The European Comission has denounced this Friday to UK before the Court of Justice of the European Union (TEU) for not having fully recovered the 100 million euros granted to multinational companies in Gibraltar through a tax regime that violated European rules on State aid.
Specific, The Community Executive has explained that the authorities of the Rock have only recovered about 20 million euros of illegal tax aid identified in the framework of the investigation (20% of the total) although “more than two years” have passed since it was required.
The case dates back to 2013, when the Community Executive launched an investigation against the corporate tax regime that Gibraltar had launched three years earlier. Brussels concluded in December 2018 that the exemptions for interest and royalties and the five tax agreements or ‘tax rulings’ that Gibraltar closed with several companies were illegal, so it ordered the recovery of the aid granted.
“More than two years after the Commission made its decision, aid has not yet been fully recovered and not enough progress has been made to restore competition. That is why we have decided to bring the United Kingdom to the Court of Justice “, explained in a statement the vice president of the Community Executive responsible for Competition, Margrethe Vestager.
Brussels has underlined that the Gibraltar authorities had to have recovered all the money by April 23, 2019 that multinationals had been spared paying the public coffers through this regime. The European institution has defended that the recovery “must happen as quickly as possible” because until this happens “the beneficiaries continue enjoying an illegal competitive advantage”.
The department directed by the Danish Vestager has been “in regular contact” with the authorities of the Rock, who have detailed that four multinationals benefited from the tax regime declared illegalAt the moment, only two of the companies have returned the aid granted and the amount represents only 20% of the total.
“The recovery is still pending on the part of Mead Johnson Nutrition (beneficiary of a tax agreement) and partially of Fossil (beneficiary of an illicit aid scheme”, specifies the European Commission.
The agreement between the EU and the United Kingdom for Brexit establishes that the European Commission can bring London before the European Justice for having failed to comply with decisions that were taken before the end of the transition period on December 31, 2020.
Brussels opened an investigation in October 2013 against the Gibraltar corporate tax regime introduced in 2010 given the “serious doubts” that it could violate Community regulations on public aid by including exemptions in this tax for interest and royalty payments.
The Community Executive expanded the file in October 2014 to also include a total of 165 tax agreements o ‘tax rulings‘, on the suspicion that they were not based on sufficient information to guarantee that the benefited companies were taxed under the same conditions as other companies that generated or derived income from Gibraltar.
With regard to the first pillar of the investigation, Brussels determined that the companies benefiting from interest or royalties were exempt from paying the tax “without there being a valid justification”. Consequently, the measure “significantly favored” a set of companies belonging to multinational groups that focus their activity, for example, on granting intra-group loans.
Gibraltar, in any case, abolished tax exemption on interest income in July 2013 and that of royalty income in January 2014.
Regarding the investigation on tax agreements, the Community Executive determined that 5 of the 165 ‘tax rulings’ evaluated constituted illegal State aid. All five refer specifically to Gibraltar’s tax treatment of certain income generated by limited partnerships in the Netherlands. In contrast, the European Commission has not detected any selective advantage over the other 160 tax deals assessed.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.