State aid — United Kingdom — Aid C 52/2001 (ex NN 51/2000) — Gibraltar qualifying companies — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2002-01-30
Institutions: European Commission
Subjects: Gibraltar, State aid, United Kingdom, aid to undertakings, control of State aid, tax relief

30.1.2002

EN

Official Journal of the European Communities

C 26/9

STATE AID (cid:151) UNITED KINGDOM

Aid C 52/2001 (ex NN 51/2000) (cid:151) Gibraltar qualifying companies

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2002/C 26/04)

(Text with EEA relevance)

By means of the letter dated 11 July 2001, reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of its decision to initiate the procedure laid
down in Article 88(2) of the EC Treaty concerning the abovementioned measure.

Interested parties may submit their comments on the measure in respect of which the Commission is
initiating the procedure within one month of the date of publication of this summary and the following
letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42.

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

The measure has not been notified to the Commission.

The relief
corporation tax appears to fulfil this criterion.

from the obligation to pay the full amount of

The State aid measure, which is the object of the initiation of
procedure, is a measure in force in Gibraltar. The measure is
established by the Income Tax (Qualifying Company) Rules of
22.9.1984: a company satisfying certain conditions (amongst
resident may have a
which, no Gibraltarian or Gibraltar
beneficial interest in the shares of the company) can obtain a
qualifying company certificate. Possession of this certificate will
allow the company to be taxed on its profits at a prescribed
rate that will be in any event lower than the normal corporate
tax rate.

The purpose of
this regime is to attract non-Gibraltarian
companies to Gibraltar through considerable tax advantage.
The measure appears to constitute aid as it fulfils the four
relevant criteria.

the advantage must be granted by the State or
Secondly,
through State
resources. The grant of a tax reduction
involves a loss of tax revenue which, according to point 10
of the Commission notice on the application of the State aid
rules
is
equivalent to the use of State resources in the form of fiscal
expenditure.

relating to direct business

to measures

taxation,

the measure must affect competition and trade
Thirdly,
between Member States. This criterion is fulfilled by the
measure to the extent that these companies are able, actually
or potentially,
located in other
Member States. This is all the more so that, on the basis of
the information provided, the qualifying company may not, in
normal circumstances, trade or carry on business in Gibraltar,
with Gibraltarians or residents of Gibraltar.

to trade with companies

Firstly, the measure affords the beneficiaries an advantage that
reduces the costs they normally bear in the course of their
business. According to point 9 of the Commission notice on
the application of the State aid rules to measures relating to
direct business taxation (1), the tax advantage may be granted
through different types of reduction in the company’s burden
and, in particular, through a reduction in the amount of tax.

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

Lastly, the measure must be specific or selective in that it
favours (cid:145)certain undertakings or the production of certain
the measure are companies in
goods(cid:146). The beneficiaries of
which no Gibraltarian or Gibraltar
resident may have a
interest in their shares. In addition, the qualifying
beneficial
company may not in normal circumstances trade or carry on
business
residents of
Gibraltar. On the basis of these elements it can be presumed
that the measure is selective,
in so far as it favours foreign
resident companies over others.

in Gibraltar with Gibraltarians or

C 26/10

EN

Official Journal of the European Communities

30.1.2002

the Commission notice on the
As stated in point 26 of
the State aid rules to measures relating to
application of
companies
are
direct business
(cid:145)if non-resident
taxation,
it is difficult to
treated more favourably than resident ones(cid:146)
the tax system.
justify such an exception by the logic of
Despite
resident
companies, the qualifying status is granted to them only on
the basis that they are foreign-owned. Qualifying companies
seem to be treated more favourably than other
resident
the application of a lower corporate
companies. Therefore,
tax rate does not appear to be justified by the logic of the
tax system.

that qualifying companies are

fact

the

For these reasons, the measure seems to constitute an operating
the State aid in question does not
State aid. Furthermore,
the exceptions laid down in
appear to fall within any of
Article 87(2) and (3) of
in the
its preliminary assessment under Article 6 of
context of
Council Regulation (EC) No 659/1999 laying down detailed
rules for the application of Article 93 of the EC Treaty, the
Commission has doubts as regards the compatibility of the tax
measure.

the EC Treaty. Therefore,

In accordance with Article 14 of Regulation (EC) No 659/1999,
all unlawful aid can be subject to recovery from the recipient.

