Gibraltar's low corporate tax regime 'not unlawful'

An attempt by the European Commission to outlaw Gibraltar's low corporate tax regime should be rejected, a legal adviser to the European Court of Justice said today.

The Commission, backed by Spain, insists the tax system amounts to illegal state aid, because one "region" of an EU member state discriminates against the rest of the country - the UK.

But the European Court's Advocate General said in a legal "opinion" today that Gibraltar should be regarded as a territory in its own right for purposes of its tax regime - and therefore its low corporate tax regime could not be seen as discriminatory state aid.

"Harmful tax measures cannot be classified automatically as unlawful state aid," Advocate General Niilo Jaaskinen said.

Although the Advocate General's advice is not binding, it is followed in about 80% of cases when the final verdict is given by the full court.

Today's recommendation was hailed by British Conservative MEP for Gibraltar Giles Chichester as "a breath of fresh air" and a boost to Irish efforts to fend off pressure from Brussels to raise its corporate tax rate.

"This is good news for Gibraltar," he said.

"For years socialists have been trying to equate low corporate taxes with state aid and this opinion says they are wrong.

"There is no such thing as harmful tax competition in the EU, and Gibraltar must fight against any efforts to harmonise corporate tax regimes.

"Gibraltar, with its low corporate tax regime, is showing the rest of the EU the way forward. Tax competition is one of the best forms of competition in the Single Market and we should encourage it, not harmonise it out of existence."

In 2004 the Commission warned that Gibraltar's new low tax regime constituted regional aid and was thus an unlawful state aid to the region.

But the Advocate General said Gibraltar should be seen as its own "territorial framework" for taxation purposes. That meant its tax measures amounted to fiscal policy and not state aid.

"Where a tax measure is of a general character, it constitutes an adjustment to general fiscal policy and not state aid," he said.

A final decision is likely later this year.

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