As reported, Spain has intervened in the case to challenge Gibraltar’s right to institute a more lenient tax regime than the UK, of which Gibraltar is officially an overseas territory.
Today’s Gibraltar Chronicle reports that although submissions were made yesterday during a hearing before the European Court of Justice’s Grand Chamber in Luxembourg, “the current proceedings will end with written submissions in March and there is not likely to be a judgement until summer”.
“It went as well as we could have expected,” a Gibraltar Government spokesman said this morning.
The Government has maintained that it is “confident of success” in the matter, which it has admitted would have “severe” implications for the territory if the court were to rule against it.
Appeal of 2008 decision
Yesterday’s “joined hearing” is part of an appeal by the European Commission of a 2008 decision by Europe’s Court of First Instance, which found in favour of Gibraltar, concerning Gibraltar’s tax system – specifically having to do with “State Aid principles of both regional selectivity and material selectivity”, according to Gibraltar.
Gibraltar argues that the commission’s appeal, on the grounds of material selectivity, “no longer has any consequence” because “it relates to a tax scheme that Gibraltar has not pursued”.
Spain’s argument in the case, which is different from that of the commission, is that the 2008 EU court decision effectively “converted Gibraltar de facto into a new member state of the EU for the purposes of taxation”, and that as a result, Gibraltar is able to adopt “harmful tax measures without any effective review”.
A new flat 10% corporate tax regime is set to take effect in Gibraltar on 1 January, which coincides with the ending of tax-exempt status for a few remaining companies.
The British overseas territory has a 0% capital gains tax, no wealth tax, and does not charge VAT; there is also no tax on investment income. The top income tax rate for individuals is 35%.
Spain’s intervention in the case meant that yesterday’s hearing was referred to in part on the Court of Justice’s calendar as “Spain v Government of Gibraltar and United Kingdom”.
Months of tension
Yesterday’s hearing followed months of tension between Spain and Gibraltar that have involved charges of alleged “incursions” into Gibraltar waters by Spain, and a threat by the mayor of La Linea, the reportedly cash-strapped Spanish town bordering Gib, to introduce a tax on those crossing onto and off of the crowded, 6.5sq km (2.6sq mi) Gibraltar peninsula.
Last month Gibraltar, Spain and the UK agreed to resume an ongoing series of talks. A Foreign & Commonwealth Office statement on 21 October noted that technical meetings would be held on such topics as visas, financial services and tax, maritime and environmental matters and education, while, “in view of recent incidents”, issues relating to "police, judicial and customs cooperation" would be dealt with at the political level.