COMMISSION DECISION (EU) 2019/700

of 19 December 2018

on the State Aid SA.34914 (2013/C) implemented by the United Kingdom as regards the Gibraltar Corporate Income Tax Regime

(notified under document C(2018) 7848)

(Only the English text is authentic)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

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

Having given notice to the parties concerned to submit their comments (1),

Whereas:

1. PROCEDURE

(1) On 1 June 2012, the Commission received a complaint from the Spanish authorities concerning the new income tax act in Gibraltar, the Income Tax Act 2010 (hereinafter referred to as ‘ITA 2010’).

(2) On 16 October 2013, the Commission initiated a formal investigation procedure to verify whether the passive interest and royalty income tax exemption in ITA 2010 selectively favours certain companies, in breach of Union State aid rules (the decision taken to initiate that procedure is referred to in this Decision as ‘the First Opening Decision’) (2).

(3) On 4 December 2013, the United Kingdom (‘UK’) authorities provided the Commission with a note on the exemption of royalties, together with draft legislation prepared by the Government of Gibraltar amending ITA 2010 in order to bring royalty income within the charge to taxation in Gibraltar. On request, this information was supplemented by the Gibraltar authorities by emails dated 6, 12 and 16 December 2013.

(4) On 16 December 2013, Gibraltar asked for an extension of the deadline to provide comments on the First Opening Decision until 17 January 2014. That request was accepted by the Commission the same day.

(5) On 20 December 2013, the United Kingdom submitted comments concerning the opening of the procedure pursuant to Article 108(2) of the Treaty. Third party comments on that procedure were received from the Spanish Confederation of Employers (C.E.O.E) (3), Germany, Spain and the Government of Gibraltar, on 27 December 2013, 27 December 2013, 6 January 2014 and 17 January 2014 respectively.

(6) By email dated 7 January 2014, the Gibraltar authorities provided the Commission with a copy of the Income Tax (Amendment) Act 2013 of 24 December 2013, which introduced an amendment to ITA 2010 in relation to the taxation of royalties.

(7) By letter of 16 April 2014, the Commission invited the United Kingdom to submit its comments on the observations raised by third parties concerning the opening of the formal procedure. The United Kingdom replied by letter dated 2 June 2014 within the extended deadline.

(8) On 1 October 2014, the Commission informed the United Kingdom of its decision (4) to extend the procedure laid down in Article 108(2) of the Treaty to include the tax ruling practice in Gibraltar (that decision is referred to in this Decision as ‘the Decision to Extend Proceedings’).

(9) On 10 November 2014, the Commission requested further information in relation to the tax ruling practice in Gibraltar. That information was provided by the United Kingdom on 8 December 2014.

(10) On 4 March 2015, a corrigendum of the Decision to Extend Proceedings was communicated to the United Kingdom.

(11) On 23 March 2015, additional information in relation to the tax ruling practice was requested by the Commission. That information was submitted by the United Kingdom on 23 April 2015.

(12) On 31 March 2015, the United Kingdom submitted its comments on the Decision to Extend Proceedings.

(13) Following an email from the United Kingdom dated 9 March 2015 with proposals for draft legislation and guidance notes in relation to both the territoriality principle and the tax ruling practice, the Commission provided the UK with a number of suggestions on the draft legislation and guidance notes by letter of 3 September 2015.

(14) On 19 October 2015, the United Kingdom provided the Commission with a revised draft regulation and guidance notes on the tax ruling practice as well as 20 tax ruling reviews. On 11 November 2015, the Commission requested information on 2 299 companies with income accruing in or derived from Gibraltar. The requested information was submitted by the United Kingdom on 24 November 2015. Additional tax ruling reviews were sent to the Commission on 3 December 2015, 19 February 2016 and 31 August 2016.

(15) On 14 July 2016, a new request for information on both the tax ruling practice and the passive interest and royalty income tax exemption was sent to the United Kingdom. The United Kingdom replied by letter dated 31 August 2016.

(16) On 7 October 2016, the Decision to Extend Proceedings was published in the Official Journal (5).

(17) In October and November 2016, six interested parties, including Gibraltar and Spain, submitted their observations on the Decision to Extend Proceedings.

(18) On 9 November 2016, Gibraltar lodged an application for annulment of the Decision to Extend Proceedings before the General Court of the European Union (6).

(19) On 7 December 2016, the Commission invited the United Kingdom to comment on the third parties comments received. The United Kingdom submitted its comments on 31 January 2017.

(20) On 16 February 2017, the Commission requested further clarifications from the United Kingdom regarding the Gibraltar tax rulings. The UK authorities replied on 31 March 2017, and submitted further information on 3 May 2017, within the extended deadline.

(21) On 29 November 2017, the United Kingdom submitted a copy of all reports drawn up by the Gibraltar tax authorities as a result of the reviews performed in relation to the 165 tax rulings listed in the Decision to extend proceedings.

(22) Further to comments made by the Commission on 7 December 2017, additional information, including draft legislation and guidance notes, were provided by the UK on 18 January 2018.

(23) On 9 February 2018, the Commission requested further clarifications of the draft legislation sent by the United Kingdom. It also requested supplementary explanations on factual or legal aspects of some of the tax ruling reviews submitted by the United Kingdom in November 2017.

(24) By letter dated 21 February 2018, the United Kingdom replied to that information request. By email of 1 March 2018, the Commission invited the United Kingdom to provide clarification on certain specific tax rulings. The United Kingdom replied to that request on 15 March 2018. Further clarifications on the same issues were provided by the United Kingdom on 24 May 2018, following a request from the Commission dated 3 May 2018.

(25) Meetings were held on 5 December 2013, 12 March 2015, 28 May 2015 and 29 November 2017 and 5 October 2018 with the United Kingdom, together with representatives of the Gibraltar authorities.

2. DESCRIPTION OF THE MEASURES

(26) Gibraltar is a British Overseas Territory. It has full internal self-government with respect to tax matters, while the United Kingdom government is responsible for its international relations, for example for the negotiation of tax treaties.

2.1. Overall description of the Gibraltar corporate income tax system

(27) ITA 2010 (7) entered into force on 1 January 2011 and replaced the former Income Tax Act 1952 (‘ITA 1952’). It introduced a general income tax rate of 10 % applying to companies across the whole Gibraltar economy, except for utility companies, telecommunication services and companies enjoying and abusing a dominant market position, which are subject to a rate of 20 %.

(a) Corporate taxpayers

(28) Both a company (8) ordinarily resident (9) in Gibraltar and a company not ordinarily resident in Gibraltar may be a Gibraltar taxpayer but, in the latter case, only if the company carries on a trade in Gibraltar through a branch or agency (10).

(b) Tax basis

The income which is chargeable to tax is specified exhaustively in Tables A, B and C of Schedule 1 to ITA 2010. This applies to both legal and natural persons. When ITA 2010 was enacted, Tables A, B and C specified the following categories of income:

— Table A: trade, business, profession, vocation and real property,

— Table B: employment and self-employment,

— Table C: other income (dividends (11), fund income, income from rights, pensions and a general ‘Sweeping Up Class’ in relation to items of income caught under the anti-avoidance provisions in section 40 of and Schedule 4 to ITA 2010).

(29) For the purposes of computing the basis of assessment for companies, section 16 of ITA 2010 provides that, subject to certain exceptions, the assessable profits or gains of a company for an accounting period are to be the full amount of the profits or gains of the company for that accounting period, applying the territorial basis of taxation outlined in recitals 30 to 32.

(c) Territorial basis

(30) ITA 2010 is based on a territorial system of taxation, meaning that profits or gains are taxed only if the income ‘accrues in or is derived from’ Gibraltar. According to section 74 of ITA 2010, ‘accrued in and derived from’ is to be defined by reference to the location of the activities (12) which give rise to the profits, normally determined on a case by case basis. That provision also deems activities requiring a licence and regulation under any law of Gibraltar to take place in Gibraltar.

(31) The application by the Gibraltar tax authorities of the concepts of accrual and derivation also finds its source in principles derived from the jurisprudence of the Judicial Committee of the Privy Council (13) in several landmark cases, such as Hang Seng (14) and HK-TVB (15), which both relate to the application of the principle of territoriality in Hong Kong. While the judgments of the Judicial Committee of the Privy Council concerning jurisdictions other than Gibraltar are not binding on Gibraltar, they may be relied upon by the Gibraltar courts if they are considered relevant. In the view of the United Kingdom, that would clearly be the case for the judgments referred to in this recital because of the similarity of the legislation in the two jurisdictions (16).

(32) According to the case-law mentioned in recital 31, in deciding whether profits of any person accrue in and are derived from Gibraltar, the Gibraltar tax authorities should look at what the person has done, or proposes to do, to earn the profits in question, and where that person has done it, or intends to do it. The focus is therefore on establishing the geographical location of the activity that produced the profits for the relevant transactions. With regard to the provision of services by a company, the Gibraltar authorities have indicated that they would rely in particular on the geographical location where all the income-generating activities (and not simply the back-office or administrative support functions) take place in order to determine the place where the services giving rise to fees are performed.

2.2. Tax exemption for passive interest and royalty income

(33) Under ITA 2010, as originally enacted, passive interest and royalties were not chargeable to tax (17), irrespective of the source of the income or the application of the territoriality principle. The notion of passive interest refers mainly to inter-company loan interest. By contrast, interest was subject to tax if it was considered trading income, i.e. if it forms an integral part of a company's revenue stream (18).

