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Court Rules In Gibraltar's Favour In State Aid Case

by Robert Lee, Tax-News.com, London

23 December 2008


The European Court of First Instance has ruled in favour of Gibraltar in a crucial case which has determined the jurisdiction's fiscal autonomy from the UK, thus allowing it to implement key corporate tax reforms.

The Commission stated in 2003 that Gibraltar’s proposed tax scheme – a payroll tax, plus property tax, subject to a cap of 15% of profit – was in breach of the EU state aid rules. In a verdict published on Thursday however, the court ruled that the Commission’s declaration was unfounded and its decision has been overturned.

On Regional Selectivity, the Court dismissed the EU Commission’s case, and stated that although the UK is representative of Gibraltar, Gibraltar does, however, have fiscal autonomy from the UK, and therefore can introduce its own individual tax system (a 10-12% corporation tax).

In a statement to the press, Peter Caruana, Gibraltar's Chief Minister, said he was "overjoyed" by the outcome.

"The Court has found in Gibraltar’s favour and has accepted our arguments on each and every issue, relating both to regional selectivity and material selectivity, and has ordered the commission to pay the Gibraltar government’s legal costs.”

“This needs to be clearly understood. Had Gibraltar lost the Regional Selectivity case, we would have had to adopt the UK’s company tax system and company tax rates. That would result in the bulk, if not all, of the finance centre and gambling companies leaving Gibraltar. That would have meant the loss of thousands of jobs throughout our economy, and a very large fall in government revenue. This in turn would have rendered unsustainable our current level of public services and public sector employment.”

“This is a huge and vital victory for Gibraltar. A threat to our economic, social, and thus political well-being, has, once again, been successfully seen off. I believe that the economy of Gibraltar now has the opportunity to forge ahead to the next level of growth and development, to fulfil its great potential and thus to guarantee that we shall bequeath economic and social prosperity and stability to our children, grand children and future generations. “

”Once again, this small community has demonstrated that, when right is on our side, and we hold our nerve and we behave reasonably and intelligently, we have the ability and determination to defend our rights and interests as a people, even when they are challenged by more powerful entities and forces.”

”On behalf of the people of Gibraltar, I wish to thank all those companies in the financial services and gambling sectors and other sectors of the economy that have had the faith and confidence in us to stay with Gibraltar during these difficult and uncertain times.”

“The threat that Gibraltar has faced cannot be understated, nor therefore, can the importance of this victory to Gibraltar and its people and our future.”


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