(1)

On 16 October 2013 the Commission initiated a formal investigation procedure in case SA.34914 to verify whether the passive income tax exemption in the Income Tax Act 2010 (‘ITA 2010’) selectively favours certain categories of companies, in breach of EU State aid rules (hereinafter the ‘first opening decision’) (1).

(2)

In parallel with the preliminary investigation preceding the formal investigation procedure, by letter of 25 October 2012, the Commission had asked the United Kingdom for information about Gibraltar’s tax rulings procedure. The Commission also had asked the United Kingdom to provide it with three or four tax rulings adopted by the Gibraltar Commissioner under the ITA 2010.

(3)

On 3 December 2012, based on the request of the Commission, the Gibraltar tax authorities had provided general information regarding the tax ruling procedure (procedure for clearance in advance pursuant to section 42 of the ITA 2010) applicable in Gibraltar. The United Kingdom also provided the Commission with four anonymized examples of tax rulings adopted by the Gibraltar Commissioner under the ITA 2010.

(4)

On 29 July 2013 the Commission had asked the United Kingdom to provide more detailed information concerning the four anonymized tax rulings granted by the Gibraltar tax authorities.

(5)

On 13 September 2013 the United Kingdom had responded to the questions of the Commission on the four anonymized tax rulings. The United Kingdom also provided a comprehensive list (Excel format) of the tax rulings granted by the Gibraltar tax authorities in 2011, 2012 and 2013, according to which:

(6)

On 3 October 2013, the Commission had requested copies of documents related to a number of tax rulings (160 tax rulings) selected by the Commission.

(7)

On 16 October 2013, the Commission sent the United Kingdom another request for information asking the United Kingdom to provide additional information with regard to the four anonymised tax rulings.

(8)

On 14 November 2013, the United Kingdom provided the Commission with the available copies of documents related to the 160 tax rulings selected by the Commission. The United Kingdom in this context insisted that there is no indication of any kind of selectivity, including de facto selectivity, and therefore they consider there is no element of State aid resulting from the tax ruling practice.

(9)

On 20 December 2013, the Commission sent the United Kingdom a request for information in which it asked the United Kingdom to provide more detailed information on a number of tax rulings issued by the Gibraltar tax authorities in 2011.

(10)

On 31 January 2014, the United Kingdom provided further clarifications on a number of remaining issues on tax rulings.

(11)

On 15 May 2014, the Commission asked the United Kingdom to provide it with additional information including the last 5 tax rulings issued in 2013.

(12)

On 20 June 2014 the United Kingdom provided information to the Commission in response to its request of information of 15 May 2014.

(13)

Several meetings were held during 2012 and 2013 with the United Kingdom (including representatives of the Gibraltar authorities).

(14)

The ITA 2010 entered into force on January 2011 and replaces the former ITA 1952. The ITA 2010 introduces a corporate tax rate of 10 %. Corporation tax is imposed on a company’s profits, which consist of business/trading income ‘accruing in or derived from’ Gibraltar. Investment income from listed securities is not subject to taxation (except for banks). Expenses incurred wholly and exclusively in the context of taxable income may be deducted when computing taxable income.

(15)

The ITA 2010 is based on the territoriality principle (2). According to section 74(a) of ITA 2010, income ‘accrued in or derived from’ is defined by reference to the location or the preponderance of the activities which give rise to the profits. In general, the location or the preponderance of the profit raising activities is determined on a case by case basis, depending on the specific facts and circumstances of the case.

(16)

In the ITA 2010 dividends and capital gains are exempted from taxation. In addition, interest and royalty income was not subject to taxation under the ITA 2010. After the Commission initiated its preliminary examination which eventually led to the opening of the formal investigation procedure on 16 October 2013, ITA 2010 was amended with effect as of 1 July 2013 Following the amendment, interest received or receivable from inter-company loans ‘accrued in or derived from’ Gibraltar is now subject to taxation in Gibraltar at 10 % (3).

(17)

ITA 2010 was amended with effect as of 1 January 2014 in so far that also royalty income ‘accrued in or derived from’ Gibraltar is subject to taxation in Gibraltar at 10 % (4).

