Gibraltar EU tax probe
Questions raised as to whether the territory has breached state aid rules by favouring offshore companies, the European Commission is investigating. In parallel, it is also including Gibraltar in a recently launched informal probe that is examining whether Did Ireland, Luxembourg, the Netherlands and Gibraltar agree special tax deals with multinationals?
Also undermining the international crackdown on avoidance, Brussels has also ruled that the recently introduced tax break in Britain for patent income amounts to harmful tax competition, showing even more growing tension over policies.
Coming under fire from Germany are the UK “patent box” as its companies moved to take advantage of Britain’s cut-price tax rate for income earned from patents.
The challenge facing the UK has been mounted under the “code of conduct for business taxation” which was launched in 1997 to curb harmful tax competition between member states. This challenge would require agreement between the other member states before it was obliged to change its system.
In a statement, the Treasury said: “The government is confident that the UK’s Patent Box regime does not breach the EU Code of Conduct Group’s criteria; it is more tightly defined and imposes tougher eligibility criteria than other similar measures in operation that have previously been considered by the Code Group, for example those in France, Spain, Belgium and the Netherlands.”
The investigation into Gibraltar’s regime will look at whether tax exemptions for royalties and interest breach state aid rules. It will be undertaken by the Competition directorate, which has the power to demand that companies pay back any tax relief that was illegally granted.
The investigation, which follows a complaint last year from Spain about 2010 revisions to the Gibraltar code, is the third investigation into potential breaches of the state aid rules by Gibraltar since 2001.
In July, Gibraltar repealed the exemption for inter-company loan interest but the commission said it needed to examine whether there was a breach of the state aid rules during the period when it was in force.
The Gibraltar government said it was confident it could take swift legislative action to address the issues raised. It described the Commission’s rejection of Spain’s broader complaints about its regime as “very positive”.
In a statement, the Foreign Office said: “We are aware that the commission has opened this investigation. Tax matters are a constitutional responsibility of the Government of Gibraltar. We are in contact with the Government of Gibraltar about the investigation and will co-ordinate with them on a response to the commission.”