In an excellent example of the benefits of tax competition, Bloomberg reports that Norway’s left-leaning government intends to eliminate the corporate tax on shipping because of pressure from Bermuda, Liberia, and other open-shipping registries. But there is a dark lining to this silver cloud. The politicians want to extort $3.5 billion of alleged back taxes as part of the deal. Needless to say, Norway’s shippers are understandably suspicious about any deal that requires higher payments today in exchange for promises of less tax in the future:

The government said after the market closed on Sept. 7 it would seek 20 billion kroner ($3.5 billion) of payments in exchange for scrapping corporate tax on shipping companies. Shippers have been allowed to defer tax since 1996 provided they don’t use the money for dividends. … “The government is reneging on its previous agreement,” said Rikard Vabo, an analyst at Fearnley Fonds in Oslo who has a “sell” recommendation on BW Gas. “We will probably see shippers move abroad. It will also affect related companies, such as suppliers.” … The government wants to abolish corporate tax on shippers because lower rates outside Norway have encouraged companies to register new vessels in countries such as Liberia and Bermuda. … The Oslo-based Norwegian Shipowners’ Association will “consider everything” to reverse the tax ruling, spokeswoman Marit Ytreeide said by phone today.