Gibraltar's Tax Regime Backed By EU Court Advisor

by Jason Gorringe, Tax-News.com, London

14 April 2011

Chief Minister Peter Caruana has expressed satisfaction at the Advocate General’s Opinion in the European Union tax case which he said is 'entirely favourable' to Gibraltar’s position both on the issues of regional selectivity and material selectivity.

The case brought by the European Commission centres around Gibraltar’s old tax regime and its transition to a new 10% tax regime, introduced to compensate for the phasing out of the exempt company form, and to ensure equitable taxation for resident companies and non-resident companies. The Commission has brought the appeal to ensure that Gibraltar’s new regime is compatible with European Union law on the grounds of ‘material selectivity’, a principle that ensures that the territory’s regime does not disproportionately benefit non-resident companies over their resident counterparts and vice versa.

In a statement responding to the publication of the opinion of the Advocate General, Caruana said that: “The government has throughout asserted its confidence in the legality under EU law of everything that it has proposed and done, and this has previously been confirmed by the lower court and now by the Advocate General in the higher appeal court. The government thus remains confident, of the final outcome of the appeal in Gibraltar’s favour.”

Spain has not only joined the European Commission in its appeal on the grounds of material selectivity, but is also appealing the ruling on regional selectivity, a challenge to Gibraltar’s fiscal autonomy, i.e. its right to have a tax system different from that of the UK’s. The Gibraltar government is also highly confident that the territory will be recognized as having autonomy from the UK, and the UK has consistently said it is 100% on-side in this respect. Caruana slammed Spain's claims prior to the ruling in favour of Gibraltar on this matter in the Court of First Instance, pointing to the territory’s 1969 constitution.

In the first, crucial ruling by the Court of First Instance, on regional selectivity, the Court dismissed the case brought by the Commission and Spain, and stated that although the UK represents Gibraltar, Gibraltar does have fiscal autonomy from the UK – a decision that acknowledged the territory could have a tax regime separate from that of the United Kingdom’s. This gave Gibraltar the green light to overhaul its tax regime on January 1, 2011, to one with a headline corporate tax rate of 10%, on both resident and non-resident companies, and a 20% tax rate on utility companies, replacing the regime previously in place which was said to not conform with EU standards.

Opinions by Advocates General are not binding on the full Court of Justice, but judges tend to follow them in the majority of cases.

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