Auditors,
who are individuals, are appointed by the
directors of a company, must be independent
of the company, and must be registered under
the Auditors Registration Ordinance.
The
European Commission announced in 2001 that
it would begin a review of Gibraltar's exempt
and qualifying company regimes, but after
Gibraltar sued the Commission to prevent
the review, the European Court of Justice
ruled in Gibraltar's favour in April 2002.
However,
in July, 2002, Gibraltar's
Chief Minister, Peter Caruana announced
the territory's new corporate taxation policy
(which was to have been applied from July
2003, but fell by the wayside), which included
the abolition of the
existing corporate forms which allowed zero
taxation, the Exempt and Qualifying companies.
In
March, 2003, the EU's Council of Finance
Ministers confirmed that the reforms did
not constitute harmful tax measures.
However,
in April, 2004, the Commission argued that
the new rules would give companies domiciled
in Gibraltar an unfair advantage over their
counterparts in the UK, under a principle
known as 'regional selectivity'. The Commission
also took issue with the fact that since
the taxes were to be based on payroll and
the occupation of business premises, offshore
companies registered in Gibraltar would
be unlikely to incur any tax liability.
The EC therefore rejected the reforms, effectively
suggesting that for taxation purposes, Gibraltar
should be considered part of the United
Kingdom.
Chief
Minister, Peter Caruana slammed the EC for
suggesting that the jurisdiction was fiscally
part of the United Kingdom, pointing to
its 1969 constitution, which gives the territory
fiscal autonomy.
Gibraltar
dissolved its qualifying companies tax regime
in January, 2005, as negotiations continued
in Brussels. In a move that cost the Gibraltar
government an estimated £1.5 million in
annual tax revenues, the remaining qualifying
companies, of which there were about 80,
switched to the ‘exempt’ companies regime.
“Each qualifying company has been dealt
with on an individual basis and alternative
arrangements made,” said the government.
Later
in the month, it was announced that Gibraltar
had been given until 2010 (2007 for new
companies) to phase out its exempt company
tax regime after the European Commission
ruled that the scheme violated EU state
aid rules.
The
government of Gibraltar welcomed the European
Commission's approval of the Exempt Company
Status Agreement as an acceptable compromise.
Then
in June 2007, further major changes to Gibraltar's
corporate tax regime were announced in Peter
Caruana's Budget speech.
Mr
Caruana explained that:
"The
Tax Exempt Company has been the backbone
of the development and growth of both our
finance centre and the online gambling industry,
and thus of a very significant part of our
economy. It continues to underpin thousands
of jobs in Gibraltar and large amounts of
Government revenue."
"In
order to comply with EU law we must phase
out the tax exempt company in 2010. However,
in order to sustain our successful economic
model we must retain a commitment to a very
competitive corporate tax model."
"Since
it is no longer legally acceptable to have
one tax model for ‘local’ companies
and a different one for ‘foreign’
companies it is necessary to have a low
tax system for all companies because without
a low tax system for overseas companies
they will leave, and our economy will suffer
hugely. Thousands of jobs would be lost,
as well as significant Government revenue.
I have therefore already said, and I reaffirm
now, that the Gibraltar Government is irrevocably
committed to the principle of ‘low
tax’ for our economic operators."
"By
mid-2010 the Government will have introduced
an across the board flat, low corporate
tax rate. This will most probably be set
at 10%, but in any event not higher than
12%. This will be similar to arrangements
that already exist in Ireland, Cyprus, Malta
and other EU Countries."
"In
the intervening period, the Government will
engage in an intensive, detailed and lengthy
process of consultation with the different
economic sectors."
"In
order to signal the Government’s seriousness
of purpose in this respect I am today taking
the first step in the process of reducing
corporate tax rates in Gibraltar, by 2%
for the year of assessment 07/08 from 35%
to 33%, and with effect from the year of
assessment 2008/09 by a further 3% from
33% to 30%."
"I
would also signal the intention of a further
reduction the year after that to 27%, in
anticipation of the introduction of the
flat low tax rate in 2010."
In
his budget in June 2008, Peter Caruana announced
his intention to bring forward a 3% cut
in corporate tax originally scheduled to
take place in 2009, meaning that the corporate
rate would drop by 6% that year.
