On October 7, 2016 invitation to submit comments pursuant to Article 108(2) TFEU with respect to the European Commission’s investigation into Gibraltar’s corporate tax regime and ruling practice was published in the Official Journal of the European Union. More interesting is however that in this document also the letter of the European Commission of October 1, 2014 by which the Commission informed the United Kingdom regarding its decision to extend the European Commission’s in-depth investigation into Gibraltar’s corporate tax regime to include tax rulings practice was published.
In short the European Commission states the following regarding Gibraltar’s tax ruling practice in its letter from October 1, 2014.
The Commission has assessed 165 tax rulings (out of a total of 340 rulings) granted to different companies in 2011, 2012 and up to August 31, 2013. The outcome of the preliminary analysis of the Commission is the following:
(1) There does not seem to be any designated procedure for the request of information by the Gibraltar tax authorities
(2) The Gibraltar tax authorities do not conduct any substantive analysis or provide reasoning in the tax rulings
(3) Misapplication of the provisions of the ITA 2010 in the tax ruling practice
a. Intermediaries activities are systematically exempted from taxation in Gibraltar
b. Consultancy fees are systematically exempt from taxation in Gibraltar
c. The following category of rulings (passive income: interests and royalties) have been adopted on the bases of the ITA 2010 which exempts from taxation dividends, royalties and passive interest:
d. Profits derived from marketing activities are exempted from paying taxes in Gibraltar.
e. Procurement of petroleum products and logistic organization are exempted from taxation in Gibraltar without further assessment of the Gibraltar tax authorities.
f. Tax rulings serve as a means to prolong the existing benefits under the tax exemption regime without any scrutiny.
g. Other tax rulings cases (21 out of 165 tax rulings) are related to the following activities.
Subsequently the position of the United Kingdom is summarized.
In section “Assessment” a.o. the following subjects are being discussed:
· Existence of aid
o Material selectivity
o Scope of assessment
o Identification of the system of reference
o Existence of a derogation from the system of reference
o The absence of justification by the nature or the general scheme of the reference system
· State resources
· Advantage
· Effect on trade and competition
· Conclusion on the existence of aid
· Compatibility of aid
In the conclusion of its letter from October 1, 2014 the European Commission states the following:
“In the light of the foregoing considerations, the Commission’s preliminary view is that the 165 tax rulings listed in annex and the tax rulings practice of Gibraltar constitute State aid measures within the meaning of Article 107(1) TFEU and has doubts about their compatibility with the internal market. The Commission has therefore decided to extend the procedure laid down in Article 108(2) TFEU with respect to the measures in question.
The Commission wishes to remind the United Kingdom that Article 108(3) TFEU has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/1999, which provides that all unlawful aid may be recovered from the recipient.
The Commission invites the United Kingdom authorities to transmit immediately copy of the present decision to all companies requesting a tax ruling, or at least to proceed to inform them with appropriate means.
Furthermore, as the Commission has doubts whether the United Kingdom and the Gibraltar tax authorities ensure the existence of appropriate control and monitoring procedures in order to ensure a coherent application of the tax system, the Commission invites the United Kingdom and the Gibraltar tax authorities to provide it with evidences of such ex post control.
In addition, the Commission requests the United Kingdom to explain whether and on what grounds the scheme and/or any of the assessed 165 tax rulings (identified in annex), which it at this stage considers as constituting State aid, can be found compatible.
The Commission informs the United Kingdom that it will inform interested parties by publishing this letter and a meaningful summary of it in the Official Journal of the European Union. It will also inform interested parties in the EFTA countries which are signatories to the EEA Agreement, by publication of a notice in the EEA Supplement to the Official Journal of the European Union and will inform the EFTA Surveillance Authority by sending a copy of this letter. All such interested parties will be invited to submit their comments within one month of the date of such publication.”
Click here to be forwarded to “STATE AID — UNITED KINGDOM State aid SA.34914 (C/2013) — (ex 2013/NN) — Gibraltar Corporate Income Tax Regime Invitation to submit comments pursuant to Article 108(2) TFEU (Text with EEA relevance) (2016/C 369/04)” as published on October 7, 2016 in the Official Journal of the European Union.
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