The “Rock”

By Global Tax Weekly

Gibraltar is a jurisdiction that seems to have been in an almost constant state of conflict with the EU over tax in recent years. And the “Rock” was again fighting its own small corner of Europe last week, sending Chief Minister Fabian Picardo along to brief the European Parliament’s so-called TAXE committee on national tax rulings, with Gibraltar’s regime very much in the EU’s sights. And brief it certainly was, for the Q-and-A session lasted little more than an hour — surely not enough time for an in-depth discussion on what is a complex and technical area of taxation. There are two strands to the EU probe on tax rulings: whether these rulings were granted to certain companies on a selective basis in breach of EU state aid laws; and whether, by granting these companies favorable tax treatment, they eroded the tax bases of other member states. However, reading between the lines of the various announcements and comments of the key figures overseeing this investigation over the last few months, it seems that they have already decided that, yes, tax rulings, comfort letters, sweetheart deals — whatever you want to call them — can constitute state aid and erode the tax bases of other jurisdictions. So Picardo’s trip to Strasbourg was probably a wasted one. The European Commission and Parliament have mostly ignored the fact that tax rulings do perform a very important function as well, which is providing corporate taxpayers with the certainty they need to plan their activities in a certain jurisdiction. And if there’s one thing that tends to deter investors above all others, it’s legal uncertainty. It seems like the EU is angling towards greater transparency around tax rulings rather than stopping them outright. However, in the 21st century, businesses tend to be highly mobile, and the EU should be very wary of the law of unintended consequences. Something, judging by its past record, it’s not very good at.

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