridge	55˚51’.2N, 004˚15’.1W
Strone Point	55˚59’.0N, 004˚54’.0W
Tail of the Bank 	55˚57’N, 004˚45’W
Tormont End	55˚47’.6N, 004˚54’.1W
Toward Point	55˚51’.6N, 004˚57’.3W

Order Moving Downstream

Albert Bridge	55˚51’.2N, 004˚14’.9W
Stockwell Bridge	55˚51’.2N, 004˚15’.1W
River Kelvin	55˚52’.0N, 004˚18’.5W
Erskine Bridge	55˚55’.2N, 004˚27’.8W
Dumbarton	55˚56’N, 004˚33’W
Cardross Burn	55˚57’.6N, 004˚39’.4W
Newark Castle	55˚56’.1N, 004˚40’.7W
Port Glasgow	55˚56’N, 004˚41’W
Tail of the Bank 	55˚57’N, 004˚45’W
Craigendoran Pier	55˚59’.7N, 004˚42’.9W
Helensburgh	56˚01’N, 004˚44W
Greenock	55˚57’N, 004˚45’W
Gareloch	56˚01’N, 004˚48’W
Rosneath Patch	55˚59’N, 005˚13’W
Fort Matilda	55˚57’.8N, 004˚47’.4W
Kempock Point	55˚57’.8N, 004˚49’.1W
Kilcreggan	55˚59’N, 004˚50’W
Gourock	55˚57’N, 004˚51’W
McInroy’s Point 	55˚57’.1N, 004˚51’.3W
Baron’s Point	55˚59’.3N, 004˚51’.1W
Loch Long	56˚00’N, 004 53’W
Loch Goil	56˚07’N, 004˚54’W
Strone Point	55˚59’.0N, 004˚54’.0W
Holy Loch	55˚59’N, 004˚55’W
Hunter’s Quay 	55˚38’.3N, 004˚54’.5W
Cloch Point 	55˚56’.5N, 004˚52’.2W
Dunoon Pier	55˚56’.8N, 004˚55’.3W
Cowal Peninsula	55˚56’N, 005˚00’W
Toward Point	55˚51’.6N, 004˚57’.3W
Ardyne Point	55˚52’.2N, 005˚02’.7W
Loch Striven	55˚54’N, 005˚04’W
Skelmorlie Castle 	55˚51’.1N, 004˚53’.1W
Rothesay Bay	55˚51’N, 005˚03’W
Bogany Point	55˚50’.8N, 005˚01’.5W
Largs	55˚48’N, 004˚52’W
Tormont End	55˚47’.6N, 004˚54’.1W
Great Cumbrae	55˚46’N, 004˚55’W
Fairlie	55˚45’N, 004˚51’W
Portachur Point	55˚44’.6N, 004˚56’.9W
Inner Brigund Point	55˚43’.7N, 004˚53’.6W
Hunterston	55˚43’N, 004˚54’W
Little Cumbrae	55˚43’N, 004˚57’W
Garroch Head	55˚42’.4N, 004˚58’.8W
Ettrick Bay	55˚50’N, 005˚09’W
Ardlamont Point	55˚49’.6N, 005˚12’.3W
Skipness 	55˚45’.9N, 005˚19’.7W
Loch Ranza	55o 43’ N, 005o18’ W
Farland Head	55˚41’.7N, 004˚54’.0W
Ardrossan	55˚39’N, 004˚49’W
Brodick Bay	55˚35’N, 005˚09’W
Corrygills Point	55˚34’.3N, 005˚06’.4W
Arran	55˚35’N, 005˚15’W
Mull of Kintyre	55˚18’N, 005˚48’W	
Corsewell Point	55˚00’.5N005˚09’.6W

Lines Mentioned in the Decision

Limit of estuary – scientific	a line from Greenock (55˚57.3’N, 004˚45.6’W)
	to (55˚59.2’N, 004˚44.1’W)
	to Craigendoran (55˚59’.7N, 004˚42’.9W)

Limit of estuary – SEPA	a line from Cloch Point (55˚56’.5N, 004˚52’.2W)
	toBaron’s Point (55˚59’.3N, 004˚51’.1W)

Western Ferries route	a line from McInroy’s Point (55˚57’.1N, 004˚51’.3W)
	to Hunter’s Quay (55˚38’.3N, 004˚54’.5W)

Inner limit of Category D water (winter)	a line from Cloch Point (55˚56’.5N, 004˚52’.2W)
	to Dunoon Pier (55˚56’.8N, 004˚55’.3W)

Inner limit of Category D water (summer)	a line from Skelmorlie Castle (55˚51’.1N, 004˚53’.1W)
	to Bogany Point (55˚50’.8N, 005˚01’.5W)

Outer limit of Category D water	a line from Farland Head (55˚41’.7N, 004˚54’.0W)
	to 1 mile south of Garroch Head (55˚42’.4N, 004˚58’.8W)
	to Skipness (55˚45’.9N, 005˚19’.7W)

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