Gibraltar
was the first European financial centre to
introduce the exempt company (although this
is now being phased out as a corporate vehicle,
and will have been removed completely by 2010)
as an offshore holding vehicle, and its unique
status among IOFCs in relation to the EU makes
it the jurisdiction of choice for certain
types of investor or trader. However, the
Rock's company formation regime remained,
until December 2008, somewhat up in the air
as a result of its dispute with the European
Commission.
Gibraltar
sued the EC and won (in May 2002) after it
attacked on Gibraltar's 'exempt' and 'qualifying'
company forms. However, the government introduced
a new regime as from July, 2003, including
uniform rates of tax capped at 15% for companies,
and abolition of the existing '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 are 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 is fiscally
part of the United Kingdom, pointing to its
1969 constitution, which gives the territory
fiscal autonomy. The United Kingdom government
was said to be “100% on-side” regarding the
‘regional selectivity’ debate, and Gibraltar
is challenging the EC's view at the European
Court of Justice. In the meantime, the Brussels
officials have agreed that the existing situation
(confusing as it is) may be allowed to continue
- at least as regards Exempt companies - until
2010 (2007 for new companies).
Gibraltar
dissolved its qualifying companies tax regime
in January, 2005. In a move estimated to have
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.
In
March 2007, Gibraltar's Chief Minister Peter
Caruana travelled to Luxembourg to give oral
evidence at the court hearing of Gibraltar’s
tax case against the European Commission in
the European Courts.
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.
As
a multi-purpose financial centre Gibraltar
is not perhaps as well-developed as some of
its rivals, but it has well-regulated banking,
investment management, insurance and shipping
sectors. As with holding companies, Gibraltar's
position vis-a-vis the EU is an advantage
for some financial operators or their customers,
especially now that the diplomatic hurdles
to the 'passporting' of Gibraltar financial
institutions throughout the EU have been removed.
On the other hand there is always the fear
that Gibraltar is vulnerable to pressure from
the EU and especially from Spain.
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