TEXT OF THE LETTER

(cid:145)The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the measure referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

taken by way of

taxation with the objective of

In 1997, the Ecofin Council adopted a code of conduct for
tackling
direct business
harmful tax competition (OJ C 2, 6.1.1998). Following to the
commitment
the Commission
published in 1998 a notice on the application of State aid
rules to measures relating to direct business taxation (OJ C
384, 10.12.1998) stressing its determination to apply them
rigorously and to respect the principle of equality of treatment.
The current procedure is carried out within this framework.

this code,

I. PROCEDURE

1. Aid NN 51/2000 (cid:151) Qualifying companies has not been
notified to the Commission. As this measure does not
the categories listed under
seem to fall within any of
Article 1(b) of Council Regulation (EC) No 659/1999 (2),
it has to be considered at this stage as a non-notified aid.

schemes applicable in Gibraltar. The Permanent Represen-
tation of
the United Kingdom to the European Union
provided an answer dated 27 July 1999. A second
request for information was sent on 4 August 1999, the
answer was dated 12 November 1999. A third request for
information was sent on 23 May 2000, a reminder on 28
June 2000, the answer was dated 3 July 2000.

II. DETAILED DESCRIPTION OF THE MEASURE

3. According to the information transmitted, the rules on
qualifying companies were introduced by the Income Tax
(Qualifying Companies) Rules of 22 September 1984 and
they are still applicable.

4. They allow a company or registered branch holding the
status of qualifying company to be liable to taxation on its
profits at a rate that is lower than the normal corporate
tax rate.

II.A. Objective

5. The purpose of this regime is to attract companies in
resident of Gibraltar has a
interest to Gibraltar through considerable tax

which no Gibraltarian or
beneficial
advantage.

II.B. The aid measure

Conditions

6. In order

to obtain the qualifying company status, a

company must fulfil the following conditions:

(cid:151) it must have a paid up share capital of GBP 1 000 or

the foreign currency equivalent thereof,

(cid:151) it must deposit GBP 1 000 with the Gibraltar

Government as security for future taxes,

(cid:151) it must pay a fee of GBP 250 for a qualifying

certificate,

(cid:151) no Gibraltarian or Gibraltar

resident may have a

beneficial interest in the shares of the company,

(cid:151) the company may not, without the prior consent of
the Gibraltar Financial and Development Secretary,
trade or carry on business in Gibraltar, with Gibral-
tarians or
It may, however,
trade with other exempt or qualifying companies.

residents of Gibraltar.

2. On 12 February 1999 the Commission has sent a first
request for information in respect of a number of tax

(2) OJ L 183, 27.3.1999, p. 1.

Qualifying company status

7. A company, which fulfils the above conditions, obtains a
qualifying company certificate. Once issued the qualifying
company certificate is valid for 25 years.

30.1.2002

EN

Official Journal of the European Communities

C 26/11

8. On the basis of

the information so far provided, a
company holding this certificate will be liable to taxation
on its profits at such a rate which will in any event be
lower than the normal corporate tax rate, which currently
stands at 35 %. The rate of tax applied will depend on the
type of activity the company engages in (as to the exact
rates applicable, please refer to the request for information
as explained in points 26 and 27 here below).

9. Other benefits resulting from the qualifying status are the

following:

(cid:151) fees payable to non-residents (including directors) and
dividends paid to its shareholders are subject to with-
holding tax at
the
company,

the same prescribed rate as

(cid:151) there is no stamp duty on the transfer of shares of a

qualifying company.

III. ASSESSMENT OF THE MEASURE

10. To be considered an aid under Article 87(1) of the EC
Treaty, a measure must fulfil the four following criteria.

11. Firstly,

the measure must afford the beneficiaries an
advantage that reduces the costs they normally bear in
the course of their business. According to point 9 of the
Commission notice on the application of the State aid
rules to measures relating to direct business taxation (3),
the tax advantage may be granted through different
types of
in
reduction in the company’s burden and,
particular, through a reduction in the amount of tax.

12. The relief from the obligation to pay the full amount of
corporation tax seems to fulfil this criterion. Moreover,
since the information provided was not complete, one
should not exclude the possibility of other advantages.

13. Secondly, the advantage must be granted by the State or
through State resources. The grant of a tax reduction
involves a loss of tax revenue which, according to point
10 of the Commission Notice on the application of the
State aid rules to measures relating to direct business
is equivalent to the use of State resources in
taxation,
the form of fiscal expenditure.

14. Thirdly, the measure must affect competition and trade
to be
between Member States. This criterion seems
fulfilled by the measure
these
that
companies are able, actually or potentially, to trade with
companies located in other Member States. This is all the
more so that, on the basis of the information provided, the
in normal circumstances,
qualifying company may not,
trade or carry on business in Gibraltar, with Gibraltarians
or residents of Gibraltar.

to the

extent

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

15. Lastly, the measure must be specific or selective in that it
favours (cid:145)certain undertakings or the production of certain
goods(cid:146). The beneficiaries of the measure are companies in
which no Gibraltarian or Gibraltar resident may have a
interest in their shares. In addition, the qual-
beneficial
ifying company may not in normal circumstances trade
or carry on business in Gibraltar with Gibraltarians or
residents of Gibraltar. On the basis of these elements it
can be presumed that the measure is selective, in so far as
it accords privileged tax treatment to those non-Gibraltar-
owned companies. It should be borne in mind that the
identification of
the abovementioned features regarding
material specificity do not exclude the existence of other
features that would confer specificity to the envisaged tax
regime, like for example regional specificity.