(18)

Section 42 of the ITA 2010 introduces a tax ruling practice. That procedure allows companies to ask in advance for clearance if companies that are incorporated in Gibraltar are liable to pay taxes in Gibraltar. It provides that companies requesting a tax ruling should provide the Gibraltar tax authorities with sufficient documentation to take a decision. In the event that the Commissioner needs more information for that purpose section 42 of the ITA 2010 also establishes a procedure for requesting additional information.

(19)

The Commission has assessed 165 tax rulings (5)  (6) (out of a total of 340 rulings) granted to different companies in 2011, 2012 and up to 31 August 2013 (7). The outcome of the preliminary analysis of the Commission is the following:

(20)

The analysis of the tax rulings indicates that Gibraltar does not conduct any designated procedure to request information before deciding to issue a tax ruling.

(21)

In a meeting with the Member State authorities, the United Kingdom merely indicated that requests for tax rulings can involve preliminary meetings or telephone conversations with companies in order to obtain more detailed information on the activities performed or to be performed by those companies. It was also explained that the records of such preliminary contacts are kept on file and that it would be possible to retrieve them. However despite the Commission’s repeated requests for information on that process the United Kingdom failed to provide the relevant information. Finally, the United Kingdom informed the Commission that it is not able to provide the Commission with any other records or documents related to preliminary meetings or discussions between Gibraltar tax authorities and the companies which request the tax rulings (8).

(22)

In some tax rulings, the companies request a tax ruling by electronic mail addressed to the Gibraltar tax authorities and they obtain a tax ruling even though they do not follow the procedure established in section 42 of the ITA 2010 (9).

(23)

In general, a typical tax ruling provided by the Gibraltar tax authorities includes two or three very brief paragraphs usually half a page long. The tax ruling states that based on the facts and circumstances outlined in the request for a tax ruling, the Commissioner confirms that no corporate tax would be chargeable in Gibraltar.

(24)

In the 165 tax rulings analysed (10) the Gibraltar tax authorities state in one paragraph that the activity of the company is performed wholly outside Gibraltar without making reference to any information that has been analysed in order to conclude that there is effectively no activity developed in Gibraltar. All the 165 tax rulings contain the following automatic clause: ‘On the facts and in the circumstances set out in your letter, I confirm on behalf of the Commissioner that no corporation tax would be chargeable in Gibraltar under the Act in respect of the described activity (subject to the criteria for determining “accrued in and derived from” contained in section 74 of the Act) on the basis and provided that the profits or gains of the Company arise from income generating activities and functions wholly carried on or exercised outside Gibraltar’.

(25)

The tax rulings provide no further explanations or guidance to the companies which could indicate that the Gibraltar tax authorities performed any kind of assessment based on which they provide such tax rulings. They simply repeat the statements of the requesting companies that certain (undefined) activities are not subject to Gibraltar corporate tax.

(26)

With respect to the information contained in the requests for a tax ruling, it appears from the tax rulings that have been analysed by the Commission that the only information that is provided by the company is a short letter of a law firm (incidentally always the same law firms in all the tax rulings) containing the following phrases: ‘we are instructed that the activity of the company is…’, ‘we have been advised that its place of business for trading purpose shall not be in Gibraltar’.

(27)

In five cases of tax rulings a fiduciary (acting on behalf of their client) or trust administrator (acting on behalf of the trust and on behalf of the beneficiary) request for a tax ruling in a very short letter stating that the company which they represent should not be taxed in Gibraltar without providing any further explanations and only stating that the income of a company is not derived in or accrued from Gibraltar (11).

(28)

Furthermore, in other cases the Gibraltar tax authorities grant tax rulings when the company does not provide its name or does not provide a description of its activity. In such cases the letter requesting for a tax ruling includes a paragraph which states: ‘Can you please confirm or notify otherwise whether the following scenario, although connected with Gibraltar, would fall outside the scope of Gibraltar taxation on the basis that the income of the company is earned outside Gibraltar? (…), Company “A” is incorporated in Gibraltar and has no staff or office premises in Gibraltar (…)“. In those cases the tax rulings state: “on the facts and in the circumstances set out in your letter, I confirm on behalf of the Commissioner that no corporate tax would be chargeable in Gibraltar under the Act on Company “A’“ (12). In certain tax rulings the companies are also named as “Newco” or “Gibraltar company” and their real name is not disclosed to the Gibraltar tax authorities.

