UK Loses In European Court Over Gibraltar’s Exclusion From VAT Directive

by Jason Gorringe, Tax-News.com, Brussels

26 July 2005

The United Kingdom has failed to fulfil its community obligations by excluding Gibraltar from the directive on mutual assistance in the fields of VAT and excise duties, the European court of justice has concluded.

"The Act of Accession of the United Kingdom provides that Community acts on the harmonisation of legislation of Member States concerning turnover taxes are not to apply to Gibraltar," the ECJ observed in a statement.

The court added that:

"It also excludes the territory of Gibraltar from the Community customs territory. On that basis, the United Kingdom took the view that the provisions of the directive on VAT and excise duties do not apply to that territory. The Commission is of the opinion, however, that Gibraltar cannot fall outside those provisions and brought an action before the Court of Justice of the European Communities.

"The Court finds that the relevant exception to the application of Community law in the territory of the European Community must be given an interpretation which limits its scope to that which is strictly necessary to safeguard Gibraltar’s interests.

"Provisions which merely require cooperation between the Member States, leaving each of them to use their own methods of enquiry and communication of information, are not ‘acts on the harmonisation of legislation of Member States concerning turnover taxes’. The amended directive refers to the limits to exchange of information arising from the laws or administrative practices of the Member State concerned and does not go beyond that cooperation.

"The exclusion of Gibraltar from the Community customs territory does not mean that Gibraltar falls outside the requirement of mutual assistance by the competent authorities of the Member States in that field. The fact that the Gibraltar authorities are subject to that requirement has no bearing on any non-application to that territory of provisions requiring harmonisation of those duties as such.

"Accordingly, the Court has held that, by failing to implement that directive in the territory of Gibraltar in the fields of VAT and excise duties, the United Kingdom has failed to fulfil its obligations under the EC Treaty."

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