Tuesday, March 22, 2005

New EU proceedings against UK over Gibraltar Tax

The European Commission has decided to send a formal request to the United Kingdom for information on the measures that the United Kingdom has adopted to implement an EU Directive, on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.

This, says the Commission should have been implemented in all Member States by 1 January 2004.

The request is in the form of a reasoned opinion, the second stage of infringement proceedings. If the United Kingdom fails to notify the requested measure within two months of receiving the reasoned opinion, the Commission may refer the matter to the European Court of Justice.

The Directive prohibits the application of tax on interest and royalty payments in the Member State in which these payments arise, where the payments are made by a company to an associated company in another Member State.

“The Directive plays an important role in the elimination of tax obstacles for companies engaged in cross-border business in the EU. Taxes levied at source, either by deduction (i.e. withholding taxes) or by assessment, can involve time-consuming compliance formalities and sometimes lead to double taxation,” said the Commission.

The United Kingdom has notified the implementing measures that it has adopted with regard to Great Britain and Northern Ireland, but it has not done so in respect of Gibraltar. The Commission says it must therefore assume that the United Kingdom has not yet implemented the Directive in Gibraltar.

Meanwhile, action in relation to Gibraltar on copyright issues and affecting public libraries has been suspended on the basis that it is about to be implemented. Action is being taken against several EU states on non-implementation of a Directive to ensure that all copyright material including books, films and music is adequately protected. It provides a secure environment for cross-border trade in copyright protected goods and services, and will facilitate the development of electronic commerce in new and multimedia products and services. Moreover, it is the means by which the European Union and its Member States implement the two 1996 World Intellectual Property Organisation (WIPO) “Internet Treaties” which have adapted copyright protection to digital technology. This makes implementation all the more urgent.

By adopting the Directive in the Council, Member States agreed to implement it before 22 December 2002. The European Court has already ruled against Belgium, Finland, Sweden and the UK – for the territory of Gibraltar - for their failure to implement the Directive. In the case of the United Kingdom, the Commission has postponed its decision to start infringement proceedings as the UK authorities have informed the Commission that implementation in the territory of Gibraltar is imminent.

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