EC Basque Tax Ruling Worries Gibraltar

by Ulrika Lomas, Tax-News.com, Brussels

30 August 2002

The European Commission's ruling on a special tax regime available in the Basque region of Spain has sent ripples of trepidation through Gibraltar, which is also awaiting an EC decision on its exempt company tax system.

The EC declared this week that the alternative method used to calculate income tax payable by 'coordination centres' (which provide banking, marketing, insurance, logistics and other services to the international group to which they belong) located in the Spanish province of Biscaye, is illegal under EU state aid rules.

The Spanish government abolished the special tax regime earlier this year, meaning that the ruling will have little practical effect for businesses located in the Basque region. However, under EU rules, the Commission must reach a decision once formal proceedings have been launched.

Commenting this week, EU Competition Commissioner, Mario Monti announced that: 'This successful outcome marks another progress towards abolishing disguised state aid to businesses through special tax arrangements. I am happy that the Spanish authorities have already abolished the scheme.'

Although Monday's ruling on the Basque-area coordination centres does not bear much relation to the situation in Gibraltar, it has made some sectors of the Rock's media nervous, and is regarded as having set something of a precedent. Reporting on Thursday, the Iberia News service observed that:

'The parallels with Gibraltar over this issue are similar, with the tax laws in Gibraltar having been approved initially by the EU prior to their introduction and only later questioned once rules on state aid were introduced and EU directives in taxation have changed to harmonise the system.'

The European Commission has not yet ruled on Gibraltar's case. However, the Rock's government announced earlier this year that it intends to introduce new legislation removing exempt company status, and introducing an 8% tax on profits for financial service providers and utility companies.

Recommended