(34) ITA 2010 was amended in June 2013, with effect from 1 July 2013, to make all inter-company loan interest (both domestic and foreign sourced) liable to tax at the general rate of 10 % insofar as the interest received or receivable per source company exceeded GBP 100 000 per annum (19). With regard to royalty income, further legislation was enacted on 24 December 2013 subjecting royalties (received or receivable by a company registered in Gibraltar) to tax at the rate of 10 % as from 1 January 2014 (20).

(35) Pursuant to Table C of Schedule 1 to ITA 2010, dividends paid or payable by a company to another company are not subject to tax. That is the general rule irrespective of the location of the company and regardless of the activity of the companies involved (holding companies or active trading companies). The same applies to dividends received by a permanent establishment (situated in Gibraltar) of a non-resident company.

2.3. Tax ruling practice

(36) The Gibraltar Commissioner of Income Tax is entitled to grant tax rulings under his general duty to ensure the due administration of the Income Tax Act and his responsibility for the assessment and collection of income tax in Gibraltar. Such general powers follow from section 2(1) and (2) of ITA 2010.

(37) With respect to the tax rulings listed in the Decision to Extend Proceedings, in most cases, requests for tax rulings seek confirmation of whether or not a resident company is liable to tax in Gibraltar as a result of the basic legal taxation principles, i.e. accrual and derivation of income in accordance with the territorial system.

(38) In addition, section 42 of ITA 2010 provides for a specific procedure for clearance in relation to anti-avoidance issues. Such rulings can only be granted for the purpose of determining whether certain transactions or arrangements are taxable in accordance with section 40 of or Schedule 4 to ITA 2010, i.e. for determining whether or not an arrangement is artificial or fictitious for the purposes of eliminating or reducing the amount of taxation payable.

3. GROUNDS FOR INITIATING THE FORMAL INVESTIGATION PROCEDURE

3.1. The passive interest and royalty income tax exemption

(39) In the First Opening Decision, the Commission took the preliminary view that the tax exemption for passive (inter-company loan) interest and royalty income resulting from ITA 2010 constitutes State aid for the purposes of Article 107(1) of the Treaty and expressed doubts as to its compatibility with the internal market.

(40) With respect to the material selectivity of the measure, the Commission found that the passive income (interest, royalty and dividend) exemption was prima facie selective. However, with regard to dividends it found that the exemption was justified by the logic of preventing double taxation. By contrast, the Commission did not identify any justification for the exemption for passive interest or royalty income. In particular, it did not agree that the exemption for foreign source passive interest followed from the logic of the territorial system of taxation. Nor did it accept the argument that the exemption for domestic source passive interest would be justified by manageability concerns (excessive costs of collecting the tax). Finally, with regard to the royalty exemption, the Commission did not accept the need to make the Gibraltar tax system simple and effective as a valid justification for the exemption.

(41) On a preliminary basis, the Commission also concluded that the measure was financed through State resources, that it conferred an economic advantage to undertakings, that it affected trade between Member States and that it threatened to distort competition by favouring certain undertakings. Accordingly, it took the view that the tax exemption for passive interest and royalties constituted State aid for the purposes of Article 107(1) of the Treaty.

(42) The Commission also concluded that such aid constituted ‘new aid’ as the exemption for passive interest under ITA 1952 was not granted automatically and required an assessment of territoriality. In addition, ITA 2010 introduced an exemption for royalties, which did not previously exist under ITA 1952. In this regard, the Commission noted that the application of the territorial system meant that all royalty income received by a Gibraltar company accrues in and is derived from Gibraltar.

(43) Finally, the Commission expressed its doubts as to the compatibility of the exemption rule for the passive (inter-company loan) interest and royalty income with the internal market. In particular, it did not identify any possible compatibility grounds under Article 107(2) or (3) of the Treaty.

3.2. The tax ruling practice

(44) With the Decision to Extend Proceedings, the Commission decided to extend the formal investigation procedure to cover 165 tax rulings granted by the Gibraltar tax authorities between the period from 2011 to August 2013 (out of a total of 340 rulings granted during that period).

(45) The Commission considered that the four conditions for qualifying a measure as State aid were in principle met. In particular, it concluded on a preliminary basis that the tax ruling measures were materially selective as the Gibraltar tax authorities generally refrained from conducting a proper assessment of the company's tax obligations, in exercise of their discretionary powers. In the Commission's view, such a course of conduct was made possible because the legal provisions were formulated in a vague manner. The Commission also took the preliminary view that, in some cases, the Gibraltar tax authorities issued tax rulings that were inconsistent with the applicable tax provisions.

(46) To support its preliminary views on the selective nature of the tax ruling measures due to the existence of discretionary practices, the misapplication of the rules or the absence of proper verification as to where activities are effectively performed, the Commission outlined seven typical categories of cases on the basis of different types of ruling, activity or income.

(47) On a preliminary basis, the Commission considered that, by granting such tax rulings only to certain multinational companies, as opposed to other, purely domestic companies that do not ask for a tax ruling, the tax authorities treated companies that were in a similar legal and factual situation differently. Accordingly, the measures were found to be prima facie selective. Further, the Commission did not identify an acceptable justification based on the nature or the general scheme of the reference system (see recital 57 of the Decision to Extend Proceedings). In this respect, it also indicated that any possible justification would require the existence of appropriate control and monitoring procedures (21) (in order to ensure a coherent application of the tax system), which seemed to be lacking in the case in hand.

(48) As a preliminary conclusion, the Commission also found that the tax ruling measures were granted through State resources, that they conferred an economic advantage to undertakings, that they affected trade between Member States and that they threatened to distort competition by favouring certain undertakings. It expressed its doubts as to the compatibility of those measures with the internal market. Accordingly, it took the preliminary view that the tax ruling measures constituted State aid for the purposes of Article 107(1) of the Treaty. It also considered that such State aid constituted ‘new aid’.

(49) The extended proceedings related not only to the 165 individual rulings but also more generally to the tax ruling practice under ITA 2010, which seemed to misapply the provisions of ITA 2010 on a recurrent basis.

(50) With regard to the compatibility of the 165 tax rulings and the general tax ruling practice with the internal market, the Commission did not identify any possible grounds for compatibility based on the exceptions laid down in Article 107(2) and (3) of the Treaty.

(51) In conclusion, the Commission expressed the preliminary view that the 165 tax rulings listed in the Annex to the Decision to Extend Proceedings and the tax rulings practice of Gibraltar constitute State aid for the purposes of Article 107(1) of the Treaty and expressed doubts about their compatibility with the internal market. It also invited the United Kingdom and the Gibraltar authorities to provide it with evidence of ex post controls. Finally, it invited the United Kingdom to explain whether and on what grounds the tax ruling practice or any of the 165 tax rulings assessed could be found compatible.

4. COMMENTS FROM THE UK

4.1. Comments on the passive interest and royalty income tax exemption

(52) The comments submitted by the United Kingdom on 20 December 2013 can be summarised as follows: (1) ITA 2010 applies the territorial principle according to which the profits of companies are taxed in Gibraltar only if the income ‘accrues in or is derived from’ Gibraltar. This was also the situation under ITA 1952; (2) the exemption for passive interest and royalty income cannot be considered selective as these provisions are open to all companies and apply generally to all sectors of industry, finance and commerce. The availability of the exemption is not limited in any way, either to any category of company or to any kind of activity. The fact that some companies benefit from a tax rule more than others does not make it selective. In addition, no particular group of companies benefiting from the measure can be identified. There are no other companies in similar factual or legal situations in Gibraltar to which these measures would not apply; (3) it is incorrect to say that the exemption selectively favours in particular companies receiving royalties for intellectual property rights and intra-group interest paid by non-Gibraltar companies. There is nothing in the tax system which leads to any particular proportion of non-Gibraltar companies, or which gives any privilege to companies lending to foreign companies; (4) the reference to ‘offshore companies’ in recital 37 of the First Opening Decision is too ambiguous and unrelated to the tax treatment of passive income. In addition, the argument that the measure re-establishes the previous regime of exempt companies is irrelevant as it does not influence the selectivity assessment of the exemption; (5) as regards de facto selectivity, no identifiable group or category of companies could be identified as beneficiaries. The way a given rule operates in practice from time to time does not make it selective unless the terms of the measure, or some identifiable and stable feature of the specific circumstances to which it applies, cause it to benefit only a limited category of companies. In the case in hand, the number of companies actually or potentially benefiting from the provisions is not limited in any way, in law or in fact. The provision is therefore not selective; (6) the exemption for passive interest and royalty income is justified by the nature and general scheme of the Gibraltar tax system. First, the non-taxation of foreign-source passive interest is the logical consequence of the territoriality principle, which is based on the aim of avoiding double taxation. Second, the exemption for Gibraltar-source interest and royalties is justified by the logic of any tax system considering that cost of collection must not exceed expected revenue; (7) if the Commission was to conclude that the treatment of foreign source loan interest is selective, it would have to be considered as ‘existing’ aid. The new aid element could only concern passive interest amounts ‘that were taxable before the entry into force of ITA 2010’ whereas under ITA 1952, foreign source loan interest was not taxable because of the ‘situs of the loan’ rule (22). This means that de facto the ‘situs’ of foreign-source inter-company loan interest has remained the same as under the previous legislation. Accordingly, it was legally incorrect for the Commission to initiate a formal investigation procedure on this particular aspect of the Gibraltar tax system; (8) the Government of Gibraltar introduced legislation, with effect from 1 July 2013, so that all inter-company loan interest income exceeding GBP 100 000 per annum, both domestic and foreign-sourced, are subject to tax. Reference was also made to further legislation enacted on 24 December 2013 with effect from 1 January 2014 making royalties also liable to tax; (9) in addition, if the Commission concluded that the tax treatment of interest and royalties was ‘new’ aid, the UK's understanding of Gibraltar's view is that recovery affecting the relevant periods would be difficult or impossible for practical reasons; (10) finally, the Commission has departed from the normal practice under Council Regulation (EU) 2015/1589 (23) (‘the Procedural Regulation’) as it has initiated a formal investigation on a particular aspect of the Gibraltar tax system in parallel with a continued preliminary examination regarding the same tax system.

