THE European Commission in Brussels has won its argument with the British government over a special tax haven regime which Gibraltar offers to companies that register in the territory but do not actually conduct business there.

The registration costs only approximately 300 pounds annually but since several thousand companies have taken advantage of it there is a useful income for the Gibraltarian authorities. Brussels has argued for seven years that the Gibraltar Exempt Company Tax Regime (to give it its full name) violates EC treaty state rules; Britain's Treasury initially responded with offers to vary its conditions but decided to give way when the EC Competition Commissioner, Neelie Kroes, recently threatened legal action if Britain did not agree to abolish the regime within one month. In a statement, Ms Kroes said, “The abolition of the Gibraltar Exempt Company Tax Regime is a further important step towards eliminating harmful tax practices.” The regime was devised in 1967 as a way of boosting Gibraltar's position as a finance centre but it was not a success until the border with Spain was re-opened in 1985. It is thought that some 8'500 companies have benefitted from the scheme and Britain intends to cap the number of companies involved at that number until it is withdrawn altogether in 2010.

AntiEU interests will doubtless cite this latest case of European Commission action as evidence that Britain is losing the ability to manage its own affairs. From the EU's perspective, however, it is an example of what it is trying to do to create a level playing field in financial markets throughout the Union by ending what it perceives to be unfair tax schemes in member states and their dependent territories. Gibraltarians would no doubt be interested to know where else similar action has been taken.

By Monitor

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