Since the beginning of the economic and financial crisis harmful tax competition increased and therefore also public concern in regard to aggressive tax planning augmented. Many countries try to attract foreign capital by setting low corporate income taxes. For example in Ireland and in Cyprus there is a tax of 12.5 %. A lot of multinational companies use these tax systems to reduce their overall tax burden and so they choose a low-tax-country for incorporation. To mention the BEPS Action Plan, many actions aim at reducing aggressive tax practises and therefore reducing shifting profits in low-tax-countries.
As there will be no way in near future to harmonize tax bases and tax rates within the European Union, the European Commission tries to restrict distorting tax competition by using EU State Aid rules. Therefore it does not focus on tax rates or policies as such, but on tax rulings for specific firms. The Commission stated that: “Under State aid rules, national authorities cannot take selective measures that allow certain companies to pay less in taxes than they should if the tax rules of the country were applied in a fair and non-discriminatory way.”
Table of Contents
1. Introduction
2. EU State Aid Rule
3. Gibraltar Case
3.1 Facts
3.2 Decision of the European Commission
3.3 Judgement of the General Court
3.4 Judgement of the Court of Justice of the European Union
4. In accordance with previous case-law?
5. Application to prospective tax matters
6. Conclusion
Research Objectives and Core Themes
This paper examines the application of EU State aid rules to national tax systems, specifically focusing on the landmark Gibraltar Case (Joined cases C-106/09 P and C-107/09 P). The primary objective is to analyze how the Court of Justice of the European Union determines selectivity in tax measures and whether the traditional "three-step analysis" (identifying normal taxation and derogations) remains the definitive method for evaluating State aid in complex tax scenarios.
- The criteria for EU State aid under Article 107 TFEU
- Selectivity in tax regimes and the "normal taxation" benchmark
- Legal challenges and appeals in the Gibraltar tax reform case
- Comparing regulatory techniques versus substantive effects of tax laws
- Future implications for member state tax policy and aggressive tax planning
Excerpt from the Book
3.1 Facts
In April 2002 the Government of Gibraltar announced its plan to repeal the current tax regime and to introduce a new tax regime applicable to all companies established in Gibraltar. The Government intended to introduce a payroll tax, a business property occupation tax and a registration fee:
- Payroll tax: All companies in Gibraltar have to pay a certain amount of annual payroll tax (GBP 3,000) per employee. This tax has to be paid for employees which are employed in Gibraltar.
- Business property occupation tax (“BPOT”): The BPOT has to be paid by companies which occupy business property in Gibraltar. The tax rate is equivalent to a percentage of the liability to the general rate charged on property.
- Registration fee: For companies which plan to generate profit, there is a registration fee of GBP 300 per annum and for companies which do not intend to generate profit, there is a fee of GBP 150.13
The overall tax burden of payroll tax together with business property occupation tax should be limited to 15 % of profits. The effect would have been that there was a requirement for a company to make a profit to incur liability to these two taxes.14
Furthermore, the Government of Gibraltar intended to introduce a top-up tax applicable to financial services companies and utility companies operating in the telecommunications, electricity and water sectors. However, the overall tax burden (payroll tax, BPOT and top-up tax) of these companies should also be capped at 15 % of profits.15
Summary of Chapters
1. Introduction: Outlines the context of increasing harmful tax competition and the European Commission's effort to use State aid rules to restrict distorting national tax policies.
2. EU State Aid Rule: Explains the legal foundation of State aid under Article 107 TFEU, including the four criteria required to establish the existence of prohibited aid.
3. Gibraltar Case: Details the specific facts of the Gibraltar tax reform, the Commission's decision, and the subsequent litigation through the General Court and the Court of Justice of the European Union.
4. In accordance with previous case-law?: Critically analyzes whether the Court of Justice moved away from the traditional requirement to identify a "normal tax regime" in favor of comparing effective tax burdens.
5. Application to prospective tax matters: Discusses whether the Gibraltar judgment sets a precedent for future cases involving holding companies and the limits of using regulatory techniques to avoid State aid scrutiny.
6. Conclusion: Summarizes the difficulty of determining selectivity and warns that states must be increasingly cautious regarding abusive tax measures.
Keywords
EU State aid, Gibraltar Case, Article 107 TFEU, Tax competition, Selectivity, Normal taxation, European Commission, CJEU, Corporate tax, Tax reform, Offshore companies, Business property occupation tax, Payroll tax, Financial aid, Fiscal policy
Frequently Asked Questions
What is the core focus of this paper?
The paper focuses on the legal intersection of EU State aid law and national tax policy, specifically analyzing the European Court of Justice's ruling in the Gibraltar Case.
What are the primary themes discussed?
The central themes include the criteria for prohibited State aid, the concept of "selectivity" in tax law, the role of the European Commission in reviewing tax rulings, and the evolution of case law regarding tax derogations.
What is the primary research question?
The paper explores whether identifying a "normal tax regime" remains a necessary step for determining State aid, or if the Court has moved toward a more substance-over-form approach regarding tax burdens.
Which scientific method is applied?
The author uses a legal-dogmatic method, analyzing primary EU treaty provisions, relevant European Commission decisions, and landmark judgments from the Court of Justice and the General Court.
What does the main body cover?
The main body covers the factual background of the Gibraltar tax reform, the procedural history of the case, and a comparative analysis of how the Court of Justice handled the concept of selectivity compared to earlier cases like Portugal/Commission or British Aggregates.
Which keywords define this work?
The key concepts are EU State aid, selectivity, fiscal competition, Gibraltar Case, and Article 107 TFEU.
How does the Gibraltar Case change the view on "normal taxation"?
The paper suggests that the Court of Justice arguably moved away from requiring an explicit derogation from a "normal" tax regime, focusing instead on whether specific companies receive an advantage compared to others in a comparable situation.
What is the risk for companies mentioned in the conclusion?
The conclusion highlights that companies receiving benefits deemed as illegal State aid face the significant risk of being forced to pay back those financial advantages to the state.
- Arbeit zitieren
- Eva-Maria Bauer (Autor:in), 2016, EU State Aid. The Gibraltar Case, München, GRIN Verlag, https://www.grin.com/document/345181
