| In July 2002 Gibraltar's Chief
Minister, Peter Caruana announced a new corporate
taxation policy setting a zero rate of corporation
tax for all companies but introducing new taxes
on company personnel and property occupation which
will be capped at 15% of profits. The existing
corporate forms which allowed zero taxation, the
Exempt and Qualifying companies, would be abolished.
Debate between the Gibraltar government and
the European Commission took place over several
years (finally seeming to reach a resolution in
December 2008 -- see below for more details),
but in the meantime, the Brussels officials agreed
that the existing situation (confusing as it was)
should be allowed to continue - at least as regards
Exempt companies - until 2010 (2007 for new companies).
Gibraltar dissolved its qualifying companies
tax regime in January, 2005. In a move estimated
to have cost the Gibraltar government an estimated
GIP1.5 million in annual tax revenues, the remaining
qualifying companies, of which there were about
80, switched to the ‘exempt’ companies regime.
In March 2007, Gibraltar's Chief Minister Peter
Caruana travelled to Luxembourg to give oral evidence
at the court hearing of Gibraltar’s tax
case against the European Commission in the European
Courts.
The Gibraltar Government and the UK Government
were challenging the EU Commission decision which
stated that under EU law Gibraltar is not entitled
to have a tax regime different to the UK’s.
“This oral hearing is very much the final
stage of this litigation," Caruana commented.
"Under the EU court system the exchange
of written arguments is the main part of the procedure.
The oral hearing is quite brief. It’s a
different system to ours. During the written argument
stages Gibraltar has formulated and submitted
an impressive array of arguments, all of which
are supported by the recent landmark ruling by
the European Court of Justice in the Azores case.
We are thus confident in the merits of our case,"
he explained.
In the Azores case the ECJ had to determine
the principles that apply in deciding whether
a tax regime is in breach of state aid rules on
grounds of Regional Selectivity. Portugal had
permitted the legislative assembly of the Azores
to cut rates of income tax by as much as 30% in
1999 in recognition of the unique structural difficulties
of its economy. However, under European Union
state aid rules, member states are only permitted
to grant special tax regimes to certain regions
or industries if they are proportionate and in
keeping with the current tax system in place in
that country, in the interests of maintaining
a level tax playing field.
Major changes to Gibraltar's corporate tax regime
were announced in Peter Caruana's June 2007 Budget
speech.
Mr Caruana explained that:
"The Tax Exempt Company has been the backbone
of the development and growth of both our finance
centre and the online gambling industry, and thus
of a very significant part of our economy. It
continues to underpin thousands of jobs in Gibraltar
and large amounts of Government revenue."
"In order to comply with EU law we must
phase out the tax exempt company in 2010. However,
in order to sustain our successful economic model
we must retain a commitment to a very competitive
corporate tax model."
Since it is no longer legally acceptable to
have one tax model for ‘local’ companies
and a different one for ‘foreign’
companies it is necessary to have a low tax system
for all companies because without a low tax system
for overseas companies they will leave, and our
economy will suffer hugely. Thousands of jobs
would be lost, as well as significant Government
revenue. I have therefore already said, and I
reaffirm now, that the Gibraltar Government is
irrevocably committed to the principle of ‘low
tax’ for our economic operators."
"By mid-2010 the Government will have introduced
an across the board flat, low corporate tax rate.
This will most probably be set at 10%, but in
any event not higher than 12%. This will be similar
to arrangements that already exist in Ireland,
Cyprus, Malta and other EU Countries."
In December 2008, the European Court of First
Instance ruled in favour of Gibraltar, stating
that the European Commission was wrong to argue
that the tax reforms proposed in 2002/03 were
in breach of state aid rules, and effectively
giving the jurisdiction licence to set its own
tax rules.
The Court dismissed the EU Commission’s
case, and stated that although the UK is representative
of Gibraltar, Gibraltar does, however, have fiscal
autonomy from the UK, and therefore can introduce
its own individual tax system (the aforementioned
10-12% corporation tax).
In a statement to the press at the time, Peter
Caruana, Gibraltar's Chief Minister, said he was
"overjoyed" by the outcome.
"The Court has found in Gibraltar’s
favour and has accepted our arguments on each
and every issue, relating both to regional selectivity
and material selectivity, and has ordered the
commission to pay the Gibraltar government’s
legal costs.”
The Gibraltar government said that it was confident
of victory in the appeal heard by the Grand Chamber
of the European Court of Justice on November 16,
brought by Spain in a challenge to Gibraltar's
fiscal autonomy from the UK's tax regime.
In the European Court of Justice's prior ruling,
arguments surrounding Gibraltar's tax system and
its autonomy were questioned with the European
Commission seeking determination, based on EU
state aid principals, how rules regarding regional
selectivity and material selectivity could be
applied to Gibraltar's territory. The Gibraltar
government won in the lower court on both grounds.
An appeal by the European Commission, on the
grounds of material selectivity, was then dropped
as Gibraltar made required changes to its tax
regime.
Spain however, which has intervened in the case,
appealed the lower court’s ruling on the
regional selectivity ground. The Commission did
not appeal this ground. Spain's argument on regional
selectivity seeks to challenge Gibraltar’s
right to have a tax system different from that
of the UK’s.
The Gibraltar government, in a statement prior
to the hearing, said that “while the consequences
of defeat on this ground would be severe for Gibraltar,
the government is confident of success.”
The prior case, which confirmed Gibraltar's fiscal
autonomy, was crucial in that it has permitted
the government to revise the territory's tax regime
to one that from 2011 imposes a competitive tax
rate of 10% on corporates - whether onshore or
offshore, and a 20% tax rate on utility companies.
In Gibraltar there is no capital gains tax,
sales tax or VAT. The main tax for companies is
corporation tax, and there are withholding taxes;
there are also stamp duties on certain transactions,
and property taxes ('rates').
Assessment and collection of tax is administered
by the Commissioner of Income Tax; the tax year
runs from 1st July to the following 30th June.
- Gibraltar Scope
of Corporation Tax
- Gibraltar
Corporation Tax Rates
- Gibraltar
Calculation of Taxable Base
- Gibraltar Taxation
of Trusts
- Gibraltar Filing
Requirements and Payment of Tax
- Gibraltar
Withholding Tax
- Gibraltar
Residence and Liability for Taxation
- Gibraltar
Income Tax
- Gibraltar Social
Insurance
- Gibraltar Forms
of Offshore Opperations
- Gibraltar Tax
Treatment of Offshore Operations
- Gibraltar Tax
Treatment of Foreign Employees of Offshore Operations
- Gibraltar High
Net-Worth Individuals
- Gibraltar Offshore
Activities
- Gibraltar Employment
and Residence
Gibraltar Double Taxation Treaties
Gibraltar has not entered into any Double Tax
Treaties with other countries, but has some arrangements
with the UK for avoiding double taxation of income.
|
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