European Commission launches a probe into Gibraltar’s corporate tax regime - La Treizième Étoile: A blog on EU politics
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European Commission launches a probe into Gibraltar’s corporate tax regime

Wednesday, 16 October 2013
The European Commission has today announced it is to launch an in-depth investigation into Gibraltar’s corporate tax regime following a complaint by Spain that it might selectively favour some businesses such as offshore companies.

The Commission said today that it will examine whether a corporate tax exemption for income stemming from royalties or interest payments introduced in 2010 constitutes a breach of EU state aid rules. It is legally obligated to act on receipt of such a complaint from any EU member state regarding state aid.

In its announcement, the Commission said: “In June 2012, the Commission received a complaint from Spain about the ITA 2010, claiming that it would continue to grant a selective advantage to offshore companies through the combined effect of the territorial system and the tax exemption for passive income. Following this complaint, the Commission carried out a preliminary investigation.

At this stage, the Commission considers that the tax exemption for passive interest and royalty income may involve state aid because it departs from the general corporation tax system. This could grant a special advantage to the particular group of companies that produce this type of income. Unlike for dividends – the exemption of which can be justified by the need to avoid double taxation - the Commission has, at this stage, found no valid justification for such an exemption,it continued.

Gibraltar has recently introduced an amendment which, as of 1 July 2013, repeals the exemption for inter-company loan interest, whether from Gibraltar or abroad. Despite this change, the Commission needs to examine whether the passive interest exemption was in breach of the state aid rules during the period when it was in force.

The state aid investigation comes four months after Europe’s finance ministers endorsed Gibraltar’s taxation framework. In June, the 28 Finance ministers from EU member states, in their regular meeting (also known in the jargon as ECOFIN) gave Gibraltar’s Income Tax Act full approval. That meant the Act was seen as fully compliant with that code and no longer regarded as harmful in any way.

According to the Gibraltar Chronicle, this was the first time that Gibraltar’s tax system has been fully endorsed by both the Code Group and ECOFIN. The approvals represented a major boost for Gibraltar’s reputation as a mainstream and fully-compliant tax jurisdiction.

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