ECJ refuses to implement Gibraltor's proposed tax reform

Court of Justice of the European Union, on 15^th November 2011, refused to allow UK to implement the proposed reform of corporate tax for Gibraltar. Under the said reform, the entities were subjected to a company registration fees, a payroll tax and a business property occupation tax (“BPOT”), to a maximum of 15% of profits. The BPOT and the payroll tax were dependent on size of premises occupied and the number of employees respectively.

In 2004, the Commission declared such reform to be incompatible with the internal market regime in the EU since it favored offshore companies. On appeal in 2008, the General Court overruled the decision of the Commission and held that there was nothing in the tax reform to withhold its implementation. The case came before the ECJ in appeal.

The ECJ overruled the General Court’s decision and agreed to the decision of the Commission. It held that the criteria for BPOT and the payroll tax, being the premises occupied and the number of employees in effect meant that offshore companies without a premise in the state were exempt from taxation. The non-taxation of offshore companies was not an incidental result of the proposed reform, but was the inevitable consequence of the same. Hence the Court refused to permit UK to implement the tax reform. A press release in the matter is available here: [http://bit.ly/tHW5vu] and the full judgment of the Court is available here [http://bit.ly/rSLIEH]."

By Abhinav Harlalka, 4th Year, NUJS