4.2. Comments on the tax ruling practice

(53) The arguments put forward by the United Kingdom on 31 March 2015 against the Decision to Extend Proceedings can be summarised as follows: (1) there is no evidence that any tax rulings would be selective. The tax ruling practice in Gibraltar has never involved any element of individual or special treatment or any element of negotiation, or any influence or consideration except those resulting from the terms of the tax law applicable in Gibraltar. A tax ruling is simply a statement by the Gibraltar Commissioner of Income Tax that, on the basis of the facts explained to the Commissioner, and on the normal and correct interpretation of the legislation applicable, the company in question is not liable to income tax on the income or revenues described. There is no evidence that any of the rulings departed in any way from the normal and correct interpretation of the tax legislation. In addition, the tax authorities exercise no discretionary powers, nor is there any evidence that they have ever consciously or deliberately refrained from making proper assessments, or deliberately deviated from the applicable national tax legislation. The seven categories of ruling identified by the Commission in the First Opening Decision are not selective when compared with other tax rulings as none of the rulings deviates from the applicable national tax provisions; (2) there is no evidence that any of the tax rulings distorted competition. A measure can distort competition only in the sector in which it applies, or in some closely related sector. The tax rulings with which the decision is concerned apply in a large number of different sectors. The Commission has not suggested that any individual ruling distorted competition in the sector in which it applied, but merely indicates that there is an effect on trade between Member States that threatens to distort competition, without considering whether any ruling has done so; (3) there is clear evidence that the rulings referred to in the Decision to Extend Proceedings are only part of a consistent practice which began long before the UK joined the Union. The practice was based on section 3(1) of ITA 1952, now reproduced in virtually identical form in section 2(1) and (2) of ITA 2010. Therefore, if there were found to be any element of State aid, it would necessarily be ‘existing’ aid, and not ‘new’ aid; (4) the Decision to Extend Proceedings is based on an incorrect understanding of significant facts. The Commission was informed, unfortunately incorrectly, by the UK authorities on behalf of the Government of Gibraltar that the procedure allowing the Gibraltar Commissioner to grant tax rulings confirming whether or not a resident company is liable to tax in Gibraltar is set out in section 42 of ITA 2010, which was introduced by that Act and did not exist under ITA 1952, instead of being told that section 42 merely introduced an explicit legislative basis for a certain type of ruling that is not relevant to the case in hand and that rulings on the application of the territorial system have been given since 1952, under section 3(1) of ITA 1952 or section 2(1) and (2) of ITA 2010. Although that misunderstanding is due to incorrect information provided by the UK authorities, the United Kingdom considers that it was presumably this incorrect information that led the Commission to assume it might be possible to regard tax rulings given since 2010 as ‘new aid’; (5) the Decision to Extend Proceedings suggests that the Commission considers that the practice could be a ‘scheme’ of aid and involves one or more individual State aids. There is no evidence to support either view. Such uncertainty questions the Decision procedurally, at least in part, since the scheme character of the practice of rulings cannot be dealt with by the chosen procedure, as it is evidently existing aid, if it is concluded to be aid at all. In addition, there is no evidence that suggests that tax rulings were intended to be anything except the normal and correct interpretation and application of the tax law in force; (6) the Decision to Extend Proceedings was adopted before the Commission had all the information to be able to fully assess the position with respect to tax rulings. In particular, there had been only two exchanges between the Commission and the United Kingdom on the tax ruling practice before the Commission took the Decision to Extend Proceedings. During that period, the Commission never suggested on what basis any tax ruling could be regarded as distorting competition in any way.

5. COMMENTS FROM INTERESTED PARTIES

5.1. Comments on the passive interest and royalty income tax exemption

(54) The Commission received comments from four interested parties — Gibraltar, Spain, Germany and the Spanish Confederation of Business Organisations (CEOE).

5.1.1. Comments from Gibraltar

(55) In its comments, Gibraltar supported the line of argument put forward by the United Kingdom that the measure is not selective as it is applied universally and is open to all types of goods, services and companies and that, if it were found to be selective, it should be considered justified by the logic and general nature of the system as a consequence of the territoriality principle. It further pointed out that the exemption for passive interest and royalty income is justified by concerns about administrative manageability, since the costs associated with the collection of the tax are expected to be larger than the actual tax yields.

(56) With regard to the exemption for royalty income, Gibraltar further submitted that the exemption cannot be regarded as selective as the companies that were in receipt of royalties during the three year period when the non-chargeability to tax was in force were active in sectors as diverse as food retail, high street clothing, gaming and insurance. Furthermore, the type of royalty concerned was equally diverse, including copyright, trade mark, knowhow and patents.

(57) Gibraltar also maintained that, were the measure nonetheless found to be selective, it should be considered to be ‘existing aid’ as it is de facto a continuation of the old regime under which foreign interest was exempt from taxation, based on an analysis of the ‘situs of the loan’. For that reason, the measure could only be considered to be ‘new aid’ to the extent that it concerned domestic interest income.

(58) With respect to any potential recovery, Gibraltar also submitted that the amounts of tax foregone would fall below the de minimis threshold established by Commission Regulation (EU) No 1407/2013 (24). In particular, Gibraltar submitted that information collected from 18 companies in receipt of royalty income, who together accounted for GBP 90 million in gross royalty income, showed that the total net figure of royalty income, as a result of the deductible expenses, amounted to no more than GBP 18 million. In addition, with regard to Gibraltar-source passive interest, the maximum tax yield would be approximately GBP 250 000, spread across at least 17 companies. Furthermore, Gibraltar's view is that recovery is likely to be impossible for practical reasons and would meet insurmountable difficulties, due to the mobile character of the funds of the companies in question and in the light of the international law principle that courts of one State will not allow or enforce claims for taxes on behalf of another State.

(59) With regard to the procedure, Gibraltar asserted that the Commission departed from the normal practice under the Procedural Regulation, with arguments similar to those put forward by the UK authorities.

5.1.2. Comments from Spain, Germany and CEOE

(60) In their submissions, Spain, Germany and CEOE supported the Commission's analysis that the measure constituted State aid as it selectively excluded certain types of income from taxation, had a negative effect on intra-Union trade and distorted competition.

(61) In addition, Spain expressed concern about the effectiveness of the amendment of 7 June 2013 regarding taxation of passive interest, given that the exempted companies in Gibraltar who had received interest income did not have any tax filing obligations. In Spain's view, this would hinder identification of the potential beneficiaries of the measure and ex post controls on the reporting and taxation of interest income.

(62) Spain also maintained that the new GBP 100 000 threshold introduced by the 2013 amendment is high. Furthermore the anti-abuse provision, which requires the received interest from related companies to be aggregated, does not apply at the level of the recipient companies. Therefore, the threshold provision could be easily circumvented through a simple company group restructuring creating several Gibraltar companies and distributing the interest received amongst those.

(63) With respect to the exemption of dividends, Spain challenged the double-taxation prevention justification put forward by the Commission. In Spain's opinion, contrary to the Code of Conduct Group's Work Package 2011 on business taxation's guidance notes, Gibraltar had not enacted an effective anti-abuse provision to ensure taxation. In particular, it considered that Gibraltar's legislation failed to require the undertaking in question to be subject to tax (either in Gibraltar or in a foreign country) in order to benefit from the exemption. This failure gave rise, in Spain's view, to a risk of double non-taxation.

(64) Concerning the tax treatment of royalties, the Spanish authorities considered that the exemption selectively favoured companies receiving income from royalties and that such an exemption could not be justified by the avoidance of double taxation.

(65) Both the Spanish authorities and CEOE also referred to the fact that the exemption for passive interest and royalty income must be examined in the light of the general effects of ITA 2010. In their opinion, the intention of ITA 2010 was to continue the effects of the previous tax system (already declared by the Court of Justice to be State aid) favouring offshore companies over those resident in Gibraltar.

(66) Finally, Spain also challenged the assessment made by the Commission with regard to regional selectivity, by distinguishing between the status of the Azores province (which the Commission referred to in its analysis in the First Opening Decision) and the status of Gibraltar. In particular, the Spanish authorities considered that, in addition to examining the three criteria of institutional, procedural and financial autonomy, the implicit criterion concerning tax harmonisation (which, according to the Spanish authorities, clearly does not exist in Gibraltar) should also be examined. Spain also referred to a number of other tax issues, such as the number of shell companies located in Gibraltar without being liable to tax.

5.2. Comments on the tax ruling practice

(67) The Commission received comments from six interested parties — Gibraltar, Spain, the Gibraltar Society of Accountants and three companies listed as possible recipients of tax rulings in the Decision to Extend Proceedings.

