UK and International Tax news
EC Concludes Gibraltar Gave Illegal Tax Advantages To Multinational Companies
Thursday 27th December 2018
Following an investigation launched in 2013, the European Commission has concluded that Gibraltar’s corporate tax regime for interest and royalties, as well as five tax rulings, are illegal under EU State aid rules.
In October 2013, the EC opened an in-depth investigation into Gibraltar’s corporate tax regime, to verify whether the corporate tax exemption regime applied between 2011 and 2013 for interest (mainly arising from intra-group loans) and royalty income selectively favoured certain categories of companies, in breach of EU State aid rules.
In October 2014, the EC extended its State aid investigation to also cover Gibraltar’s tax rulings practice, with a particular focus on 165 tax rulings granted between 2011 and 2013. The EC had concerns that these tax rulings involved State aid because they were not based on sufficient information to ensure that the companies concerned by the rulings were taxed on equal terms with other companies generating or deriving income from Gibraltar.
EU State aid rules prevent Member States from giving unfair tax benefits only to selected companies. Member States cannot treat certain companies better than others. This distorts competition and is illegal under EU State aid rules.
The EC has found that both Gibraltar’s corporate tax exemption regime for interest and royalties from 2011 to 2013, as well as five individual tax rulings, provide such selective tax benefits and are illegal under EU State aid rules.
EU State aid rules require that incompatible State aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.
Gibraltar must now recover unpaid taxes from:
- the companies that benefitted from Gibraltar’s corporate tax exemption regime for interest and royalties between 2011 and 2013. The individual companies that have benefitted from the exemption regime and the precise amounts of tax to be recovered from each company must now be determined by the Gibraltar tax authorities, on the basis of the methodology established in the EC decision.
- the companies that benefitted from the illegal tax treatment under the five tax rulings are: Ash (Gibraltar) One Ltd, Ash (Gibraltar) Two Ltd, Heidrick & Struggles (Gibraltar) Holdings Ltd, Heidrick & Struggles (Gibraltar) Ltd, and MJN Holdings (Gibraltar) Ltd. These companies must also start to pay taxes on their profits in Gibraltar like any other company. The recovery amounts will depend on the fiscal situation of each beneficiary and must now be determined by the Gibraltar tax authorities, on the basis of the methodology established in the Commission decision.
The EC estimates that the total unpaid tax amounts to around €100 million in total.
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