Gibraltar Welcomes ECJ Ruling In Azores Tax Case

by Jason Gorringe, Tax-News.com, London

11 September 2006

The government of Gibraltar has welcomed a judgment by the European Court of Justice which backed the European Commission's decision against tax cuts in the Azores, a Portuguese dependency.

In the Azores case the Court had to determine the principles that apply in deciding whether a tax regime is in breach of state aid rules on grounds of Regional Selectivity.

According to Gibraltar, the ECJ's decision "fully vindicates" its own arguments before the Court as to why it is entitled to have a separate and different tax regime to that of the UK.

"The judgment confirms that the principles to be applied in deciding this issue, are the very principles upon which the Gibraltar Government’s case is based and pleaded," a government statement argued.

"The Government is encouraged, in particular, by the fact that at para.68 of the judgment, the Court sets out the principles to be applied by upholding the UK Government’s arguments. Those arguments are the same ones as both the Gibraltar and UK Governments are making in the Gibraltar case. This judgment is therefore extremely helpful to our case," the statement added.

Gibraltar has been attempting to overhaul its company taxation system by introducing a new regime which will replace the mainstream 35% corporate tax and tax-exempt company forms with a payroll tax and a business property occupation tax, both of which will be capped at 15% of profit.

However, this plan has been blocked by the EU’s decision that the jurisdiction effectively constitutes part of the UK, and therefore such a tax regime would breach EU state aid rules.

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