5.2.1. Comments from Gibraltar

(68) The comments made by Gibraltar relate to both procedure and substance. The comments follow the lines of argument put forward by the United Kingdom and can be summarised as follows: (1) a State aid procedure should not be opened unless there is sufficient factual evidence that the measure in question confers an economic advantage and that the advantage is selective and distorts or threatens to distort competition. In this case, there is no such evidence of any of these points. The Commission's comments on the rulings merely amount to saying that the Commission thinks that more information should have been sought. That opinion does not constitute evidence of an advantage, of selectivity, or of distortion of competition; (2) the Commission made a manifest error in stating in the Decision to Extend Proceedings that the tax ruling practice in Gibraltar was introduced by section 42 of ITA 2010; (3) The tax ruling procedure has been in place since the 1960s, and, as such, if found to constitute aid, it should be considered as ‘existing aid’; (4) there is no evidence that that any of the tax rulings are selective or distort competition. Each ruling is a matter of interpretation of the facts presented in the request. The lack of detailed analysis cannot of itself be considered to indicate selectivity; (5) the tax ruling practice in Gibraltar has never involved any element of individual or special treatment or any element of negotiation, or any influence or consideration except to the extent they result from the terms of the tax law applicable in Gibraltar; (6) the tax liability of the companies concerned would be identical regardless of whether they had requested a tax ruling or not; (7) when applying the territoriality test, the tax authorities do not enjoy discretion and are bound by the applicable legislation and case-law in this regard; (8) the Commission's effort to group the 165 rulings into seven distinct categories in order to establish selectivity on a group by group basis is unsupported as there is nothing that would indicate that these groups present any particular characteristics when compared to other uncontested rulings given during the same period or before.

5.2.2. Comments from Spain

(69) The comments provided by the Spanish authorities on 30 November 2016 can be summarised as follows: (1) the Spanish authorities do not contest the territoriality principle itself but rather the way it is interpreted by the Gibraltar authorities. This general rule, combined with a lack of proper assessment, monitoring and legal enforcement of the tax provisions on the part of the Gibraltar tax administration (either ex ante or ex post), results in an arbitrary, favourable tax treatment to a vast number of companies in the territory; (2) apart from the 165 companies listed in the Annex to the Decision to Extend Proceedings, intermediary companies operating in Gibraltar such as consultancy firms, fiduciaries and law firms specialised in fiscal planning and fiscal management, are also benefiting indirectly from the aid; (3) Spain once again reiterated its understanding that the issue should also be analysed from the perspective of regional selectivity, which in its view would also address the argument that the measure constitutes existing aid.

5.2.3. Comments from the Gibraltar Society of Accountants

(70) On 3 November 2016, the Gibraltar Society of Accountants — the principal representative body for professional accountants working in Gibraltar, submitted its comments to the Decision to Extend Proceedings. The comments can be summarised as follows: (1) the rulings listed were neither requested nor issued under section 42 of ITA 2010; (2) the rulings selected cover a wide range of circumstances and topics, and lack the ‘commonality’ aspect to which the Decision to Extend Proceeding refers; (3) tax rulings of this kind have been requested and issued in Gibraltar since as far back as the 1950s and the scheme, if it amounts to State aid, should be considered as existing aid; (4) the rulings are interpretations of Gibraltar's tax law. They are not negotiated ‘deals’, or concessions. The issuing of a ruling does not confer favourable treatment. The Decision to Extend Proceedings provides no evidence that the interpretation would be any different in the absence of a ruling being requested; (5) none of the criteria required for State aid to be present is demonstrated to be met. The measure is not granted out of State resources and does not confer an economic advantage to undertakings because there is no loss of tax revenue since the tax treatment without a ruling would be the same. The measure is not selective and there is no evidence that the measure distorts or threatens to distort competition or affects intra-Union trade; (6) all but six of the 165 rulings listed in the Decision to Extend Proceedings were issued at a time when passive interest income was not assessable to tax under ITA 2010. Therefore, the vast majority of rulings could not give rise to any assessable interest income.

5.2.4. Comments by or on behalf of companies listed as recipients of tax rulings in the Decision to Extend Proceedings

(71) The Commission also received comments by or on behalf of three companies which were granted a tax ruling identified in the Decision to Extend Proceedings — International Power Ltd; a representative of a potential company at the time of the ruling request; and Hastings Insurance Group Ltd. Their comments can be summarised as follows: (1) the rulings were intended to seek confirmation of the applicable tax regime and not as a way to obtain any tax benefit. The main reason for requesting the rulings was to ensure legal certainty on the application of the general tax rules and not to agree a specific alternative tax treatment for the company; (2) tax rulings enable Member States to provide their taxpayers with legal certainty and predictability on the application of general tax rules. To view Gibraltar's tax ruling practice as a State aid scheme would prevent the Gibraltar tax authorities from providing legal certainty and would penalise taxpayers looking for legal certainty, whilst ignoring those taxpayers who benefit from the same treatment but decide not to seek confirmation as to the precise application of the law; (3) the requests for rulings were not made further to section 42 of ITA 2010, but instead sought general confirmation on the tax treatment applicable under the law; (4) the rulings do not constitute an advantage to the companies as they only confirmed the tax treatment that would have been applied under the legislation applicable in Gibraltar; (5) the content of the requests for a ruling, and the rulings themselves, indicate that adequate consideration was given to all relevant factors by the Gibraltar tax authorities before providing the rulings.

6. RESPONSE OF THE UNITED KINGDOM TO THIRD PARTY COMMENTS

6.1. Comments on the passive interest and royalty income exemption

(72) The Commission forwarded the comments received from interested parties on the passive interest and royalty income exemption to the United Kingdom on 16 April 2014. The United Kingdom's response to those comments can be summarised as follows: (1) no evidence has been given showing distortion of competition or effect on trade; (2) the exemption for dividends is justified in order to avoid double taxation and is a direct result of the territoriality principle; (3) following the June 2013 amendment, all companies registered in Gibraltar in receipt of passive interest income are subject to income tax and required to file a tax return; (4) with respect to the GBP 100 000 threshold imposed by the legislation, the Gibraltar tax authorities have conducted an analysis which has shown that only 1 % of inter-company loan interest income will fall below the threshold and will therefore not be subject to taxation. The results of the analysis were presented to the Code of Conduct Group and to the Commission prior to enactment of the 2013 amendment in order to explain the reasons for introducing the limit and to quantify any possible tax leakage; (5) regarding the Spanish comments that the exemption for royalty income selectively favours a group of companies in receipt of royalties, no such sector or grouping exists. All companies receiving royalties are treated the same; (6) there is no variation or discretion in the concept of territoriality, which is applied consistently under ITA 2010 to all companies; (7) Spain's comments concerning parts of Gibraltar tax law in respect of which the Commission has not initiated an investigation procedure are irrelevant and the Commission's investigation should be limited to the matters for which the procedure was initiated; (8) finally, comments were provided on the status of Gibraltar as a British Overseas Territory, its executive, legislative and judiciary independent governance, thus showing that the measure cannot be treated as regional aid.

6.2. Comments on the tax ruling practice

(73) The Commission forwarded the comments made by interested parties on the tax ruling practice as set out in the Decision to Extend Proceedings to the United Kingdom on 7 December 2016. The United Kingdom's response to those comments can be summarised as follows: (1) the comments made by the three addressees of tax rulings corroborate the submissions that the UK authorities have made to the Commission during the investigation procedure and constitute further evidence which supports the legality of the tax ruling practice in Gibraltar and the fact that that practice does not constitute State aid; (2) the Government of Gibraltar carried out extensive reviews of all 165 rulings listed in the Decision to Extend Proceedings which, in the UK's view, confirm that none of the 165 rulings has exempted the recipient from tax that would otherwise have been due to, or has led to a loss of tax revenue for Gibraltar; (3) the reviews carried out confirm that none of the rulings listed in the Decision to Extend Proceedings is selective and therefore none of them constitutes State aid on that basis; (4) 14 of the rulings listed in the Decision to Extend Proceedings concerned transactions that never materialised and further three rulings concerned the taxation of employees' income and/or benefits in kind and neither of those categories raises State aid concerns; (5) the position expressed by Gibraltar that its tax authorities do not enjoy wide discretion when issuing rulings, and do not issue rulings without checking or evaluating the requests, is correct. The rulings do not lead to a selective application of the tax regime since they just apply the law as set out in ITA 2010.

7. ASSESSMENT OF THE PASSIVE INTEREST AND ROYALTY INCOME EXEMPTION

(74) In the First Opening Decision, the Commission concluded on a preliminary basis that the tax exemption for passive (inter-company loan) interest and royalty income constituted State aid and expressed its doubts about its compatibility with the internal market.

(75) As from 1 July 2013, the passive interest income has been liable to tax (insofar as the interest received or receivable per source company exceeded GBP 100 000 per annum). As from 1 January 2014, the royalty income (received or receivable by a company registered in Gibraltar) has been subject to tax.

(76) The scope of this Decision (under section 7) is limited to the assessment of the passive interest and royalty income received or receivable between the entry into force of ITA 2010 (1 January 2011) and 30 June 2013 (as regards interest) or 31 December 2013 (as regards royalties) (25).

7.1. Existence of aid

(77) The classification of a national measure as State aid, within the meaning of Article 107(1) of the Treaty, requires the following conditions to be met. First, there must be an intervention by the State or through State resources. Second, the intervention must be liable to affect trade between Member States. Third, it must confer a selective advantage on the recipient. Fourth, it must distort or threaten to distort competition (26).

7.1.1. State resources and imputability to the State

(78) To constitute State aid, a measure must both be imputable to a Member State and financed through State resources.

(79) Since the exemption results from an Act of the Gibraltar Parliament, it can be regarded as imputable to Gibraltar.

