Gibraltar must recover unpaid taxes of around EUR100m from companies that benefited from the corporate tax exemption regime for interest and royalties as well as from the five tax rulings.
Gibraltar gave around EUR100m of illegal tax advantages to multinational companies through a corporate tax exemption regime for interest and royalty income and through five individual tax rulings, the European Commission has found.
The findings follow the EU Commission’s in-depth investigation launched in October 2013 into Gibraltar’s corporate tax regime, particularly if 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.
A year later, in October 2014, the EU Commission extended its investigation into Gibraltar’s tax rulings practice, particularly into 165 tax rulings granted between 2011 and 2013.
Gibraltar abolished the tax exemption scheme for interest income and royalty income in 2013 and 2014, respectively.
Commission’s findings
According to the EU Commission’s findings, published on December 19, Gibraltar corporate tax exemption regime for interest and royalties from 2011 to 2013, and five individual tax rulings (out of the 165 tax rulings issued), provided selective tax benefits to several multinational corporations.
According to the EU Commission, companies in receipt of interests or royalties were exempted from taxation in Gibraltar without a valid justification. The EU Commission concluded that the corporate tax exemption for interest and royalty income was designed to attract multinational companies to Gibraltar and effectively reduced the corporate income tax of a limited number of companies belonging to multinational groups.
The five contested tax rulings concern the tax treatment in Gibraltar of certain income generated by Dutch limited partnerships. Under these tax rulings, the companies were not taxed on the royalty and interest income generated at the level of the Dutch partnerships, contrary to other companies in receipt of other type of income, the EU Commission noted.
According to the EU Commission, Gibraltar must recover unpaid taxes of around EUR100m from companies that benefited from the corporate tax exemption regime for interest and royalties as well as from the five tax rulings.
EU Competition Commissioner Margrethe Vestager said: “Our investigation has found that Gibraltar gave unfair and selective tax benefits to several multinational companies, through a corporate tax exemption scheme and through five tax rulings. This preferential tax treatment is illegal under EU state aid rules and Gibraltar must now recover the unpaid taxes. At the same time, I very much welcome the significant actions taken by Gibraltar to remove the illegal tax exemptions, streamline its tax ruling practice, and reinforce its transfer pricing rules – this should help ensure that these issues remain in the past.”
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com