Gibraltar has changed its tax laws to tweak the Income Tax Act 2010 to meet EU requirements. The Chief Minister Fabian Picardo certified the bill as urgent to speed up its process through Parliament.
On 16 October 2013 the European Commission took a decision to open the formal state aid investigation procedure into two aspects of. It published this decision in the Official Journal on 28 November 2013 inviting comments from third parties.
The two aspects signaled out by the Commission concerned the exemptions from taxation for inter-company loan interest and royalties income.
Mr Picardo told the Parliament that earlier this year, the EU Code of Conduct Group had found that the exemption for inter-company loan interest was a harmful tax measure under the criteria set out in the Code of Conduct on Business Taxation.
“The European Commission was also already indicating that this exemption was likely to constitute a state aid. Members will recall that, without prejudice to our position that the section in question was not a harmful tax measure, we accordingly abolished this exemption by an amendment what we made to the Act this summer and which entered into force on 1 July 2013,” he said.
The Bill does exactly the same thing in relation to royalties. Specifically, it will abolish the exemption from taxation that currently exists for royalties income, he said.
“I had this amendment put to the European Commission by the Government’s team, ably led by Michael Llamas QC and Commissioner for Income Tax Frank Carreras, at a meeting in Brussels on Thursday 5 December 2013,” said Mr Picardo.
“Commission case-handlers reverted to us early last week stating that the Commission’s fiscal team were content with the amendment, although that cannot, for technical reasons, be the formal position of the Commission. That is the most we could have expected from them at this stage but that in itself is important.”
Mr Picardo said that the Government is delivering much needed certainty to the industry. “We make these amendments without prejudice to our arguments that neither exemption constitutes state aid. We maintain that position in the formal investigation procedure as part of the defense.”