Saturday, January 22, 2005

Caruana welcomes “reasonably good arrangemeent” on exempt status

Reprieve for finance centre... “Agreement avoids worst consequences” — Chief Minister

Chief Minister Peter Caruana last night declared that the agreement on the extension of Gibraltar’s Exempt Status tax regime represents “a reasonably good arrangement which avoids the worst consequences for Gibraltar.”

Speaking to the Chronicle Mr Caruana said that the agreement will deliver “absolute legal certainty to exempt companies compared to what the position would be if we had not reached any agreement.” He also declared that the worst case scenario had been avoided and that this would have required the Government to terminate the current tax regime.

Commenting on the agreement, the Chief Minister said:

Given the hostility to any such agreement by powerful sections of the EU Commission, and the extremely tough and difficult negotiation that has been required, this represents a reasonably good arrangement which avoids the worst consequences for Gibraltar. It is an excellent agreement which delivers absolute legal certainty to exempt companies compared to what the position would be if we had not reached any agreement.

For example, the agreement allows for new business, that is, for new entrants into the scheme. This is the only case in which the Commission has agreed to new entrants in an agreement to end or avoid a state aid investigation procedure. Usually, existing beneficiaries are allowed to keep the benefits of the scheme for a limited period of time but no-one else is allowed to enter the scheme after the date of the Agreement. Existing business is also covered until 2010, by which date an alternative tax regime will be in place.

This agreement does not deliver everything that we wanted, but it avoids the worst consequences and enables the Finance Centre, and other sectors of the economy to continue while the European Court rules in the regional selectivity case. We have thus been able to avoid the worst case scenario which would have required us to close the exempt status regime and not be able to replace it with anything competitive for the Finance Centre and other businesses. The agreement is also a disappointment for those who were hoping to abuse EU State Aid procedures to put an end to our Finance Centre.

Meanwhile a Convent Place statement said:

The Gibraltar Government yesterday welcomed the approval by the full EU Commission at its meeting on Wednesday morning of the Exempt Status Company agreement. This agreement has been under negotiation by the Gibraltar and UK Governments with the EU Commission throughout 2004. An agreement that enjoyed sufficient support across EU departments was finally reached in December subject to the approval by the full college of Commissioners. This approval was given on Wednesday.

Commission decisions are usually made public on the day they are taken. Publication of this one has been delayed until today for reasons that the Commission has not publicly explained.

In July 2001 the EU Commission had challenged the legality of our exempt status regime under EU State Aid Rules. Under the applicable procedure the Commission would have taken around one year to order the closure of the tax-exempt company scheme. That would certainly have been before the European Courts had ruled on Gibraltar’s freedom to replace it with some other tax regime.

Under the Agreement negotiated with the Commission existing exempt companies can keep their exempt status until December 2010. By then the European Courts will have ruled in the other court case, and alternative arrangements will be in place. The agreement also uniquely allows new exempt status business until 30th June 2006.


Detail of the agreement

• The total number of exempt companies will be of 8,464.
• Existing exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2010.
• Existing exempt companies that change ownership and/or activity before 30 June 2006 will be able to benefit from their tax exempt status until 31 December 2007.
• Existing exempt companies that change ownership and/or activity after 30 June 2006 will lose their tax exempt status.
• New exempt companies can be formed up to 30 June 2006.
This will be on the following basis:
• In 2005, the number of new exempt companies that can be formed shall not exceed 60% of the number of exempt companies leaving the regime in 2005, or in any event 823.
• From 1 January to 30 June 2006, the number of new exempt companies that can be formed shall not exceed 50% of the number of exempt companies leaving the regime during that period, or in any event the number of exempt companies admitted in 2005.
• New exempt companies will be able to continue to benefit from their tax exempt status until 31 December 2007.
• Regular reports shall be submitted to the EC Commission certifying compliance with the above.

The distinction between existing and new exempt companies is determined by the date of acceptance of the appropriate measures. This will take place by mid-February 2005 at the latest.

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