EU Court:Gibraltar Co Tax Regime Isn't Illegal State Aid

Gibraltar's tax regime must be considered as Gibraltar's only and not as a part of the U.K.'s, the Court of First Instance said.

The court ruling means Gibraltar won't have to match U.K. tax rates and it won't lose the fiscal independence that is key to its ability to attract businesses seeking favorable tax treatment within a sovereign British territory.

Gibraltar has become the registered home of many insurers and gambling operators. Spain has closely watched this case, even intervening in the hearing, out of concern for its special tax regimes in certain regions of the country.

The commission investigated the Gibraltar tax reforms after the U.K. notified it in 2002 of Gibraltar's plans. Gibraltar is seen as part of the U.K. for the purposes of E.U. membership.

The reform aimed to abolish the 35% corporate tax rate and replace it with payroll tax and a business property occupation tax - both capped at 15% of profit. This, the commission said in a 2004 statement, meant "offshore companies with no physical presence in Gibraltar won't incur any tax liability at all."

The commission found the tax reform violated E.U. state aid rules as it resulted in a lower corporate tax rate (15%) for Gibraltar companies than for U.K. companies and favored certain sectors over others.

DJG/dok