(80) As regards the financing of the exemption through State resources, the Court of Justice has consistently held that a measure by which public authorities grant certain undertakings a tax exemption which, although not involving a positive transfer of State resources, places the persons to whom it applies in a more favourable financial situation than other taxpayers constitutes State aid (27). The tax measure at issue results in Gibraltar waiving tax revenue that it would otherwise have been entitled to collect from companies resident in Gibraltar in receipt of passive interest or royalty income. By renouncing those revenues, the tax measure gives rise to a loss of State resources within the meaning of Article 107(1) of the Treaty (28).

7.1.2. Advantage

(81) According to the case-law of the Union Courts, the notion of aid embraces not only positive benefits, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking (29). An advantage may be granted through different types of reduction in a company's tax burden and, in particular, through a reduction in the applicable tax rate, taxable base or in the amount of tax due (30). A measure that entails a reduction of a tax gives rise to an advantage because it places the undertakings to which it applies in a more favourable financial position than other taxpayers and results in a loss of income to the State (31).

(82) In the case in hand, the measure contradicts the general principle that corporate income tax is collected from all taxable persons that receive income derived from or accruing in Gibraltar. In line with that principle, passive interest and royalty income should normally fall within the scope of taxation, subject to application of the territoriality principle. With regard to royalties, it must be noted that the territoriality principle deems royalty income received by a Gibraltar company to accrue in and be derived from Gibraltar. As for passive interest income, the chargeability of such income to tax under the territorial system depends on application of the ‘situs of the loan’ rule, which is based on four cumulative criteria (32) focusing on the source of the income. Accordingly, in a number of cases, foreign source passive interest income may, even in the absence of the contested tax exemption, not be subject to income tax in Gibraltar by virtue of the territorial system. However, relief from taxation under the territoriality principle is not automatic and criteria other than the source of the interest (e.g. the location of the security of the debt) need to be considered to determine if the interest accrued in or was derived from Gibraltar in accordance with the ‘situs of the loan’ rule.

(83) As a result, the exemption introduces a mitigation of a charge that companies benefiting from the exemption would otherwise have to bear. This gives rise to an advantage as the companies are relieved of costs inherent to their economic activities and are therefore placed in a more favourable financial position than other taxpayers (who are in receipt of active income).

7.1.3. Selectivity

(84) In order to be regarded as State aid within the meaning of Article 107(1) of the Treaty, a measure must be found to be selective in the sense that it favours certain undertakings or the production of certain goods.

(85) As a preliminary remark, with respect to the comments made by Spain on regional selectivity, it must be observed that, in the First Opening Decision, the Commission did not express doubts with regard to regional selectivity and considered that the reference framework for assessment of the exemption was confined exclusively to the geographical territory of Gibraltar (33). The Commission maintains its view that the passive interest and royalty income exemption does not involve regional selectivity. In particular, the three cumulative criteria of autonomy (institutional, procedural and financial autonomy), as devised by the Court of Justice in Azores (34) and Union General de Trabajadores de la Rioja (35), are fulfilled. Accordingly, the Gibraltar authorities are considered sufficiently autonomous from the United Kingdom central government and the reference framework therefore corresponds to the geographical limits of the territory of Gibraltar (36).

(86) For the purposes of establishing material selectivity, it is settled case-law that, as a first step, the common or normal tax regime applicable in the relevant tax jurisdiction must be identified (‘the reference system’). Second, it must be determined whether a given measure differentiates between economic operators who, in light of the objectives intrinsic to the system, are in a comparable factual and legal situation. If it does, the measure is then regarded as being prima facie selective (37). It then needs to be established, in the third step of the test, whether such prima facie selectivity is justified by the nature or the general scheme of the (reference) system (38). If a prima facie selective measure is justified by the nature or the general scheme of the system, it will not be considered selective and will thus fall outside the scope of Article 107(1) of the Treaty.

(87) In this context, it is also important to note that for a tax measure to qualify as selective, the tax system does not need to be designed in such a way that companies benefiting from a selective advantage are, in general, subject to the same tax burden as other companies, but benefit from derogating rules, so that the selective advantage is the difference between the normal tax burden and that borne by these companies (39).

(88) Indeed, such an understanding of selectivity would mean that only a tax system designed according to a certain regulatory technique could qualify as selective, and that national tax rules that were designed differently would escape State aid control, even though they produced the same effects in law or in fact. That would go against well-established case-law, which provides that, when assessing selectivity, Article 107(1) of the Treaty does not distinguish between measures by reference to their causes or their aims, but instead defines them in relation to their effects, and thus, independently of the techniques used (40).

7.1.3.1. System of reference

(89) The reference system constitutes the benchmark against which the selectivity of a measure is assessed. It is composed of a consistent set of rules that generally apply on the basis of objective criteria to all undertakings falling within its scope as defined by its objective. Those rules define not only the scope of the system, but also the conditions under which the system applies, the rights and obligations of undertakings subject to it and the technicalities of the functioning of the system (41). In the case of taxes, the reference system is based on such elements as the tax base, the taxable persons, the taxable event and the tax rates (42).

(90) In the case in hand, the reference system is ITA 2010. The long title of that Act describes it as ‘an Act to Impose Taxation on Income and to Regulate the Collection thereof’ (43). With regard to the taxable basis for companies, section 16 of ITA 2010 provides that ‘save as otherwise provided hereafter, the assessable profits or gains of a company shall be the full amount of the profits or gains of the company for any accounting period of that period’. As a result, subject to any adjustments up or down provided for in ITA 2010, accounting profits are to constitute the basis of assessment for the calculation of corporate income tax in Gibraltar.

(91) On the other hand, as the UK authorities pointed out (44), it is within the inherent logic of the territorial system of taxation in Gibraltar that all income, whether active or passive, with a source outside Gibraltar falls outside the scope of Gibraltar tax and remains subject to tax in the jurisdiction where the income accrued or is derived.

(92) To define the general Gibraltar corporate income tax system as the ‘reference framework’ is in line with the Court's case-law, which has consistently held that, in the case of measures concerning the determination of corporate income tax liability, the reference system to be considered is the corporate income tax system of the Member State in question that applies to undertakings in general, and not the specific provisions of that system applicable only to certain taxpayers or certain transactions. For instance, in World Duty Free, a case concerning the rules governing investments in shareholdings, the Court endorsed the Commission's position that the reference system was the Spanish corporate income tax system and not the specific rules governing the tax treatment of those investments (45).

(93) While the objective of ITA 2010 is to collect revenue from taxpayers taxable in Gibraltar (i.e. taxpayers receiving income derived from or accruing in Gibraltar) (46), Schedule 1 to that Act did not include within the categories of income taxable in Gibraltar certain categories of income (47). Accordingly, the passive interest and royalty income exemption did not follow from a formal derogation from the tax system, but rather from the non-inclusion of such income in the categories of income falling within the scope of the Gibraltar tax system (an implicit exemption).

7.1.3.2. Different tax treatment of companies in comparable situations

(94) In accordance with the territorial system of taxation generally applicable in Gibraltar (48), only income that is derived from or accrues in Gibraltar is subject to corporate income tax. ITA 2010, however, provided on entry into force for an automatic exemption from corporate income tax for passive interest-loan and royalty income, without consideration needing to be given to the elements which are generally relevant for determining the territorial scope of taxation in Gibraltar, in line with the territoriality principle. In this regard, it is particularly relevant to note that, in the absence of the exemption for royalty income, the territorial system of taxation would deem royalty income received by a Gibraltar company as always accruing in and derived from Gibraltar (49). As for passive interest, a case-by-case assessment of the territoriality principle would be needed in order to determine the location of the activities giving rise to the income and hence the existence or otherwise of a taxable income.

(95) In the First Opening Decision, the Commission found that the corporate income tax exemption for passive interest and royalty income, in differentiating between companies in a comparable legal and factual situation, should be considered prima facie selective in the light of the objective of ITA 2010, which is to tax income accruing in or derived from Gibraltar.

(96) The Commission further noted in the First Opening Decision that the exemption seemed to significantly favour a group of 529 companies that receive passive interest or royalty income, in particular interest from other companies of the same group or royalty income. The Commission also noted that the largest part of loan interest received by Gibraltar companies resulted from inter-company loans granted to foreign group entities (50).

(97) In a case such as this where the measure does not arise from a formal derogation from the tax system, the Commission is of the view that, in assessing selectivity, it is particularly relevant to consider the effects of the measure in order to assess whether the measure significantly favours a particular group of undertakings.

(98) With regard to royalties, the Commission's analysis of the effects of the measure (51) shows that it only benefited 10 companies (out of 8 003 active companies operating in Gibraltar), all being part of multinational groups. In addition, it appears that at least 8 of them belong to large multinationals operating worldwide. By contrast, no stand-alone company was in receipt of royalty income in Gibraltar.

(99) As regards interest, the information provided by the UK authorities shows that, of the total amount of inter-company loan interest income received by Gibraltar companies (GBP 1 400 million), 99,8 % derives from loans granted to foreign (group) companies. By contrast, only two Gibraltar companies, accounting for no more than GBP 3 256 834 in total (GBP 222 169 in terms of tax forgone) (corresponding to 0,2 % of the total amount of inter-company loans), benefited from domestic sourced interest.

(100) Those figures demonstrate that the measure significantly favoured companies belonging to multinational groups entrusted with certain functions (the granting of intra-group loans and/or the right to use intellectual property (IP) rights). In particular, the measure benefited (i) a small number of multinational companies, most of which are part of large multinational groups operating worldwide (in receipt of royalty income); and (ii) companies that are part of multinational groups and provide loans to foreign companies that are part of their group. In the light of the objective of ITA 2010 (namely taxing income accruing in or derived from Gibraltar), these companies are in a similar legal and factual situation to all other Gibraltar companies generating income accruing in or derived from Gibraltar (or carrying on activities requiring a licence under Gibraltar law, such as banking, insurance or gambling).