(29)

In those cases it is even very difficult if not impossible to examine whether the company carries out any economic activity in Gibraltar or to examine the substance of the company (number of employees, location of the management and control of the company, etc.).

(30)

Additionally, it can be seen from the tax rulings that it usually takes just a few days (the average is three days (13)) for the Commissioner of Gibraltar to provide a tax ruling to the requesting company. The Commission does at this stage not understand how the Commissioner is able to consider in sufficient detail the activities and functions of the respective company and the location from where it performs those activities and functions in such a short period of time.

(31)

The analysis of the tax rulings indicates that many requests for tax rulings not only provide too little information but that the little information provided should raise doubts with the Gibraltar tax authorities whether the activities are really tax exempt because they are not derived in or accrued from Gibraltar.

(32)

The following broad categories of tax rulings illustrate that phenomenon (14):

—

Interest received in Gibraltar: There are a number of tax rulings (23 out of 165 tax rulings) (17) that state that all income earned by Gibraltar companies which provide loans to associated companies located outside Gibraltar is exempt from taxation in Gibraltar. Despite the fact that the ITA 2010 after 1 July 2013 subjects to taxation interest (by means of section 4 of Schedule 5 of the ITA 2010) received by a Gibraltar company and despite the fact that the ITA 2010 also considers that a Gibraltar registered company is automatically deemed to have intercompany interest income “accruing in or derived from” Gibraltar, all the tax rulings analysed by the Commission automatically state that: “on the facts and in the circumstances set out in your letter, the profits or gains arising from the described activities would not be liable to taxation”  (18).

Regarding debt structures received carried out before the amendment of the law having effect as of 1 July 2013, there are several cases where a tax ruling is granted to a conglomerate of several companies (usually between seven and nine) composed by tax resident companies in Gibraltar and offshore companies. In those cases, the Gibraltar companies merely serve as debt conduit companies between the offshore companies that generate the funds and the offshore borrower companies. Such “artificial structures” (as regulated in section 40 of the ITA 2010) are in general used for avoiding the payment of taxes related to loan activities on the basis of the following reasoning: i) the tax authorities in the jurisdiction of the lender company would consider that the loan is provided in Gibraltar and that the interests are already being subject to taxation in Gibraltar, as the company located in Gibraltar is the one that directly received the payments of the interests, ii) due to the exemption applied in Gibraltar on the basis of the tax ruling the interests can be distributed to the real lender company without being subject to taxation.

Another important fact to consider is that neither the tax ruling nor the company requesting for a tax ruling mention the remuneration that is charged for intercompany loans. Thus, there is no reference to transfer pricing, despite schedule 4 and section 40 of the ITA 2010 which refer clearly to transfer pricing principles and state that intercompany loans should be based on the arm's length principle. Accordingly, the remuneration for intercompany loans should have been fixed in the loan agreements in advance.

—

Royalties received in Gibraltar: There are several tax rulings (22 out of 165 tax rulings) granted to Gibraltar companies which receive royalty payments from companies which use intellectual property rights (“IP”) and which are located outside Gibraltar (19).

It must be noted that under the version of the ITA 2010 in force at the time when the tax rulings were issued, royalty income was tax exempt. However, the Gibraltar tax authorities grant tax rulings to companies exempting from taxation such royalty income without verifying where the user of the IP is located. By exempting from tax the royalty income without verifying where the user of the IP is located, such royalty income is not subject to taxation anywhere else (in contrast to the situation where the income is not subject to taxation in Gibraltar. In that case, the income could be subject to taxation elsewhere).

—

Holding companies which hold as a sole asset a yacht (25). From the tax rulings, it is not obvious that the Gibraltar tax authorities have sufficient information to analyse whether the holding company carries out any activity (such as renting the yacht in Gibraltar) from which it could generate taxable income in Gibraltar pursuant to sections 11 and 74 of the ITA 2010. Nevertheless, in all the tax rulings analysed, the expenses for maintaining the yacht are recognized as deductible but the possible income obtained by the yacht is considered as exempted as it is accrued in or derived from outside Gibraltar without any further assessment or request for additional information carried out by the Gibraltar tax authorities (26). In principle, the Gibraltar tax authorities should require more information such as the certificate of registration of the yacht to verify if an activity is performed with the yacht that could be considered taxable (27). Following a question to that effect, the United Kingdom answered that the Gibraltar tax authorities do not have any information on the companies registered in Gibraltar which own a yacht or ship as the sole assets.

