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The European Commission has launched an investigation into Gibraltar's new corporate tax regime to see whether it breaks European Union state aid rules by favoring certain businesses, particularly "offshore" companies, ie those not having an establishment in Gibraltar itself.
The investigation will focus on a corporate tax exemption for passive income such as royalties and interest. Details of the ongoing investigation will be posted on the Commission's State Aid Register under case number SA.34914.
The British overseas territory introduced the new tax regime in 2010. It taxes all income deriving from or accrued in Gibraltar but grants an exemption for passive income regardless of where the source of the income is located.
The Commission's investigation comes in response to a complaint from Spain in June 2012, claiming that Gibraltar's tax regime gives an advantage to "offshore" companies.
Gibraltar amended its laws on July 01, 2013 to repeal the exemption for inter-company loan interest exceeding GBP100,000 per annum received from Gibraltar or abroad. Nonetheless, the Commission will investigate whether the exemption broke state aid rules when it was in force.
There is a long history of European Commission involvement in Gibraltar's tax system, in which Gibraltar was obliged to make substantial reforms, but succeeded in fighting off one major challenge in a case at the European Court of Justice.
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