(101) The United Kingdom and the Gibraltar authorities consider that the exemption constitutes a general measure applied to all companies in a similar situation, regardless of the sector. They further point out that the fact that it is possible to identify some companies which benefit from a tax rule more than others does not make the rule selective per se. The rule would only be selective if it was inherently likely to benefit an identifiable category of companies. In the view of the UK and the Gibraltar authorities, that is not the case with the measure in hand as there are no other companies in a similar factual or legal situation in Gibraltar to which the exemption does not apply.

(102) The Commission considers that the United Kingdom's assertion that the measure prima facie applies to all companies, regardless of their sector or activity, is not relevant for the purposes of assessing selectivity. It is settled case-law that the fact that the number of undertakings able to claim entitlement under a national measure is large, or that those undertakings belong to various economic sectors, is not sufficient to call into question the selective nature of the measure (52).

(103) A measure that differentiates between undertakings which, in the light of the objective pursued by the legal regime concerned, are in a comparable factual and legal situation is a priori selective. In the case in hand, it has been established that the exemption from corporate income tax for passive interest and royalty income mainly benefits multinational groups. As noted in recital 100, in the light of the objective of the reference tax system (ITA 2010), namely taxing income accruing in or derived from Gibraltar, multinational groups are in a similar legal and factual situation to all other Gibraltar companies generating income accruing in or derived from Gibraltar. Therefore, the exemption from corporate income tax for passive interest and royalty income is prima facie selective.

(104) In addition, it must be noted that the fact that the exemption benefits mainly multinational groups is not a random consequence of the regime (53). The exemption, in a small tax jurisdiction like Gibraltar, with no consideration given to the place where the R & D activities were performed, by definition offered more opportunities for international groups which, due to their international structure and size, are easily able to move intangibles and capital (and then to grant loans and/or the right to use intellectual property rights) within the group. Such findings sufficiently demonstrate that the measure was designed to attract or favour group companies and in particular multinational groups entrusted with certain activities (the granting of intra-group loans and/or the right to use IP rights). On that basis, the Commission concludes that the measure is prima facie selective as its effects, which significantly favoured a particular category of companies, are the inevitable consequence of the design of the measure.

7.1.3.3. Absence of justifications for the measure

(105) A measure which is prima facie selective can be justified by the nature or general scheme of the tax system, if it derives directly from its intrinsic basic or guiding principles or is the result of inherent mechanisms necessary for its functioning and effectiveness. This can be the case for the principle of neutrality, the objective of optimising the recovery of fiscal debts or administrative manageability.

(106) The UK authorities have argued that the exemption is the logical consequence of the territoriality principle, which is based on the aim of avoiding double taxation. In this respect, the Commission notes that the exemption for passive interest and royalty income introduced in ITA 2010 cannot be viewed as a mere application of the territoriality principle. In particular, as already explained in section 7.1.3.2, it must be noted that the territorial system of taxation deems royalty income received by a Gibraltar company to accrue in and be derived from Gibraltar. With regard to interest, a case-by-case assessment of the territoriality principle is needed in order to determine the location of the activities giving rise to the income and hence the existence or otherwise of a taxable income. Therefore, the exemption for passive interest and royalty income, as introduced in ITA 2010, cannot be considered as merely reflecting the application of the territoriality principle.

(107) Moreover, the argument that the application of the territoriality principle would rely on the need to prevent double taxation does not hold up as the (foreign) paying entity is generally allowed to deduct the interest or royalties for tax purposes (54). In addition, within the framework of Council Directive 2003/49/EC (55) (Interest and Royalties Directive) certain intra-group interest and royalty payments are exempt from withholding taxes (at the level of the foreign paying entity) on the basis of national rules transposing the before mentioned Directive 2003/49/EC into domestic law. Accordingly, in view of the limited risk of double taxation, a full and automatic exemption measure is disproportionate and the prevention of double taxation cannot be seen as an acceptable justification.

(108) Furthermore, in the context of the formal investigation, the UK authorities also argued that the passive interest and royalty income exemption is justified by reasons of administrative manageability, since the proceeds of the tax would not be sufficient to justify the administrative burden of enforcing taxation of passive interest and royalty income. They noted in this regard that foreign-sourced interest would be exempted in any event under the normal Gibraltar territoriality principle. As regards Gibraltar-sourced interest and royalties, they consider the tax exemption justified by the fact that the cost of collection would exceed expected revenues.

(109) The Commission invited the UK authorities to demonstrate, with concrete elements, the assertion that the administrative cost of enforcing corporate income tax on passive interest and royalty income would outweigh any resulting proceeds. However, the UK authorities did not put forward any concrete elements to substantiate their claim. In the absence of any evidence, the Commission cannot accept the assertion that the passive interest and royalty income exemption is justified by reasons of administrative manageability.

7.1.3.4. Conclusion on selectivity

(110) In light of the considerations set out in this section, the Commission considers that the measure is selective as it significantly favours a particular set of companies belonging to multinational groups entrusted with certain functions (the granting of intra-group loans or the right to use IP rights), as compared with other companies that are in a similar factual and legal situation given the intrinsic objective of ITA 2010.

7.1.4. Potential distortion of competition and effect on intra-Union trade

(111) According to Article 107(1) of the Treaty, in order to constitute State aid, a measure must distort or threaten to distort competition, and it must affect intra-Union trade.

(112) In the course of the investigation, it was established that most of the companies that benefited from the passive interest and royalty income exemption form part of international groups of companies active in sectors in which intra-Union trade occurs (56).

(113) Even if the Gibraltar companies subject to the exemption were not involved in the trade directly, the Court of Justice has maintained that when aid is granted to an undertaking, thereby strengthening its position as compared with other companies engaged in intra-Union trade, the measure should be regarded as affecting trade and distorting competition (57).

(114) Furthermore, it must be noted that the corporate income tax exemption for passive interest and royalty income is not related to any specific investment and simply alleviates the beneficiaries from costs that they would normally have had to bear in their day-to day business. Therefore, if the exemption is found to involve State aid, it would involve operating aid. Operating aid is more likely to distort or threaten to distort competition as it does not address a particular market failure and is not limited in time.

(115) The United Kingdom and the Gibraltar authorities also argued that any aid resulting from the exemption for royalties would be de minimis and would fall outside the scope of State aid rules in accordance with Regulation (EU) No 1407/2013. In the context of the formal investigation, the UK authorities were invited to demonstrate that the conditions for the measure to be considered as de minimis and therefore as falling outside the scope of State aid rules would be met for all companies concerned. However, the information provided only concerned a handful of companies and the UK authorities did not substantiate their claim that the de minimis conditions would be met for all aid beneficiaries. Therefore, the Commission cannot accept the argument that the exemption would involve no aid on the ground that the advantage obtained would always be de minimis.

(116) Consequently, the Commission considers that the measure distorts or threatens to distort competition and that it affects intra-Union trade.

7.1.5. Conclusion on the existence of State aid

(117) Since all the conditions laid down in Article 107(1) of the Treaty are met, the Commission therefore concludes that the passive interest and royalty income exemption scheme, as it existed before entry into force of the relevant amendments made in 2013, constitutes State aid within the meaning of that Article.

7.2. New aid character of the measure

(118) According to Article 1(c) of the Procedural Regulation, ‘new aid’ means all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid. ‘Existing aid’ refers to authorised aid or aid which is deemed to have been authorised as provided for in Article 1(d) of the Procedural Regulation.

(119) The United Kingdom authorities and Gibraltar assert that if the exemption for foreign-source interest constitutes State aid, it would be existing aid as the status of such interest under the exemption has remained the same de facto as under the previous 1952 legislation (as a result of the territoriality principle).

(120) In that regard, the Commission notes that, under the territorial system of taxation, a case-by-case assessment of the interest income would need to be performed in order to determine whether there was any taxable income. This would not lead to automatic exemption of the relevant income. Therefore, the exemption for passive interest income (before 1 July 2013), as introduced under ITA 2010, substantially differs from the tax treatment of passive interest income before ITA 2010 and cannot be considered as having the same effect as application of the territoriality principle had.

(121) In addition, should the territoriality principle result effectively in the exemption of foreign-source interest, that would not be sufficient to establish the ‘existing aid’ nature of the measure since the previous exemption was not limited to foreign-source interest income (it covered both foreign and domestic sourced interest). Any possible justification for the exemption (and its conformity with the territoriality principle) must be based on reasoning that is applicable to all interest income, not on a specific part (foreign-source interest) of it only.

7.3. Compatibility of the aid with the internal market

(122) State aid is deemed to be compatible with the internal market if it falls within any of the categories listed in Article 107(2) of the Treaty (58) and it may be considered to be compatible with the internal market if it falls within any of the categories listed in Article 107(3) of the Treaty (59). However, it is the Member State granting the aid which bears the burden of proving that State aid granted by it is compatible with the internal market pursuant to Article 107(2) or (3) of the Treaty (60).

(123) The Commission notes that the UK authorities have not provided any arguments as to why the corporate income tax exemption for passive interest and royalty income should be considered compatible with the internal market. In particular, the United Kingdom did not comment on the doubts expressed in the First Opening Decision as regards the compatibility of the measure.

