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Tax system in Gibraltar for offshore companies contrary to EU-law

Navigating Spanish taxes with confidence

The EU Court declares that the tax system of Gibraltar for offshore companies is contrary to EU law


In a ruling dated 15.11.2011 (matters C-106/09 P and C-107/09 P) the EU Court has declared that the new tax system for companies which the Government of Gibraltar wished to implement in that country in 2002 was actually hidden state aid and therefore contrary to EU law.

Let us remember that 1996 saw the approval of the so-called Monti Report whereby the then Commissioner Mario Monti, in charge of the Commission’s tax matters, reported the tax competition and race to the bottom among states which was taking place amid a context of economic crisis and public budget adjustments due to the preparation of the states for the future Monetary Union (Euro).

At the end of 1997, the member states approved a Code of Conduct in regard to corporate taxation establishing that the states shall review the tax advantages offered to their companies in order to prevent competition issues between the companies in different states. The Primarolo Report was published shortly thereafter, which included a list of tax advantages offered by European states to their companies. These credits were not offered to all companies in the country, but only to a selected few, in order to attract investments from neighbouring countries. Via the legal route of prohibition of hidden public aid, these special tax systems were therefore gradually banished from the EU.

The ECJ declared that the new taxation regulations had been designed so that, in practice, companies with no relation with the territory of Gibraltar (offshore) did not pay any taxes whatsoever, as the tax base was not the company profit but whether it had personnel or offices in Gibraltar. This led to an unfavourable discrimination against certain types of companies (those that had no personnel or premises) and this could not be allowed in a context of elimination of special tax systems.

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