16. As stated in point 26 of the Commission notice on the
application of the State aid rules to measures relating to
direct business taxation,
(cid:145)if non-resident companies are
treated more favourably than resident ones(cid:146) it is difficult
to justify such an exception by the logic of the tax system.
Despite the fact that qualifying companies are resident
the qualifying
companies,
status is granted to them only on the basis that they are
foreign-owned. Qualifying companies are treated more
favourably than other resident companies. Therefore, the
application of a lower corporate tax rate cannot be
justified by the logic of the tax system.

it cannot be challenged that

17. Finally, it should be recalled that the Act of Accession to
the United
the European Communities of,
Kingdom does not provide any exclusion as to the appli-
cability of the relevant provisions on State aid (e.g. Articles
92 (now 87) and 93 (now 88) of the Treaty to Gibraltar.

inter alia,

IV. COMPATIBILITY OF THE AID

18. The measure appears to constitute aid in the meaning of
Article 87(1) EC. It is therefore necessary to determine if
such an aid is compatible with the common market under
the exceptions laid down in Article 87(2) and (3) EC.

19.

the exceptions under Article 87(2) EC
It appears that
cannot be applied in this case, as the aid is not aimed at
the objectives listed in these provisions.

20. Under Article 87(3)(a), an aid is considered compatible
with the
is designed to
common market when it
promote the economic development of areas where the
standard of
living is abnormally low or where there is
serious underemployment. Since Gibraltar is not such an
area, this provision does not apply.

21. As regards the exceptions laid in Article 87(3)(b) and (d),
the aid in question is not
intended to promote the
execution of an important project of common European
interest or to remedy to a serious disturbance in the
economy of the United Kingdom, nor is it intended to
promote culture or heritage conservation.

C 26/12

EN

Official Journal of the European Communities

30.1.2002

22. Lastly, it is necessary to examine if the aid can qualify for
the exception laid down in Article 87(3)(c) which states
that may be considered compatible an aid to facilitate the
development of certain economic activities or of certain
economic areas where such aid does not adversely affect
trading conditions to an extent contrary to the common
interest.

27.

in the examination of

In addition, it is reminded that the Commission has sent
requests for information to the United Kingdom three
times
this case (see point 2
above). As it appears from the relevant dates (indicated
in the above point 2), the answers to the Commission’s
formal requests have been provided with considerable
delay. Furthermore, the answers appear to be incomplete.

23. The rules according a qualifying company status are not
related to an investment or to a job creation and constitute
a permanent relief from charges that should be normally
met by these companies in the course of their business.

24. The aid can, at this stage, be considered as an operating
aid, the benefits of which will cease as soon as the aid is
withdrawn. According to the constant practice of
the
Commission, such aid cannot be considered to facilitate
the development of certain economic activities or of
certain economic areas.

25. Since the aid does not appear to qualify for any of the
exceptions provided for in the Treaty, in the context of its
preliminary assessment as provided by Article 6 of the
the Commission has
Regulation (EC) No 659/1999,
doubts about
the aid with the
common market.

the compatibility of

26. In the

the

light of

foregoing

considerations,

the EC Treaty,

the
Commission, acting under the procedure laid down in
Article 88(2) of
the United
requests
Kingdom to submit
its comments and to provide all
such information as may help to assess the aid, within
one month of
this letter. The
the date of receipt of
Commission would in particular like to gather the obser-
vations of the United Kingdom and interested parties on
possible legitimate expectations of
that would
pose an obstacle to the recovery of aid, in the event that
this aid would be qualified as being illegal and incom-
patible.

the sort

28. Given this

context,

the Commission requires, with
reference to Regulation (EC) No 659/1999, Article 10(3),
the United Kingdom to provide, within one month of the
date of receipt of this letter:

(a) the full text of the 1984 edition of the Income Tax

(Qualifying Companies) Rules;

(b) a complete and exhaustive list of all relevant texts of
law which are or have been related to the (cid:145)qualifying
companies(cid:146) measure, i.e. indicate whether other texts
than the Income Tax (Qualifying Companies) Rules of
22 September 1984 has been or is relevant;

(c) with reference to point 8 of this letter, please indicate
which is the relevant text and provision to identify the
qualifying
different
companies. Please also provide a copy of
this text
and provision(s).

applicable

rates

tax

to

of

29. The Commission requests your authorities to forward a
copy of this letter to the potential recipient of the aid
immediately.

30. The Commission wishes to remind the United Kingdom
that Article 88(3) of the EC Treaty has suspensive effect,
and would draw your attention to Article 14 of Regulation
(EC) No 659/1999, which provides that all unlawful aid
may be recovered from the recipient.(cid:146)