Court rejects Gibraltar tax code

European Court of Justice says proposed changes constitute unlawful state aid.

The European Court of Justice today (15 November) ruled that proposed changes to Gibraltar’s corporate tax code constitute unlawful state aid.

The ruling confirms a finding by the European Commission in 2004, two years after the British government first informed the Commission about the proposed changes.

Gibraltar and the UK appealed against the Commission’s finding. The Court of First Instance (now known as the EU’s General Court) ruled in their favour in 2004, prompting an appeal by the Commission and Spain, which claims Gibraltar as its territory.

The proposed changes cap tax liability at 15% of profits compared with 35% at present, and in effect exempt offshore companies without a physical presence in Gibraltar, because they tax business property occupation and payroll. Both of these elements were found by the Commission to violate the EU’s internal-market rules.

“A tax system designed in such a way that offshore companies avoid taxation constitutes a state-aid scheme that is incompatible with the internal market,” the Court wrote in a press release today.

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Giles Chichester, Ashley Fox and Julie Girling – three centre-right British MEPs – said: “We are dismayed that Gibraltarians’ growing prosperity will be undermined by this attack on their right to set tax levels as they please. It is deeply regrettable that the European Court of Justice has chosen not to back people’s freedoms.”