By Doug Connolly, MNE Tax
The European Commission reported on March 19 that it is referring the UK to the Court of Justice of the European Union for failing to comply with the Commission’s decision requiring it to recover €100 million of illegal state aid in Gibraltar.
The European Commission had declared a Gibraltar corporate tax exemption for passive interest and royalties to be a violation of EU state aid law in a decision dated December 19, 2018. To remove the perceived competitive distortion, the EU state aid rules generally require states to recover the amounts provided in violation of those rules.
Under standard procedures, Gibraltar and UK authorities would generally be given four months (until April 23, 2019) to recover the illegal state aid. Now more than two years since the decision, only part of the unlawful state aid has been recovered.
Although the UK has since withdrawn from the EU, the Commission states that the withdrawal agreement entitles it to bring the UK to the CJEU for decisions adopted before the end of the transition period (December 31, 2020).
Appeals of the Commission’s 2018 decision are pending, but they do not suspend the obligation to recover the illegal aid under EU law. The Commission believes that while the aid remains unrecovered, the beneficiaries continue to benefit from an illegal competitive advantage.
Doug Connolly
Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.
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