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Gibraltar Challenges EU Tax Ruling Scheme Findings

by Jason Gorringe, Lowtax.net, London
15 November, 2016

The Gibraltar Government has brought an action seeking the annulment of a decision taken by the European Commission on Gibraltar's tax ruling regime.

In its decision, the Commission raised doubts on the compatibility of Gibraltar's tax rulings with EU state aid rules. Although the decision does not contain any final finding, and merely opens a formal investigation, Gibraltar's Government is challenging the decision on procedural grounds.

The new Gibraltar Income Tax Act (ITA) 2010 introduced, among other changes, a tax rulings practice which allows companies to ask for advance confirmation of whether certain income, generated by companies incorporated in Gibraltar or that carried out an activity which generates income, are subject to taxation in Gibraltar.

In October 2014, in a publicly released statement, the Commission said it had assessed 165 tax rulings, and said based on the information submitted by the UK authorities, it appears that the Gibraltar tax authorities grant formal tax rulings without performing an adequate evaluation of whether the companies' income has been accrued in or derived from outside Gibraltar and therefore is exempted from taxation in Gibraltar. It said, even if the Gibraltar tax authorities are given considerable margin of manoeuvre under the ITA 2010, a misapplication of its provisions could not be excluded at that stage.

The Commission said in its October 2014 letter, which was recently released: "The Commission has concerns that potentially all assessed rulings may contain state aid, because none of them are based on sufficient information so as to ensure that the level of taxation of the activities concerned is in line with the tax paid by other companies, which generate income that is to be considered accrued in or derived from Gibraltar."

In launching its legal challenge, the Gibraltar Government said that the decision was adopted under the wrong procedure. It is arguing that it also lacks adequate reasoning and contains a number of serious errors of fact and of law. It said this supports the Government's belief that the decision was adopted unexpectedly and in haste, only several weeks before Commissioner Almunia stepped down as Commissioner responsible for state aid law.

Commenting on the court action, Gibraltar's Chief Minister said: "The Government will leave no stone unturned in its commitment to protect the financial services industry in Gibraltar. Although the decision does not contain any final finding, it was important that we challenge the considerable deficiencies that it contains. Furthermore, the Government remains convinced that the practice of tax rulings in Gibraltar does not constitute state aid."

He continued: "This case has a long history, spanning over the last two years. This has included correspondence between myself and the UK Government with the current Commissioner, Margrethe Vestager, who inherited this decision from the outgoing previous Spanish Commissioner. We have all sought to persuade the Commission to adopt a sensible approach, but to no avail. This is the reason why the court action has been brought. At the same time we continue to engage with the Commission in the administrative procedure in our commitment to deliver certainty to the industry as soon as possible on this matter."

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