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            COMMISSION DECISION         

of 30 March 2004         

on the aid scheme which the United Kingdom is planning to implement as regards the Government of Gibraltar Corporation Tax Reform

(notified under document number C(2004) 929)

(Only the English text is authentic)

(Text with EEA relevance)

(2005/261/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1), and having regard to their comments

Whereas:

I.   PROCEDURE

II.   DETAILED DESCRIPTION OF THE MEASURE

Objective of the reform

Implementation

Payroll tax and business property occupation tax

Registration fee

Taxation of designated activities (top-up or penalty taxes)

Other features of the reform

Modifications to the reforms originally notified

III.   GROUNDS FOR INITIATING THE PROCEDURE

IV.   COMMENTS FROM THE UNITED KINGDOM

Not taxing unprofitable companies is not State aid

Limiting tax to 15 % of profits is not State aid

Regional specificity

General comments

V.   COMMENTS FROM INTERESTED PARTIES

The Government of Gibraltar

The Åland Executive

Spain

The Spanish Confederation of Business Organisations

Comments from the United Kingdom on the third party observations

VI.   ASSESSMENT

Existence of aid

Regional selectivity

Material selectivity

The requirement to make a profit before incurring a tax liability

The 15 % cap on liability to payroll tax and business property occupation tax

The proposed application of the payroll tax and of the business property occupation tax to the Gibraltar economy

The registration fee

The top-up taxes on financial services and utilities activities

The advantages arising for certain sectors of the economy from the proposed tax system as a whole

Advantage granted by the State or through State resources

Effect on trade and distortion of competition

General remarks

Compatibility

VII.   CONCLUSIONS

HAS ADOPTED THIS DECISION:

Article 1

The proposals notified by the United Kingdom for the reform of the system of corporate taxation in Gibraltar constitute a scheme of State aid that is incompatible with the common market.

Those proposals may accordingly not be implemented.

Article 2

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.

Done at Brussels, 30 March 2004.

For the Commission

Mario MONTI            

Member of the Commission

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(1)OJ C 300, 4.12.2002, p. 2.

(2)  See footnote 1.

(3)OJ C 2, 6.1.1998, p. 1.

(4)  Approved by the OECD Council on 9.4.1998.

(5)OJ C 384, 10.12.1998, p. 3.

(6)  Opinion in Joined Cases C-400/97, C-401/97 and C-402/97, [2000] ECR I-1073.

(7)  Joined Cases T-92/00 and T-103/00, [2002] ECR II-1385, p. 27.

(8)  See paragraphs 33 to 57.

(9)  Published, respectively, in October 2001 and on 22 November 2002.

(10)  Public commitment made on 27 February 2002.

(11)  Report of Code of Conduct Group (Business Taxation) to the Ecofin Council on 4 December 2001 (14467/01 — FISC 249, 27.11.2001).

(12)  See footnote 7.

(13)  See footnote 1.

(14)  This exception was recognised by the Court in Case 173/73 [1974] ECR 709.

(15)  Joined Cases C-400/97, C-401/97 and C-402/97, [2000] ECR I-1073.

(16)  Commission Decision of February 13, 2001, N 147 A/2000 France (Loi d'orientation pour l'Outre-mer) and case 248/84 Germany v Commission [1987] ECR 4013.

(17)  Joined cases T-127/99, T-129/99 and T-148/99 Diputación Foral de Álava and others v Commission, p. 142.

(18)  FATF Offshore Group of Banking Supervisors, Mutual Evaluation Report (November 2002), p. 29.

(19)  IMF Report (October 2001) ‘Gibraltar: Assessment of the Regulation and Supervision of Financial Services’, paragraph 9.

(20)  See footnote 1.

(21)  See in particular Commission Decision 93/337/EEC of 10 May 1993 concerning a scheme of tax concessions for investment in the Basque country (OJ L 134, 3.6.1993, p. 25).

(22)  Opinion of Mr Advocate General Saggio in Joined Cases C-400/97, C-401/97 and C-402/97 [2000] ECR I-1073.

