INTERNATIONAL TAX PLAZA - State aid: European Commission extends in-depth investigation into Gibraltar corporate tax regime to include tax rulings practice

(October 1, 2014)

On October 1, 2014 the European Commission issued a press release in which it announces that it has extended the scope of its ongoing in-depth investigation into Gibraltar corporate tax regime to include tax rulings practice.

The European Commission states that the new Gibraltar income tax act (ITA 2010) introduced a.o. a tax rulings practice which allows companies to ask for advance confirmation of whether certain income, generated by companies incorporated in Gibraltar or that carried out an activity which generates income, are subject to taxation in Gibraltar.

The European Commission states that it has assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013.

According to the European Commission, 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.

In the press release the European Commission states that it has concerns that potentially all assessed rulings may contain state aid, because in the view of the European Commission none of them are based on sufficient information so as to ensure that the level of taxation of the activities concerned is in line with the tax paid by other companies, which generate income that is to be considered accrued in or derived from Gibraltar.

The European Commission therefore has doubts as regards the compatibility with EU state aid rules of the way in which Gibraltar tax authorities have applied the ITA 2010 using tax rulings. Therefore the European Commission has extended its ongoing in-depth investigation with regard to the ITA 2010 to also cover the tax rulings practice.

For further information click here to be forwarded to the press release as published on the website of the European Commission, which will open in a new window.