EU State Aid. The Gibraltar Case

Table of contents

I. List of abbreviations

1. Introduction

2. EU State Aid Rule.

3. Gibraltar Case
3.1 Facts
3.2 Decision of the European Commission
3.3 Judgement of the General Court
3.4 Judgement of the Court of Justice of the European Union

4. In accordance with previous case-law?

5. Application to prospective tax matters

6. Conclusion

7. List of references

I. List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

Since the beginning of the economic and financial crisis harmful tax competition increased and therefore also public concern in regard to aggressive tax planning augmented. Many countries try to attract foreign capital by setting low corporate income taxes. For example in Ireland and in Cyprus there is a tax of 12.5 %. A lot of multinational companies use these tax systems to reduce their overall tax burden and so they choose a low-tax-country for incorporation. To mention the BEPS Action Plan, many actions aim at reducing aggressive tax practises and therefore reducing shifting profits in low-tax-countries.

As there will be no way in near future to harmonize tax bases and tax rates within the European Union, the European Commission tries to restrict distorting tax competition by using EU State Aid rules. Therefore it does not focus on tax rates or policies as such, but on tax rulings for specific firms.¹ The Commission stated that: “Under State aid rules, national authorities cannot take selective measures that allow certain companies to pay less in taxes than they should if the tax rules of the country were applied in a fair and non-discriminatory way.”²

2. EU State Aid Rule

State aid is regulated by the Treaty of the Functioning of the European Union (TFEU). Art 107 Para 1 TFEU includes a general prohibition of EU State aid: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.” Para 2 and 3 introduce exemptions to the prohibition. There have been no relevant changes to the former Art 87 EC-treaty.

According to the jurisdiction of the Court of Justice of the European Union there are four criteria, which all have to be fulfilled. Firstly, there has to be a financial aid granted by the State or through State resources. Secondly, there has to be an advantage for an enterprise. Thirdly, the measure has to be selective and finally it affects trade between Member States resulting in a distorting competition.³ However, the general prohibition in Art 107 does not include a definition of the term “financial aid”. Nevertheless there is no debt that State aid can not only be subsidies, but also tax exemptions and tax reductions.⁴ According to settled case-law, the term “aid” is more general than the term “subsidy” as this term also includes reductions of charges and not only positive benefits. These reductions of charges are similar in character and have the same effect. As a consequence, a measure which represents a tax relief, but does not involve the transfer of State resources can also be seen as State aid within the meaning of Art 107 if the measure places the recipients in a more favourable financial position than other taxpayers. On the other side advantages applicable to all economic operators do not constitute State aid.⁵ To define the term “undertaking”, it can be described as economic activity, independent of its legal status and the way in which it is financed. Economic activity means offering goods or services on a given market.⁶

Although there is a general prohibition of EU State aid, sometimes exemptions are necessary relating to a well-functioning and equitable economy. Therefore the Treaty of the Functioning of the European Union also cites several circumstances where State aid can be seen as compatible with the internal market.⁷ Art 107 Para 2 lists three categories of aid which shall be treated as compatible with the internal market, for example “aid to make good the damage caused by natural disasters or exceptional occurrences.” In Para 3 several categories are listed which may be considered to be compatible with the internal market.

The role of the European Commission is to check if the rules concerning State aid are respected, if there are exemptions and if these exemptions are applied equally across the European Union. Therefore new aid measures planned by a State have to be notified to the Commission and can be only implemented if they are approved by the Commission.⁸ These measures are illegal if they are not approved by the Commission or if no exemption can be applied.⁹ If there is no permission, the organisation who received the aid can be forced to pay it back. Anyone who can demonstrate an interest can file a complaint to the Commission. Complaints are usually filed by competitors of State aid recipients.¹⁰

The first-instance General Court is in charge of deciding on brought actions against the decision of the Commission. The Court of Justice of the European Union hears appeals and consequently allows or dismisses an appeal.¹¹

All in all, if a new tax reform is planned, it is important to check if the criteria of State aid within the meaning of Art 107 are fulfilled. In most cases like in the Gibraltar Case the most difficult thing is to assess selectivity.¹² The Gibraltar Case shows very well that it is not always easy and clear to determine if the criteria of State aid, and specially selectivity, are fulfilled.

3. Gibraltar Case

3.1 Facts

In April 2002 the Government of Gibraltar announced its plan to repeal the current tax regime and to introduce a new tax regime applicable to all companies established in Gibraltar. The Government intended to introduce a payroll tax, a business property occupation tax and a registration fee:

- Payroll tax: All companies in Gibraltar have to pay a certain amount of annual payroll tax (GBP 3,000) per employee. This tax has to be paid for employees which are employed in Gibraltar.
- Business property occupation tax (“BPOT”): The BPOT has to be paid by companies which occupy business property in Gibraltar. The tax rate is equivalent to a percentage of the liability to the general rate charged on property.
- Registration fee: For companies which plan to generate profit, there is a registration fee of GBP 300 per annum and for companies which do not intend to generate profit, there is a fee of GBP 150.¹³

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¹ Wixforth, Das EU-Beihilfenrecht als Instrument gegen die Steuerprivilegien der Multis, Arbeit&Wirtschaft 28.08.2014.

² Almunia, Some highlights from EU competition enforcement (Speech at the IBA 18th Annual Competition Conference), Press Release Database 19.09.2014.

³ Lang, Das Gibraltar-Urteil des EuGH: Neue beihilferechtliche Vorgaben für das Steuerrecht?, ÖStZ 2011/1070, 593.

⁴ Lang, Die Auswirkungen des gemeinschaftlichen Beihilferechts auf das Steuerrecht, Gutachten, 17. ÖJT, Band IV/1 (2009) 8 et seq.

⁵ CJEU 15.11.2011, Joined Cases C-106/09 P and C-107/09 P, European Commission and Kingdom of Spain v Government of Gibraltar and United Kingdom of Great Britain and Northern Ireland[2011] ECR I-11113, Para 71 et seqq.

⁶ CJEU 10.01.2006, C-222/04, Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze SpA and Fondazione Cassa di Risparmio di San Miniato and Cassa di Risparmio di San MiniatoSpA [2006]ECR I-00289, Para 107 et seq.

⁷ European Commission, State Aid Control, 16.08.2013.

⁸ European Commission, State Aid Control, 16.08.2013.

⁹ Shearman & Sterling LLP, EU Investigates Tax Rulings for Breach of State Aid Rules, Client Publication 04.02.2015, 2.

¹⁰ Pinsent Masons LLP, Introduction to state aid.

¹¹ Fry, The EU STATE AID REGIME: AN OVERVIEW, January 2014.

¹² Lang, Gutachten, 17. ÖJT, Band IV/1 (2009) 23 et seqq; Lang, ÖStZ 2011/1070, 593.

¹³ CJEU 15.11.2011, Joined Cases C-106/09 P and C-107/09 P, ECR I-11113, Para 8 et seqq.