(23)  See in particular, in the case of measures adopted by central authorities, the Commission Decision of 21 May 1997, aid N 847/96, on the creation of priority outermost regions and measures on improved economic access in the French Overseas Territories (OJ C 245, 12.8.1997), the Commission Decision of 16 December 1997, aid N 144/A/96, on the scheme of regional aid to investment and operating aid which amends the economic and tax system of the Canary Islands (OJ C 65, 28.2.1998) and Commission Decision 2002/780/EC of 28 February 2001 on the aid scheme ‘Investment allowance 1999’, which Germany is planning to implement for certain undertakings in the new Länder, including Berlin (OJ L 282, 19.10.2002, p. 15). See also Commission Decision 98/476/EC of 21 January 1998 on tax concessions under Article 52(8) of the German Income Tax Act (Einkommensteuergesetz) (OJ L 212, 30.7.1998, p. 50), on which the Court of Justice delivered judgment on 19 September 2000 in Case C-156/98 Germany v Commission [2000] ECR I-6857. In the case of measures granted by regional authorities, see Commission Decision 93/337/EEC of 10 May 1993 concerning a scheme of tax concessions for investment in the Basque country and Commission Decision 2003/442/EC of 11 December 2002 on the part of the scheme adapting the national tax system to the specific characteristics of the Autonomous Region of the Azores which concerns reductions in the rates of income and corporation tax (OJ L 150, 18.6.2003, p. 52).

(24)  Case 173/73 Italy v Commission [1974] ECR 713, Case 323/82 Intermills v Commission [1984] ECR 3809 and Case C-248/84 Germany v Commission [1987] ECR 4013.

(25)  Cited above.

(26)  See in this respect the judgment of the Court in Joined Cases T-127/99, T-129/99 and T-148/99 Territorio Histórico de Álava and Others v Commission [2002] ECR II-1275, paragraph 237.

(27)  See, for instance, Commission Decision 2000/795/EC of 22 December 1999 on the State aid implemented by Spain for Ramondín SA and Ramondín Cápsulas SA (OJ L 318, 16.12.2000, p. 36).

(28)  See Joined Cases T-92/00 and T-103/00, cited above, concerning Decision 2000/795/EC.

(29)  See in particular Commission Decision 2003/28/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established firms in Álava (Spain) (OJ L 17, 22.1.2003, p. 20), Commission Decision 2003/86/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established firms in Vizcaya (Spain) (OJ L 40, 14.2.2003, p. 11) and Commission Decision 2003/192/EC of 20 December 2001 on a State aid scheme implemented by Spain in 1993 for certain newly established firms in Guipúzcoa (Spain) (OJ L 77, 24.3.2003, p. 1).

(30)  See Decision 2003/442/EC, cited above.

(31)  Cases C-351/98 Spain v Commission [2002] ECR I-8031, point 44, and C-409/00 Spain v Commission [2003] ECR I-1487, point 56.

(32)  Case C-218/02 Commission v United Kingdom, judgment of 29 January 2004 not yet reported, point 15 of the grounds and point 1 of the operative part.

(33)  Case 248/84 Germany v Commission ECR [1987] 4013, p. 17.

(34)  The Gibraltar Government website (www.gibraltar.gov.gi) states that ‘wages [in Gibraltar] are broadly in line with the United Kingdom’. Average full-time wages in the United Kingdom are around GBP 24 000 (source: New Earnings Survey 2002, http://www.statistics.gov.uk/pdfdir/nes1002.pdf). Labour costs to employers include other costs (e.g. social security contributions).

(35)  Government of Gibraltar Press Release 008/2003, 14 January 2003.

(36)  See Commission Regulation (EC) No 69/2001 on de minimis aid (OJ L 10, 13.1.2001, p. 30).

(37)  Figures for the number of companies are approximate. Source: information supplied by the United Kingdom and/or Gibraltar in the course of this investigation and the investigations into exempt and qualifying companies.

(38)  Assuming that the financial services top-up tax would be set at 5 %.

(39)  Ignoring utilities, which would be taxed at 35 %.

(40)  Assuming that exempt companies have no physical presence in Gibraltar and would therefore have no liability for payroll or business property occupation tax.

(41)  The majority of qualifying companies. A few have tax rates outside this range.

(42)  Assuming they are taxed at the full, standard corporation tax rate.

(43)  Case E7/2002, appropriate measures proposed by letter C(2002) 4481 final of 27 November 2002.

(44)  Case C-52/2001.

(45)  See Case 284/84 Germany v Commission [1987] ECR 4013, point 17.

(46)  See Cases 730/79 Philip Morris v Commission [1980] ECR 2671, 142/87 Belgium v Commission [1990] ECR I-959, Joined Cases C-278/92, C-279/92 and C-280/92 Spain v Commission [1994] ECR I-4103, paragraphs 40 to 42, and Case C-310/99 Italy v Commission [2002] ECR I-2289, paragraphs 84 to 86.

(47)  See conclusions of the meeting of the Council of Economic and Finance Ministers, 3.6.2003.

(48)OJ C 272, 23.9.2000, p. 43.

(49)  See previous footnote.

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