Gibraltar Ordered by EU to Recoup $114 Million Tax-Breaks

(Bloomberg) -- Gibraltar was ordered by European Union regulators to reclaim some 100 million euros ($114 million) in tax breaks that aimed to lure multinational firms to the British territory.

  • The European Commission said Gibraltar’s corporate tax exemption rules for interest and royalties unfairly favored some multinational firms. It also judged illegal five tax rulings involving some income from Dutch partnerships.
  • Gibraltar must now assess the precise amount that companies must repay to authorities.
  • "Gibraltar gave unfair and selective tax benefits," EU Competition Commissioner Margrethe Vestager said in an emailed statement. "This preferential tax treatment is illegal"
  • The decision ends a five-year probe into Gibraltar’s tax exemptions for interest, mainly from intra-group loans, and royalty income from 2011 and 2013. The EU also examined 165 tax rulings, saying the documents may not have enough information to ensure the companies were taxed in the same way as others based in the territory.
  • "The exemption was designed to attract multinational companies to Gibraltar" by reducing the tax they had to pay, the commission said.
  • The companies cited are: Ash (Gibraltar) One Ltd, Ash (Gibraltar) Two Ltd, Heidrick & Struggles (Gibraltar) Holdings Ltd, Heidrick & Struggles (Gibraltar) Ltd, and MJN Holdings (Gibraltar) Ltd.

Key Insights

  • Gibraltar’s status after Britain quits the EU in March has been a bone of contention for leaders trying to agree Brexit terms. Gibraltar accused a previous EU commissioner, Spaniard Joaquin Almunia, of Spanish bias when he opened the probe into corporate-tax deals in the territory.
  • Sweetheart tax deals that lure investment have also been a focus for EU Competition Commissioner Margrethe Vestager. She ordered Apple Inc. to pay back billions of euros to Ireland two years ago and has also targeted Inc.’s deal with Luxembourg and an Ikea unit’s tax arrangements with the Netherlands.
  • The EU still has to rule on a subsidy probe into British tax breaks which could lead to companies paying a combined bill of well over 1 billion pounds ($1.3 billion).
  • Vestager has said it "is not a given" that she will manage to finalize that investigation before Brexit.
  • Gibraltar Chief Minister Fabian Picardo said in a statement he was “absolutely delighted” by Wednesday’s announcement.
  • “Although it is a negative decision, its effect is minor whilst at the same time it vindicates our view that there is nothing fundamentally unlawful or wrong with our Income Tax Act 2010,” he said.

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