Gibraltar tax arrangements breached EU law, Commission finds

Gibraltar tax arrangements
© iStock/MarkGillow

The European Commission has found Gibraltar tax arrangements for large corporations to be in breach of EU state aid laws.

The Commission first opened an investigation into Gibraltar tax arrangements, particularly its corporate tax exemptions and uneven royalty income scheme, in October 2013. In 2014 the investigation widened to include 165 tax rulings granted in Gibraltar between 2011 and 2013: the Commission was concerned that, as it could not be proved that the companies involved were taxed at the same rate as other businesses in Gibraltar.

Under EU laws governing state aid, Member States cannot grant preferential tax rates to selected companies, as to do so would be a distortion of commercial competition. The ruling yesterday by the Commission found that Gibraltar tax arrangements and royalty regimes between 2011 and 2013 had provided “selective tax benefits” in breach of these laws.

Margrethe Vestager, Commissioner in charge of competition policy, said: “Our investigation has found that Gibraltar tax arrangements accorded unfair and selective tax benefits to several multinational companies, through a corporate tax exemption scheme and through five tax rulings. This preferential tax treatment is illegal under EU State aid rules and Gibraltar must now recover the unpaid taxes. At the same time, I very much welcome the significant actions taken by Gibraltar to remove the illegal tax exemptions, streamline its tax ruling practice, and reinforce its transfer pricing rules – this should help ensure that these issues remain in the past.”

Gibraltar has taken measures to bring its tax laws in line with EU regulations since 2013, abolishing the illegal tax exemptions found by the investigation in 2013 and 2014. The Commission has ruled that unpaid taxes must now be reclaimed from businesses which benefited from preferential treatment in Gibraltar tax arrangements between 2011 and 2013; and estimates the total unpaid tax for the period which must now be repaid to be around €100 million.

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