Ireland has intervened in the case “only in relation to the European Commission’s submission in support of the United Kingdom’s position, which largely reflects Gibraltar’s own stance,” the Chronicle said, noting that the Irish intervention coincided with mounting pressure over its controversially low 12.5% corporation tax rate at a time when it is being rescued by higher-tax EU member states.
Although involving an aspect of Gibraltar’s tax code that Gibraltar says it has elected not to pursue, having to do with something called ‘material selectivity’, the European Commission case is coming to be seen as a test of the EU’s powers to police the tax rates of member states.
Gibraltar’s Government has maintained that it is “confident of success” in the matter, which it has also admitted would have “severe” implications for the territory if the court were to rule against it.
“In its statement in intervention, Ireland submits that the commission’s appeal should be declared inadmissible to the extent that the appeal goes beyond the scope of both the contested decision and the judgment under appeal,” the Chronicle said in its story.
Gibraltar won first round
As International Adviser previously reported, the European Court of Justice case in question concerns an earlier ruling involving Gibraltar’s tax code that found in Gibraltar’s favour, which the European Commission appealed.
The case caught the attention of many observers, including the Gibraltar Chronicle, when Spain subsequently intervened to challenge Gibraltar’s right to institute a more lenient tax regime than the UK, of which Gibraltar is officially an overseas territory.
Spain’s argument in the case, which is different from that of the commission, is that the 2008 EU court decision effectively “converted Gibraltar de facto into a new member state of the EU for the purposes of taxation”, and that as a result, Gibraltar is able to adopt “harmful tax measures without any effective review”.
It coincided with a period of heightened tensions between Spain and Gibraltar that in recent months has seen charges of alleged “incursions” into Gibraltarian waters by Spain, and a threat by the mayor of La Linea, the reportedly cash-strapped Spanish town bordering Gib, to introduce a tax on those crossing onto and off of the crowded, 6.5sq km (2.6sq mi) Gibraltar peninsula.
Last month Gibraltar, Spain and the UK agreed to resume an ongoing series of talks.
Submissions in the case were made on 16 Nov during a hearing before the European Court of Justice’s Grand Chamber in Luxembourg, after which sources said a judgement was unlikely before next summer.
Ireland: ‘appeal should be inadmissible’
According to the Chronicle report, Ireland’s ‘statement in intervention’ contends that the commission’s appeal “should be declared inadmissible, to the extent that the appeal goes beyond the scope of both the contested decision and the judgment under appeal”.
Ireland “notes that the Commission seeks to base its argument on the principle of non-discrimination, whereas the rules on state aid do not find their origin in that principle but in the concept of fair competition in the common market", the Chronicle quotes the Irish position as stating.
The Chronicle also notes that the commission and the Kingdom of Spain “contest the arguments put forward by Ireland in its statement in intervention, whereas the Government of Gibraltar supports those arguments”.
Flat 10% rate
A new flat 10% corporate tax regime is set to take effect in Gibraltar on 1 Jan, which coincides with the ending of tax-exempt status for a few remaining companies there.
The British overseas territory has a 0% capital gains tax, no wealth tax, no tax on investment income, and does not charge VAT, although there is an import duty on most products brought in from elsewhere, ranging from 12 to 35%. The headline top income tax rate for individuals is 40%, although there is a dual tax system in place with a highest rate of 35% which can benefit some, depending on their income level.
