European Commission extends probe into Gibraltar's corporate tax regime

Reuters News
Posted: Oct 01, 2014 10:40 AM

BRUSSELS (Reuters) - The European Commission has extended the scope of its investigation into whether Gibraltar's corporate tax regime favors certain companies, in breach of EU state aid rules.

The EU executive will examine a practice which allows companies to ask for advance confirmation of whether certain income is subject to tax in the British colony, it said on Wednesday.

Gibraltar is part of the EU through its ties to United Kingdom, although it is excluded from certain policy areas.

The move comes as the EU steps up its campaign against what some members consider to be unfair tax competition and the facilitation of corporate tax avoidance by some European countries.

On Tuesday, the EU accused Ireland of swerving international tax rules by letting Apple shelter profits worth tens of billions of dollars from revenue collectors in return for maintaining jobs.

Gibraltar, with a population of about 30,000, has a booming economy largely based on online gambling, insurance firms and tourism. It regularly clashes with Spain, which wants to reclaim Gibraltar three centuries after ceding it to Britain in a treaty.

The Commission said it had assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013, adding it had concerns that potentially all assessed rulings may contain state aid.

The Commission announced in October 2013 it had opened an in-depth investigation into another aspect of Gibraltar's corporate tax regime -- an exemption for passive income such as royalties and interest from corporate tax.

The decision to open that investigation came after Spain complained to the Commission in 2012 about Gibraltar's income tax act, alleging that it would grant a selective advantage to offshore companies.

A Gibraltar government spokesman said the latest decision by the outgoing EU Competition Commissioner, Joaquin Almunia, was wrong and was founded on basic errors of fact.

"Her Majesty's Government of Gibraltar will continue to cooperate with the Commission going forward in order to demonstrate that the Income Tax Act 2010 does not breach any EU state aid rules. We have full confidence in all aspects of the operation of the act," he said.

The EU launched a major push against beggar-thy-neighbour tax policies in the 1990s and countries such as France and Germany feel the development of new techniques for profit-shifting means the EU needs to revisit the problem again.

(Reporting by Adrian Croft; additional reporting by Tom Bergin in London; Editing by Mark Potter)