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Cross-Border Tax Continues To Dominate Headlines

Kitty Miv, Editor
25 October, 2021

It's been an action-packed few weeks in terms of international tax, and it doesn't look like that will be changing any time soon.

Not to be outdone, following the release of the Pandora Papers, and the OECD international tax reform agreement, the EU announced that it had dropped its state aid case against Gibraltar.

In December 2018, the Commission declared a number of tax exemptions in Gibraltar unlawful and incompatible with state aid rules. The decision concerned Gibraltar's corporate tax exemption regime for passive interest and royalties applicable between January 1, 2011, and June 30, 2013, and between January 1, 2011, and December 31, 2013, respectively. It also covered five tax rulings granted between 2011 and 2013.

According to the Commission, the exemption regime gave an unfair advantage to some multinational companies. Gibraltar repealed the contentious tax exemptions in 2013 and 2014 but the UK and Gibraltar authorities were required to recover the aid, worth about EUR100m.

In a statement welcoming the EC's decision, the Gibraltar Government said: "The Government is delighted to note that the European Commission has today announced that it has decided to repeal its decision to open infraction proceedings against the UK Government for the failure by the Gibraltar Government to recover illegal aid granted under the Income Tax Act 2010 to two multinational companies."

It continued: "The Gibraltar Government had already recovered the aid from all the companies concerned by the decision except two companies. However, by July 14, 2021, the Income Tax Office completed the recovery from those two outstanding companies. This has led the European Commission to today's announcement to repeal its decision to refer the United Kingdom to the Court."

The OECD tax reform announcement was still in the news, meanwhile, as it emerged that the Organisation plans to review the pillar one tax measures with a view to expanding their scope within seven years.

Pillar one of the OECD's two-pillar international tax reform plan will create new rules that will give market jurisdictions taxing rights over a percentage of the income of highly profitable multinational companies. The measure, developed in response to the digitalization of the economy, is aimed at ensuring that market economies receive revenues even where large digital firms lack a physical presence.

Under the current iteration of the plan, it will affect multinational enterprises with global sales above EUR20bn and profitability above 10 percent. While the rules for the calculation of the amount to be reallocated ("Amount A") are complex, the basic idea is that an amount of profit above this 10 percent threshold will be reallocated to market jurisdictions.

And there was comment on the broader reforms from various national and international groups, including the African Tax Administration Forum, which deemed the planned changes to be something of a mixed bag for African states. In a statement, ATAF welcomed various elements of the international tax reform proposals released by the OECD that favor African states. However, it argued that the plan does not go far enough to stem base erosion and profit shifting (BEPS) out of Africa.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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