(124) The Commission itself has not identified any possible grounds for compatibility and it considers that none of the exceptions listed in Article 107(2) or (3) of the Treaty applies, since the measure does not appear to be aiming to achieve any of the objectives listed in those provisions. Moreover, as the corporate income tax exemption for passive interest and royalty income is not related to any specific investment and simply alleviates the beneficiaries from costs that they would normally have to bear in their day-to day business, it is considered to involve operating aid. As a general rule, such aid can normally not be considered compatible with the internal market under Article 107(3) of the Treaty in that it does not facilitate the development of certain activities or of certain economic areas. Furthermore, the tax advantages in this case are not limited in time, declining or proportionate to what is necessary to remedy a specific market failure or to fulfil any objective of general interest in the areas concerned. Consequently, the measure cannot be considered compatible with the internal market in accordance with Article 107(2) or (3) of the Treaty.

8. ASSESSMENT OF THE TAX RULING PRACTICE IN GIBRALTAR

(125) As a preliminary matter, it should be recalled that ‘in the absence of EU rules governing the matter, it falls within the competence of the Member States or of infra-State bodies having fiscal autonomy to designate the bases of assessment and to spread the tax burden across the various sectors of production and economic sectors’ (61). At the same time, in line with well-established case-law, ‘the exercise of reserved powers cannot permit the unilateral adoption of measures prohibited by the Treaty’ (62).

(126) In particular, the Commission does not call into question the granting of tax rulings by the tax administrations of the Member States. It recognises the importance of advance rulings as a tool to provide legal certainty to taxpayers. Provided they do not grant a selective advantage to specific economic operators, tax rulings do not raise issues under Union State aid law (63).

(127) However, where a tax ruling endorses a result that does not reflect in a reliable manner what would result from a normal application of the ordinary tax system, that ruling may confer a selective advantage upon the addressee, in so far as that selective treatment results in lowering that addressee's tax liability in the Member State as compared with other companies in a similar factual and legal situation (64).

8.1. Introduction

(128) In the Decision to Extend Proceedings, with respect to 165 tax rulings granted by the Gibraltar tax authorities between January 2011 and August 2013, the Commission concluded on a preliminary basis that the tax rulings were materially selective as the Gibraltar tax authorities generally refrained from a proper assessment of the companies' tax obligations, exercising their discretionary powers. The Commission also took the preliminary view that, in some cases, the Gibraltar tax authorities would issue tax rulings that were inconsistent with the applicable tax provisions (65).

(129) As a preliminary view, the Commission considered that, by granting such tax rulings only to certain multinational companies as opposed to other, purely domestic companies that do not ask for a tax ruling, the tax authorities treated companies that were in a similar legal and factual situation differently. Accordingly, the measures were considered to be prima facie selective. Further, the Commission did not identify any acceptable justification resulting from the nature or the general scheme of ITA 2010.

(130) As part of the formal investigation, the Commission analysed the relevant documentation provided by the UK authorities in relation to the 165 rulings falling within the scope of the investigation, in order to identify any possible discretionary practices, misapplication of the rules or absence of proper checks as to where the activities were effectively performed. The documentation assessed by the Commission included the following: (1) the 165 rulings themselves and the applications for those rulings; (2) ex post audit reports performed by the Gibraltar authorities in 2015 with respect to all beneficiaries of the 165 rulings. Such audits (or reviews) were carried out with a view to assessing whether any of the provisions of ITA 2010 had been wrongly applied. The audit reports include background information on the companies concerned and on their activities, as well as possible changes in their organisation, activities and functions that had occurred since the ruling was granted, and also some factual information on the activities of the companies and a legal assessment of whether the companies and/or activities were taxable in accordance with ITA 2010. The main issue assessed by the audits was whether any income derived from the activities met the conditions for being considered to accrue in or be derived from Gibraltar. The audits relied on extensive searches of all documents filed by the audited companies, replies to questionnaires, site visits and meetings with the companies or their representatives. More detailed financial information regarding 25 companies, including financial accounts and, for some of them, copies of their tax returns were even provided; (3) factual information on all 165 companies for the purposes of assessing whether the allegation that such companies do not carry on activities in Gibraltar is sufficiently substantiated, including information on the number of staff and directors, personal expenses, amortisation costs, other operating expenses related to Gibraltar operations and operating expenses not related to Gibraltar activities.

(131) Analysis of that information allowed the Commission to assess whether the relevant companies generated income taxable in Gibraltar in accordance with the territorial system of taxation and/or whether any tax ruling had been granted or implemented in a manner that was inconsistent with the applicable tax provisions.

8.2. The unproblematic tax rulings

(132) In the vast majority of cases (160 out of the 165 rulings under investigation), that analysis did not show that the rulings had been granted in a manner that was inconsistent with the applicable general tax rules. In most cases, the income generated by the companies in question did not meet the territorial requirements to be taxable in Gibraltar. In particular, the audit reports and the other documents provided by the UK authorities showed that the Gibraltar activities of the companies were limited and in general could not lead the tax authorities to conclude that income-generating activities had effectively taken place in Gibraltar. In other words, there was sufficient evidence that the activities that gave rise to the profits, did not take place in Gibraltar. Several rulings confirmed the non-taxation of passive interest, royalties and/or dividends which was consistent with the applicable tax provisions, since, at the time the tax rulings were granted, the applicable tax provisions did not provide for the taxation of royalties and passive interest income. As shown in recitals 145 to 147, appropriate justifications have been provided in relation to the other cases. The above conclusions are illustrated by the following examples, which reflect the various categories of business activity (covered by the 165 tax rulings) identified in the Decision to Extend Proceedings (66).

(133) The first example relates to a ruling granted to a company providing management and consultancy services to hotels and casinos in Africa. The audit report concluded that the services were provided in Africa through staff employed by the company in Africa. The audit showed that the company carried on no trade activities in or from Gibraltar. The company's activity in Gibraltar was limited to basic administrative support provided by one single staff member in the role of an administrative secretary, without any significant activity being performed in Gibraltar. Such basic secretarial duties were not found to be income-generating activities in Gibraltar. This was corroborated by a site visit to the company's premises in Gibraltar, which were found to consist of an office facility exclusively laid out for hosting board meetings. Surveillance of the premises on other days by the tax authorities showed that the premises were not used for any other purposes. On that basis, the report concluded that the company was outside the scope of taxation in Gibraltar on account of the fact that no income accrued in or was derived from Gibraltar (as the company carried on no income-generating activities in Gibraltar).

(134) In the second example, a ruling was granted to a company providing shipping brokerage services to customers on behalf of ship-owners. The audit confirmed that the services were performed in or from the group's various locations within London, Singapore, Australia or Monaco, without any income-generating activities taking place in Gibraltar. The audit did not find any evidence to indicate that the company had engaged in any activity in Gibraltar. On that basis, the audit report considered that the company did not have a presence or permanent establishment in Gibraltar other than its server. Accordingly, it concluded that the company was outside the scope of taxation in Gibraltar on account of the fact that no income accrued in or was derived from Gibraltar (as the company carried on no income-generating activities in Gibraltar).

(135) The third example relates to a ruling granted to a company providing administrative and support services to a related Luxembourg company. The services were carried on by two of its Gibraltar resident directors. The company also held loans granted to various group companies located mainly in the Netherlands. The security and collateral for those loans was held outside Gibraltar (67). The investigative review carried out in 2015 concluded that the company had a physical presence in Gibraltar by virtue of the professional management services carried on by its resident directors, who make management decisions. Until 30 June 2013, the company was taxed on income resulting from administrative and support services only, as the inter-company loan interest was not taxable in Gibraltar (68) (in line with the passive interest exemption under ITA 2010). Since 1 July 2013, the company has been chargeable to tax on interest income too (Class 1A, Table C of Schedule 1 to ITA 2010) as a result of the amendment which brought inter-company loan interest into the scope of taxation under ITA 2010. The company has been fully regularised for all taxation purposes in Gibraltar since 1 July 2013.

(136) By way of a fourth example, a ruling was granted to a company which, under a joint venture agreement, contracted with third parties established outside Gibraltar for the provision of advertising, marketing and promotional services in relation to remote gaming activities, including recognition and development of the brand. The company received a share of the revenues generated from the operation of the remote gaming business carried on in Malta by the counterparty to the joint venture agreement. The review, which included a site visit and a roving investigation undertaken by the Gibraltar tax officials within Gibraltar's financial business, banking and office accommodation sectors within Gibraltar, showed that the company did not have a physical presence or a permanent establishment in Gibraltar and that its corporate directors did not perform income-generating activities in or from Gibraltar. The report concluded that the company was outside the scope of taxation on account of the fact that no income accrued in or was derived from Gibraltar. The ruling was revoked by the Gibraltar tax authorities on 17 July 2015 since the company's representatives confirmed at the site meeting that they no longer had a relationship with the company.

(137) In the fifth example, a ruling was granted to a company active in the procurement of petroleum products directly from refineries in Asia and in the subsequent storage, transportation and delivery of those products from the company's storage terminals located within Asia to customers in Italy, Greece, Israel and Turkey. The review showed that the company had no physical presence or permanent establishment in Gibraltar and that its sole director had not performed income-generating activities in or from Gibraltar. The review also found that, as shown by the website of the group of which the company was a part, the trading activity was carried on in various geographical locations through offices located in Hong Kong, the United Kingdom, Dubai, Oman and Afghanistan. On that basis, the review concluded that the company was outside the scope of taxation under section 11 of ITA 2010 on account of the fact that no income accrued in or was derived from Gibraltar.

