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Brussels, 15 November

State aid: Commission welcomes landmark Court ruling on proposed 2002 Gibraltar tax reform

The European Commission welcomes today's judgement of the European Court of Justice dismissing a previous General Court ruling, which had annulled a 2004 Commission decision finding that a proposed Gibraltar corporate tax reform amounted to incompatible aid in favour of offshore companies. This landmark ruling confirms that fiscal regimes engineered to give certain companies, in this case former offshore companies, an advantage, constitutes state aid to the beneficiaries which artificially and harmfully distorts competition in Europe's single market.

At issue was whether the regime notified by the UK government to the Commission for clearance in 2002 was selective or not, in other words whether it afforded lower rates of taxation to certain companies vis à vis others.

In 2004, the Commission took a decision concluding that the regime would give former offshore companies domiciled in Gibraltar an unfair tax advantage. The European Union's General Court annulled the Commission's decision in 2008 arguing, inter alia, that the Commission had failed to identify what was the system of reference for its assessment.

The EU's top court today confirmed that the fact that offshore companies would not be taxed in Gibraltar "is not a random consequence of the tax at issue but the inevitable consequence of the fact that both corporate taxes […] are specifically designed so that offshore companies […] avoid taxation".

The ruling of the Court of Justice reinforces the positive role EU state aid control can play in the fight against harmful taxation.


The Gibraltar tax reform foresaw the abolition of the classical corporate tax system (where a percentage of benefits is taxed), and its replacement by a hybrid system. Under this hybrid system, companies domiciled in Gibraltar would be subject to a yearly payroll tax of £3,000 per employee and to a business property occupation tax (BPOT).

Total tax liability (payroll + BPOT) would be capped at 15% of profit. If a company makes no profit, there would be no tax liability.

In addition to the payroll and property taxes, financial services companies would be charged a top-up tax fixed at a rate between 4% and 6% of profits from their financial service activities. The total taxation of financial services companies (payroll + BPOT + top-up) would also be capped at 15% of profit.

The Commission considered that the measure was designed to allow in particular former offshore companies to continue enjoying a very low level of taxation.

Gibraltar has in the meantime introduced a different tax regime that is in place since the 1st January of 2011.

The press release for the Commission's 30 March 2004 decision is available under IP/04/404 and the decision itself under:

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