"Last
year, and in order to signal the Government’s
seriousness of purpose in reducing corporate
tax rates, I reduced corporate tax rates
to 33%, and said that I would reduce it
further this year to 30%, with a signalled
reduction to 27% next year," Caruana
told Parliament in his budget speech.
"In
order to further signal the Government’s
commitment I am advancing that timetable
by one year, and therefore the corporate
tax rate is now reduced by 6% from 33% to
27% with effect from this year that is the
year of assessment 2008/09," he added.
Caruana
explained that he envisaged a further cut
in the rate next year, before moving to
the rate of between 10% and 12% from 2010,
adding that: "My strong preference
will favour the bottom end of that range."
In
December 2008, the European Court of First
Instance ruled in favour of Gibraltar, stating
that the European Commission was wrong to
argue that the tax reforms proposed in 2002/03
were in breach of state aid rules, and effectively
giving the jurisdiction licence to set its
own tax rules.
The
Court dismissed the EU Commission’s
case, and stated that although the UK is
representative of Gibraltar, Gibraltar does,
however, have fiscal autonomy from the UK,
and therefore can introduce its own individual
tax system (the aforementioned 10-12% corporation
tax).
In
a statement to the press at the time, Peter
Caruana, Gibraltar's Chief Minister, said
he was "overjoyed" by the outcome.
"The
Court has found in Gibraltar’s favour
and has accepted our arguments on each and
every issue, relating both to regional selectivity
and material selectivity, and has ordered
the commission to pay the Gibraltar government’s
legal costs.”
“This
needs to be clearly understood. Had Gibraltar
lost the Regional Selectivity case, we would
have had to adopt the UK’s company
tax system and company tax rates. That would
result in the bulk, if not all, of the finance
centre and gambling companies leaving Gibraltar.
That would have meant the loss of thousands
of jobs throughout our economy, and a very
large fall in government revenue. This in
turn would have rendered unsustainable our
current level of public services and public
sector employment.”
“This
is a huge and vital victory for Gibraltar.
A threat to our economic, social, and thus
political well-being, has, once again, been
successfully seen off. I believe that the
economy of Gibraltar now has the opportunity
to forge ahead to the next level of growth
and development, to fulfil its great potential
and thus to guarantee that we shall bequeath
economic and social prosperity and stability
to our children, grand children and future
generations. “
”Once
again, this small community has demonstrated
that, when right is on our side, and we
hold our nerve and we behave reasonably
and intelligently, we have the ability and
determination to defend our rights and interests
as a people, even when they are challenged
by more powerful entities and forces.”
”On
behalf of the people of Gibraltar, I wish
to thank all those companies in the financial
services and gambling sectors and other
sectors of the economy that have had the
faith and confidence in us to stay with
Gibraltar during these difficult and uncertain
times.”
“The
threat that Gibraltar has faced cannot be
understated, nor therefore, can the importance
of this victory to Gibraltar and its people
and our future.”
In
his 2009 budget speech, Caruana confirmed
that a 10% corporate tax would apply in
the jurisdiction from January 1, 2011, and
that the Exempt Company regime would be
rescinded by the end of 2010.
"It is essential for Gibraltar’s
socio-economic prosperity that our corporate
tax rate should be as competitive as is
compatible with government’s revenue
needs. Without this there would be large
scale loss of economic activity and job
losses,” he told the House.
“Existing
corporate taxpayers will be huge windfall
beneficiaries of the need to eliminate tax
exempt status, and its replacement with
a low rate for all companies. The new rate
will be 10%. Energy and utility providers
will pay a 10% surcharge and will thus suffer
a rate of 20%. These will include electricity,
fuel, telephone service and water providers,”
he explained.
Caruana
reassured that the government would allow
existing Exempt Status Companies to keep
their tax benefits until 'the last possible
minute': "Most Exempt Status companies
currently hold exemption certificates that
are valid, subject to repeal of the legislation,
for 25 years. The Government therefore feels
honour bound not to remove the tax benefit
provided by the exemption certificate until
the last possible moment. That will therefore
occur at midnight on December 31, 2010,
by means of a repeal of the Companies (Taxation
and Concessions) Act.”
The
remainder of this page deals with the corporate
regime prior to the aforementioned changes.
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