—

Trusts incorporated in Gibraltar that are tax exempt without further analysis by the Gibraltar tax authorities as to whether the trust received any income that could be considered as taxable income in Gibraltar (28). Pursuant to section 13 of the ITA 2010 any income received by a trust resident in Gibraltar is considered as chargeable to taxation.

(33)

According to the United Kingdom in order to carry out an assessment and to apply the territoriality principle, it is not always necessary to have a full description of the activity in question. The party requesting the ruling may, of course, choose to provide details, if it is thought useful to do so (29). However, if no such trading is carried out or exercised in Gibraltar it is of no relevance to seek further factual detail on evidences proving such companies' business activities (30).

(34)

In addition, the United Kingdom submitted that the Commissioner's office can be reasonably sure that the activity described is not carried out in Gibraltar, on the basis of local knowledge and that nothing further is required to determine whether the activity is taxable (31). It is not a question of providing supporting evidence but rather an understanding of the transaction/event which needs to be sufficiently complete (32). The fact that income does not accrue in or derive from Gibraltar is sufficient to make an assessment in the particular case and further information would not provide additional clarity (33).

(35)

Furthermore, the tax rulings are issued on the basis of the facts and circumstances provided in the requests themselves and the tax rulings are always conditional, i.e. any material change and/or misinterpretation of any fact or change of law may result in the revocation of a tax ruling. Moreover, the United Kingdom notes that the information, declarations and statements made in requests for tax rulings are almost in all cases made by Gibraltar law firms or Gibraltar accountancy firms which are bound by codes of professional ethics and standards or by company managers all of which are licenced by the Financial Services Commission in Gibraltar. Therefore, disclosure of false or misleading information could expose the requesting party to sanctions from either their professional body or the Financial Services Commission (34).

(36)

With respect to the review of structures involving interest and royalties, the United Kingdom submitted that the Gibraltar tax authorities had neither enough expertise nor material resources to conduct a sophisticated review (35).

(37)

All relevant information that the Commissioner needs in order to make his determination as to the tax treatment should be contained in the initial request. If such information is not provided the Commissioner requests whatever additional information he considers pertinent to make his determination. Those requests for additional information depend on the complexity of the ruling request in the context of the information provided.

(38)

The United Kingdom states that it would be difficult for a company to conduct any activity within Gibraltar without that fact coming to the attention of the Gibraltar tax authorities. Moreover, systematic background checks are carried out on the status of any company in the Income Tax Office computer database and with other sections such as the Corporate and Investigations sections. Additional background checks are also made where appropriate in any case of doubt about the application of section 74 of the ITA 2010. According to the United Kingdom, the combination of all those procedures would make it very difficult for a company to commence activity in Gibraltar without it being noted through those checks.

(39)

The United Kingdom claims that the tax ruling practice of the Income Tax Office seems to be similar to the practice of other tax authorities in Europe that routinely give advance tax rulings, namely, that they rely on what is submitted by the taxpayer company, and carry out background checks later if necessary or appropriate to confirm that the company has operated substantially as described (36).

(40)

The United Kingdom also argues that Gibraltar’s tax rulings apply in a wide variety of situations and a wide range of activities and that they do not apply primarily or exclusively to any identifiable category or group of companies or industries. According to the United Kingdom there is no indication of any kind of selectivity, including de facto, and therefore, the United Kingdom considers that there is no element of State aid resulting from the tax rulings.

(41)

Last but not least, the United Kingdom stated (37) that due to the existence of concerns related to the meaning of the term “accrued in or derived from” in section 74 of the ITA 2010, it is proposed to issue a Guidance Note by the Commissioner explaining how the concept should be interpreted, including explanations of how the Gibraltar tax authorities make the assessment of whether an undertaking carries out activities both within and outside Gibraltar. However, up to the date of this decision, the Guidance Note has not been published.

(42)

Article 107(1) TFEU states that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the internal market”.

(43)

It follows that in order to be qualified as State aid, the following cumulative conditions have to be met: 1) the measure has to be granted out of State resources, 2) it has to confer an economic advantage to undertakings, 3) the advantage has to be selective and distort or threaten to distort competition, 4) the measure has to affect intra-Union trade.

