The European Commission on October 1 announced that it has opened an investigation into whether Gibraltar’s tax authorities selectively favor companies in private tax rulings thereby violating EU state aid rules.
The Commission said it has has assessed 165 tax rulings granted by Gibraltar tax authorities in 2011, 2012, and 2013 and is concerned that all may contain state aid. Gibraltar’s tax rulings practice is set forth in the income tax act (ITA 2010).
“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. Even if the Gibraltar tax authorities are given considerable margin of manoeuvre under the ITA 2010, a misapplication of its provisions cannot be excluded at this stage,” the Commission said.
The Commission said none of the 165 rulings appear to be based on sufficient information to ensure that the level of taxation called for in the rulings is in line with tax paid by other companies.
The action extends the scope of an investigation, opened in Oct. 2013, into Gibraltar’s corporate tax regime. The Commission has been analyzing provisions which exempt passive income, such as royalties and interest, from corporate tax to determine if they selectively favor certain categories of companies, in breach of EU state aid rules.
Gibraltar response
The Chief Minister and Minister for Finance, Fabian Picardo vigorously contested the charges. “We have full confidence in the rulings of the income tax office and the diligence of the professionals that make it up,” he said.
Picardo claimed that outgoing EU Competition Commissioner Joaquín Almunia was biased against Gibralter because of his Spanish nationality.
“We. . . have very little confidence in the work of EU institutions where Spanish nationals can influence the outcome of matters affecting Gibraltar as there appears to be a clear correlation between negative decisions affecting Gibraltar and the presence of such nationals in decision making positions,” he said.
Picardo said that Gibralter will nonetheless cooperate with Almunia’s successor. He said he was “fully confident” that Gibraltar will prevail “once a fair and unbiased analysis of the issues is made by impartial decision-makers.”
The Gibraltar decision follows recent decisions taken by the EU Competition directorate to conduct state aid investigations into private tax rulings issued in the Netherlands, Luxembourg, and Ireland.
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