(138) In the sixth example, a ruling was granted to a company carrying on a trade in non-pharmaceutical medical and health related products from South Korea to Germany. The audit showed that the management and commercial decisions were outsourced to a person resident in Namibia. The audit also showed that the company's sole director residing in Gibraltar provided general consultancy services to the company and was not actively involved in the day-to-day trading activities undertaken by the company. No physical presence in Gibraltar could be identified on the basis of a site visit, a meeting with the company, responses to additional written questions and systematic checks carried out on the web. The investigative review considered that the company did not render a service in or from Gibraltar and therefore concluded that the company had no sources of income accruing in or derived from Gibraltar.

(139) In the seventh example, the company engaged in the operation of internet games via a website. The company's income comprised charges received from end-users for non-basic features and rights, commissions received from betting trading under licence to third party providers and the sale of games-related products. Analysis of the available information showed that, until 1 January 2014, all activities were carried on outside Gibraltar. In particular, software development was performed by the company's subsidiary in another Member State, while the host server was located in Switzerland. The customer service function was carried out by three freelance individuals in another Member State and in a third country. The subscription fees were processed in the Netherlands. In this context, the investigative review considered that the company was not taxable on income generated until 1 January 2014 (69). Since 2 January 2014, the business has had a physical presence in Gibraltar, and it has income that accrues in and is derived from Gibraltar, it files full and complete returns of its income and is fully regularised for all taxation purposes in Gibraltar. The tax ruling was revoked in January 2014.

(140) In the eighth example, the audit confirmed that the company carried on a trade in agricultural chemicals from Hungary, Belgium and Israel to customers in the Former Yugoslav Republic of Macedonia, Bosnia and Herzegovina, and Slovakia. After examination of all the documents filed by the company as well as additional information provided by the company in writing and in the context of a meeting with the company's representatives (and on the basis of other investigative functions), the audit found that no income-generating activities took place in Gibraltar (in the absence of any services rendered in or from Gibraltar or any activity performed in or from Gibraltar) and it therefore concluded that the company was outside the scope of taxation under section 11 of ITA 2010.

(141) The ninth and final example relates to a ruling granted to a company chartering a luxury yacht (registered in the UK) in the British Virgin Islands. The business had a website which showed that the chartering was carried on in the Caribbean. The Gibraltar tax authorities' review showed that the company carried on no trade in Gibraltar and had no physical presence or permanent establishment in Gibraltar. It therefore concluded that there were no income-generating activities that rendered the company chargeable to tax under the territoriality principle. The ruling lapsed in October 2015 as the company had been struck off the Company Register by the Registrar of Companies in Gibraltar.

(142) These nine examples are only illustrative. The Commission assessed the information and documents available in relation to all 160 rulings to make sure that the rulings were granted in conformity with the applicable tax rules in Gibraltar and that the activities carried on by the companies in question fairly reflected the activities described in the request for a ruling.

(143) Out of those 160 tax rulings, 98 actually related to the territoriality principle (and the reviews made by the Gibraltar tax authorities found that no income-generating activities were carried on in Gibraltar). Accordingly, the revenues generated by the companies concerned did not in any event fall within the scope of the territorial system of taxation in Gibraltar.

(144) In 34 cases, the addressees were in receipt of passive interest, royalties and/or dividends (70) and it appears that either their situations were regularised or their activities ceased after the 2013 amendments. However, to the extent the tax treatment of these companies is the result of the implementation of the aid scheme examined in section 7 of this Decision, the Commission refers to that section. Accordingly, any aid granted on the basis of these rulings (during the period preceding entry into force of the 2013 amendments) is treated in the operational part of this Decision as being part of the aid scheme identified in section 7.

(145) In 19 cases, either the company was not incorporated, or the activities described in the tax ruling requests did not materialise, or the company was dormant. There was therefore nothing to tax in those cases and, regardless of the position taken by the tax authorities, the rulings could not involve the granting of any advantage to the companies concerned.

(146) In four other cases, the rulings concluded that the relevant income accrued in and was derived from Gibraltar and was therefore taxable in accordance with section 11 of ITA 2010. In this regard, it is relevant to note that, in such cases, the audit reports by the Gibraltar tax authorities stressed that the tax rulings had been revoked as a result of legislative or material changes. It also appears that the revocations were not the result of the audits performed in 2015 but of earlier examinations, e.g. when the 2013 amendments in relation to interest and royalty income came into force. In other words, in these four cases, the relevant companies were liable to tax on their income accruing in or derived from Gibraltar.

(147) The remaining five rulings relate to personal income tax issues such as the taxation of employees. Those rulings do not affect the level of taxation of the relevant companies and therefore do not fall within the scope of corporate income taxation.

(148) The table in the Annex provides an overview of the Commission's findings in relation to the 160 unproblematic tax rulings, with reference to the categories described in this section. It shows that no case has been found where any of the rulings were inconsistent with the normal application of the Gibraltar tax system (71).

(149) As a result, even if it had been found that the Gibraltar authorities had issued the 160 tax rulings without following any designated procedure or without conducting any substantive analysis at the time the rulings were granted, it would have had no impact in practice and would not have resulted in the granting of any advantage since the activities (or absence of activities) of the companies concerned did not generate income liable to tax in accordance with the Gibraltar income tax rules (72).

(150) Accordingly, after having carefully examined the evidence provided by the UK authorities, the Commission has come to the conclusion that the 160 tax rulings reflected in a reliable manner what would have resulted from a normal application of the ordinary Gibraltar tax system, without involving any misapplication of the law or other indication of existence of State aid. It follows that the granting and implementation of such rulings does not raise any State aid issues (73).

8.3. The contested tax rulings

(151) The Commission investigation has shown that five rulings granted to Gibraltar corporate partners of Dutch limited partnerships (Commanditaire vennootschap or ‘CV’) did raise issues with regard to State aid rules.

(152) The relevant rulings were granted in 2011 or 2012 and confirmed that royalties (and passive interest income to a lesser extent) generated at the level of the Dutch CVs was not taxable under ITA 2010. Those rulings remained in effect and were not revoked by the tax authorities either as a result of the amendments to ITA 2010 in 2013 that brought interest and royalties into the scope of taxation, or as a result of the audits carried out in 2015.

(153) The situations referred to in the requests for ruling typically involved the following structure: Limited partner 1 % General partner 99 % GIBCO2 Royalty Licence Dutch CV Holds IP rights Dutch BV Exploit IP rights GIBCO1

(154) Under Dutch law, a CV is a limited partnership, which is generally considered a transparent entity for tax purposes and therefore not liable to corporate income tax in the Netherlands (74). Accordingly, the income of the CV is not taxed in the Netherlands at the level of the CV but at the level of the participants in the CV, according to their share in the CV. In other words, a tax liability in relation to the income of such CVs arises in the Netherlands only if one or more participants in the CV are Dutch resident persons or companies.

(155) As to the tax treatment in Gibraltar, it appears from the UK submissions that, in the absence of specific rules in ITA 2010, Gibraltar applies common law principles and therefore considers Dutch CVs as transparent entities in accordance with the rules and case-law applicable in the UK (75). The relevant share of any income received by the CVs will therefore be deemed to be received directly by the Gibraltar companies with an interest in the Dutch CV.

(156) In the absence of any bilateral tax convention between Gibraltar and the Netherlands, chargeability to tax in Gibraltar would in principle depend on whether the share of the relevant income generated by the Dutch CV fell within the scope of taxation under ITA 2010. As passive interest and royalty income was not subject to tax until June 2013 (in the case of passive interest) and January 2014 (in the case of royalty income), any such income received by the Dutch CV was not taxable at the level of the Gibraltar partners. By contrast, following the amendments to ITA 2010 which subjected royalty and passive interest income to tax irrespective of its source (Class 1A and 3A, Table C of Schedule 1 to ITA 2010), a correct application of the Gibraltar tax rules should have led the Gibraltar tax authorities to consider the relevant royalties (received as from 1 January 2014) and passive interest (received as from 1 July 2013) as taxable income at the level of the Gibraltar partners (76).

(157) In their submission of 21 February 2018, the UK authorities confirmed that the Gibraltar Income Tax Office views Dutch CVs as tax transparent entities. However, they concluded that no taxation arises in Gibraltar since there is no specific provision in ITA 2010 that defines and prescribes how the Gibraltar partner should be taxed. The reason for this is that the definition of a ‘person’ in section 74 of ITA 2010 does not explicitly refer to Dutch limited partnerships and therefore no specific mechanism on how to tax income from participations held in a CV exists.

(158) The Commission fails to understand the reasoning of the United Kingdom and the Gibraltar tax authorities for the following reasons. First, the relevant question is not whether Dutch CVs should be taxed in Gibraltar or not, but whether the corporate partners (resident in Gibraltar) of such CVs should be taxed on their share of the income generated by such CVs. Since CVs are considered transparent for tax purposes in Gibraltar (under common law principles), the corporate partners resident in Gibraltar should be taxed on their share of the CVs' income to the extent that the income falls within the scope of taxation under ITA 2010 (for interest income, that would be the case since 1 July 2013 and for royalties, since 1 January 2014) (77). The Commission expressed doubts on the reasoning put forward by the United Kingdom but did not receive any convincing arguments supporting its reasoning.

(159) Second, even if the definition of a ‘person’ in section 74 were relevant for the cases in hand (in the Commission's view, this is the case for the relevant Gibraltar companies with interest in Dutch CVs only, not for the Dutch CVs as such), it must be noted that the definition in section 74 (78) is very generic and sufficiently broad to include a Dutch CV.

(160) The beneficiaries of the five conteste