(44)

In this case, it seems appropriate to examine firstly the selectivity of the measure. The selectivity criterion can be assessed at either material or geographical (or regional) levels or both. In the present case, it is sufficient to examine whether the tax ruling practice under the ITA 2010 is materially selective.

(45)

According to settled case-law, the material selectivity of tax measures should normally be assessed by following a three-step analysis (38). Firstly, the system of reference has to be identified. Secondly, it should be determined whether a given measure constitutes a derogation from that system insofar as it differentiates between economic operators who, in light of the objective intrinsic to that system, are in a comparable factual and legal situation. If the measure in question does derogate in such a fashion (and therefore is prima facie selective), it still needs to be verified in the last step of the test whether the derogating measure is justified by the nature or the general scheme of the (reference) system (39). 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 thus falls outside the scope of Article 107(1) TFEU.

(46)

The system of reference normally constitutes the framework against which the selectivity of a measure is assessed. It is composed of a consistent set of rules generally applicable — on the basis of objective criteria — to all undertakings falling within its scope as defined by its guiding principle.

(47)

In the case at hand, the reference tax system must be defined as the Gibraltar corporate income tax as introduced by the ITA 2010 in the version in force at the time of the issuance of the tax rulings, which applies to all resident companies in Gibraltar (as well as to non-resident companies carrying on a trade in Gibraltar through a branch or agency). The guiding principle of that system consists in levying taxes on all those undertakings generating income accruing in or derived from Gibraltar, avoiding double taxation and leading to simplification.

(48)

The next question is then whether the Gibraltar tax system provides any derogation leading to a different treatment for companies in a comparable legal and factual situation.

(49)

Such a derogation could exist if, when granting a tax ruling, tax authorities enjoy discretion when applying the respective legal provisions, or treat undertakings that are in a similar legal and factual situation differently by, for instance, granting rulings only to certain companies or applying a more “favourable” tax treatment to some companies (40). In addition, a selective tax treatment could result from the fact that the tax authorities deviate in their rulings from the applicable national provisions which results in a lower amount of tax to be paid by the company.

(50)

According to the Court of Justice of the European Union, treating economic agents on a discretionary basis may mean that the individual application of a general measure takes on the features of a selective measure, in particular where exercise of the discretionary power goes beyond the simple management of tax revenue by reference to objective criteria (41). Moreover, if in daily practice tax rules need to be interpreted, they cannot leave room for a discretionary treatment of undertakings. Every decision of the administration that departs from the general tax rules to the benefit of individual undertakings in principle leads to a presumption of State aid and must be analysed in detail.

(51)

As far as administrative rulings merely contain an interpretation of general rules, they do not give rise to a presumption of aid. However, the opacity of the decisions taken by the authorities and the room for manoeuvre which they sometimes enjoy support the presumption that such is at any rate their effect in some instances.

(52)

After the review of 165 tax rulings, the Commission considers that the Gibraltar tax authorities generally refrain from a proper assessment of the companies” tax obligations by exercising their discretionary powers. Such a course of conduct is possible because the legal provisions are formulated in a sufficiently vague manner to allow the Gibraltar tax authorities room of manoeuvre. In addition, in some case, the Gibraltar tax authorities issue rulings that are in contradiction to the applicable tax provisions. Such is the case, for instance, when the tax authorities introduce the concept of “minimal income” which is not mentioned anywhere in the legal rules.

(53)

The selective treatment through the tax ruling practice will be explained in more detail with the help of the following examples:

(54)

In conclusion and after an analysis of a significant number of tax rulings, the Commission understands that the Gibraltar tax authorities grant formal tax rulings without performing an adequate evaluation of such companies” business in order to safeguard Gibraltar’s tax base. Such practice is possible because the Gibraltar tax authorities dispose of a large room for manoeuvre under the ITA 2010 and because tax rulings are issued in contravention of the applicable tax provisions. 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 thereby treat companies that are in a similar legal and factual situation differently.

