European Court Throws Out Commission's Ruling On Gibraltar

by Ulrika Lomas, Tax-News.com, Brussels

01 May 2002

The European Court of Justice yesterday ruled in favour of Gibraltar in its appeal against the European Commission over tax exemptions and annulled the Commission's claim that 'exempt' and 'designer' companies amounted to unfair state aids.

In its judgment the European court of justice said one of the EC's complaints was inadmissible on technical grounds while the other was unfounded.

The ruling means Gibraltar will continue to be able to use exempt companies, which have a 25-year tax exemption, and will continue to be able to offer companies their choice of tax rate between zero and 35%, allowing them to escape anti-avoidance corporation tax legislation in their home states.

Ths was the first occasion on which the Court of First Instance had used its 'expedited procedure' on a state aid case. The proceedings lasted only eight months.

In an announcement, the Court said:

'On 11 July 2001, the European Commission decided to initiate investigation procedures in respect of eleven company taxation schemes in eight Member States. The Commission considers that those tax provisions may constitute State aid and has doubts as to their compatibility with the EC Treaty. Gibraltar is among the territories concerned by those procedures.

' Then, by applications lodged on 20 August and 7 September 2001, the Government of Gibraltar sought annulment of the two decisions of 11 July 2001 whereby the Commission had initiated the formal State aid investigation procedure laid down in the EC Treaty in respect of the Gibraltar legislation on two specific categories of company, namely “exempt” companies (T-195/01) and “qualifying” companies (T-207/01), which benefit from tax exemptions under the applicable national law.

' On 12 November 2001, the Court of First Instance, upon application by the Commission and with the applicant's consent, decided to adjudicate under an expedited procedure, which has been available pursuant to its Rules of Procedure since February 2001. This marks the first occasion on which the Court of First Instance has made use of that new procedure in an economic case.

' The Commission had emphasised that the expedited procedure would allow it quickly to specify the procedure to be followed in all the State aid cases mentioned above. The repercussions on the general practice adopted by the Commission in State aid procedures would be significant.

' In the context of the expedited procedure, the Court of First Instance was able to hold the public hearing on 5 March 2002, ie four months after application for that particular procedure was made. The judgment of 30 April 2002 has thus closed a judicial procedure relating to State aid which lasted only eight months, whereas the average duration of a case before the Court of First Instance in 2001 was 19½ months.

' The Court of First Instance annulled the decision relating to “exempt” companies, on the ground that the Commission had committed an error in classifying the legislation in issue as a new aid scheme, while the action in respect of “qualified” companies was dismissed as unfounded.'

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