The European court annulled a previous ruling by the European commission that Gibraltar’s tax system which included a registration fee, payroll tax and business property tax, subject to a cap of 15 per cent of profit constituted “unlawful state aid”.
The ruling has been welcomed by many, as it was feared that a large number of companies including those in the financial services sector would have left the island had it not been granted.
The commission had previously found that Gibraltar’s tax reform was regionally selective, as it offered a lower rate of corporate tax for companies based on the island than those in the UK. It also found that the reform was “materially selective” and would favour companies which had no physical presence in Gibraltar.
Yesterday, the court threw out this ruling on the basis of the 2006 judgment of the European court of justice on the tax regime of the Azores.
Drawing upon the conditions set out in this judgement it stated that no comparison can be made between the tax system applicable to companies established in Gibraltar and those established in the UK for the purpose of establishing a selective advantage favouring the former. The ruling means that Gibraltar’s tax regime will apply solely to the island with no comparison to any other British fiscal system.