Commission Proposes Reform of Gibraltar Tax Regime

,3 Brussels, 27 November 2002 &RPPLVVLRQSURSRVHVUHIRUPRI*LEUDOWDUWD[UHJLPH 7KH &RPPLVVLRQ KDV WRGD\ DGRSWHG D UHFRPPHQGDWLRQ WR WKH 8QLWHG .LQJGRP IRU WKH DEROLWLRQ RU UHIRUP RI WKH ([HPSW &RPSDQ\ UHJLPH LQ *LEUDOWDU8QGHUWKHUHJLPHDQ([HPSW&RPSDQ\SD\VQRLQFRPHWD[RQLWV SURILWV,QVWHDGLWLVVXEMHFWWRDORZIL[HGDQQXDOWD[7KH&RPPLVVLRQKDV GHFLGHG WKDW WKLV WD[ H[HPSWLRQ FRQVWLWXWHV 6WDWH DLG IDYRXULQJ ([HPSW &RPSDQLHV DQG VKRXOG WKHUHIRUH EH SKDVHG RXW E\ WKH HQG RI DW WKH ODWHVW 7KH([HPSW&RPSDQ\5HJLPH A company registered with the Gibraltar authorities as an Exempt Company is subject to a fixed annual tax of between £225 and £300 (around ¼¼ ,W LV exempt from any further taxation in Gibraltar. An Exempt Company is a financial services company domiciled in Gibraltar that may not conduct any trade or business within Gibraltar. No Gibraltarian or Gibraltar resident may have a beneficial interest in the shares of an Exempt Company. The Exempt Companies scheme can be classified as State aid as it fulfils the four relevant criteria for State aid: The exemption from tax grants Exempt Companies an advantage compared with other companies subject to the general company taxation regime in Gibraltar, under which the standard rate of tax on profits is 35%. This advantage is selective, is financed from State resources and is liable to distort competition. The regime satisfies none of the criteria set out in Articles 87(2) and 87(3) of the EC Treaty under which State aid may be approved. 7KH&RPPLVVLRQ¶VSURSRVDO In its proposal of appropriate measures to the United Kingdom, the Commission has recommended that the United Kingdom close the Exempt Company regime to new entrants and definitively abolish the tax exemption by the end of 2005 at the latest. The United Kingdom should also make a public statement on the steps it will take to repeal or reform the regime by the end of January 2003. Under the State aid rules, measures which were in place before the Member State concerned acceded to the European Union are treated as existing aid. Article 88(1) of the EC Treaty requires the Commission, in co-operation with the Member States, to keep existing aid schemes under constant review. If it is found that a scheme is not or is no longer compatible with the Treaty rules on State aids, the Commission must propose appropriate measures to the Member State concerned in order to abolish the scheme or bring it into conformity with the State aid rules. If the Member State accepts the proposal, it is legally bound to implement the appropriate measures. If it refuses, the Commission may open the formal investigation procedure provided for in Article 88(2) of the EC Treaty. %DFNJURXQG The Commission originally launched an inquiry into the Exempt Company regime on 11 July 2001 (see IP/01/982). However, following a legal challenge by the Government of Gibraltar, the Court of First Instance annulled, on 30 April 2002, the decision to open the formal investigation procedure. The Court ruled that in attacking the whole of the Exempt Company regime as illegal aid rather than treating the original 1967 legislation as existing aid, the Commission had breached the rules on State aid procedure. The Exempt Company regime forms part of the Gibraltar offshore sector together with the Qualifying Company regime. Qualifying Companies are subject to an ongoing investigation also launched on 11 July 2001. Separately, the Commission is investigating Gibraltar’s planned reform of its company taxation system (see IP/02/1484) 2.

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