Wednesday, January 19, 2005

Optimism as EU Commission says Gibraltar decision due today

Finance Centre tax

European Commissioners will this morning meet as a ‘college’ and finalise their decision on Gibraltar’s request for interim measures to secure the operation of the finance centre (Dominique Searle reports).

The Rock is seeking interim measures that would allow exempt companies to continue trading until the European Court of Justice has deliberated fully on the challenge to the European Commission including ‘regionality’.

There appeared to be grounds for optimism that some form of arrangement will be authorised so that business can continue. Last night a Reuters report quoting Brussels sources said that the European Commission will today recommend that Britain “phase out certain tax breaks offered by Gibraltar’s offshore finance centre”.

“The European Commission will recommend the phasing out of the tax incentives,” the source told the news agency, without giving details.

The proposal to be announced today is said by Reuters to be that Britain can wait for the replacement of the scheme until the court has ruled. A ruling in the court of first instance is not due until 2007 and if it goes to appeal the ruling will not come before 2010. Until then Britain can keep the scheme but with limitations. The scheme will be capped, meaning that no more companies will be brought in unless some companies leave the scheme and even in that event only a proportion of the number leaving can join.

Although the EU has long declared its discomfort with special tax regimes – in this case it considers that the exempt company is ‘existing’ state aid because it is a long-standing regime – there is little doubt that Spain has long been using its position in the EU and Commission to put pressure on Gibraltar.

The outcome of the meeting is expected to be set out at the mid-day press briefing and detailed in a press release. A decision in Gibraltar’s favour would bring great relief to financial operators and the Government and is likely to take the form of a set of periods in which the exempt company would be gradually phased out until an alternate approved regime replaces it.

One issue being debated privately by finance centre professionals is whether the phasing out will provide a smooth transition into a new regime ensuring continuity. The negotiations have involved considerable political input with the Chief Minister having several time altered his pre-Christmas agenda to deal with Brussels. He raised the question of the continued uncertainty in his New Year Message. The Commission has, in essence, challenged Gibraltar’s right to have any tax regime that is different to the UK’s tax regime, a view that is, in turn, being challenged in the European Courts by both the UK and Gibraltar Governments.

The exempt status regime is not only the mainstay of the Finance Centre, it is also the basis of most of the gaming industry, Mr Caruana has said. The College has before it an agreement struck in December with EU officials but which is not valid until formally approved by the full EU Commission.

EU officials were quoted by Reuters as saying that the specific tax incentive, the Exempt Company Tax Regime, is a scheme enjoyed by around 8,500 offshore companies which are exempted from corporate taxation against the payment of an annual fee of around £200.

The scheme was found unlawful by a number of EU experts. Britain suggested last March a way to replace this scheme which the commission rejected, leading to a British challenge in the EU Court of Justice.

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