(55)

A measure which derogates from the system of reference (prima facie selectivity) may be still found to be non-selective if it is justified by the nature or general scheme of that system. A derogating measure is justified where that measure results directly from the intrinsic basic or guiding principles of the reference system or where it is the result of inherent mechanisms necessary for the functioning and effectiveness of that system. By contrast, external policy objectives which are not inherent to the system cannot be relied upon for that purpose.

(56)

The United Kingdom has not yet provided any justification to the Commission. Even if the Commission assumed that the Gibraltar tax authorities were carrying out some scrutiny, it is submitted that the way in which the tax ruling practice is implemented is not in line with international tax standards and with the logic of the system in a fashion that could be accepted in the State aid context. It is obvious from the tax rulings practice that Gibraltar offers rulings to the requesting companies and exempts them from any taxation even if some income is received in Gibraltar.

(57)

In addition, the tax authorities must also ensure the existence of appropriate control and monitoring procedures in order to ensure a coherent application of the tax system (42). The Commission has doubts whether the United Kingdom provide for appropriate control procedures both as regards ex ante control (before granting a ruling) and ex post, i.e. as regards the implementation of the tax structures that are the object of the ruling. It rather appears at this stage that the tax rulings practice is accompanied by a systematic non-enforcement of key conditions that lead to the granting of an advantage to those companies that receive a tax ruling. In fact, the rulings generally provide a circular reasoning that the company is exempted from paying taxes in Gibraltar because its income is not “accruing in or derived from” Gibraltar “provided that the profits or gains of the company arise from income generating activities and functions carried out or exercised outside Gibraltar”. By systematically adding the last disclaimer to all their rulings, the Gibraltar tax authorities in fact argue that it is for the company to inform the Gibraltar tax authorities if its income is not generated (or is not generated any longer) outside Gibraltar. However, from the above analysis it appears that the tax authorities deliberately ignore information that points to the contrary and do not perform any adequate monitoring of such companies’ business in order to safeguard its national tax base.

(58)

The use of State resources can follow from the loss of tax revenue. Since the non-taxation of income results in a loss of tax revenue that otherwise would have been available to the Member State, it can be concluded that the scheme is financed through State resources (43). It is also imputable to the State because it results from tax rulings granted by the State.

(59)

According to the case-law, the concept 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 (44).

(60)

Since the tax rulings practice exempts from taxation certain companies that have been granted a tax ruling, it seems to provide an economic advantage to the benefitting companies in comparison to other companies which do not benefit from such tax advantages, whenever the beneficiaries would otherwise be subject to taxation in Gibraltar. Furthermore, in each case where the level of taxation of a company benefitting from a tax ruling would be inferior to the level of taxation resulting from the correct implementation of the applicable tax provisions, there would be an advantage for them.

(61)

Many of the companies established in Gibraltar (and the groups to which they belong) are likely to be active in sectors where there is trade between Member States. The Court of Justice has repeatedly ruled that when aid granted by the Member State strengthens the position of an undertaking vis-à-vis other undertakings competing in intra-Union trade, the latter must be regarded as affected by that aid and there is a distortion of competition. For that purpose, it is not necessary for the recipient undertaking itself to export its products. Where a Member State grants aid to an undertaking, domestic production may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of exporting their products to the market in that Member State. Similarly, where a Member State grants aid to undertakings operating in the service and distribution industries, it is not necessary for the recipient undertakings themselves to carry on their business outside the Member State for the aid to have an effect on intra-Union trade. The relatively small amount of aid, or the relatively small size of the undertaking which receives it, does not as such exclude the possibility that intra-Union trade might be affected (45). Therefore to the extent that Gibraltar companies, benefiting from the advantages of being exempted from taxation by virtue of a tax ruling, operate in sectors where intra-Union trade takes place, it would appear that the aid affects trade between Member States and threatens to distort competition.

(62)

It seems at this stage that there is potentially a State aid in all the assessed 165 tax rulings (identified in annex), because none of them is based on sufficient information so as to ensure that the level of taxation of the activities concerned is in line with the tax paid by other companies in a similar situation and the applicable tax provisions.

(63)

These 165 tax rulings also point to a recurrent practice. Section 42 of ITA 2010 concerns the tax rulings procedure which allows companies to ask in advance for clearance as to whether companies that are incorporated in Gibraltar are liable to pay taxes in Gibraltar. The preceding analysis points to a recurrent practice in the provision of rulings by the Gibraltar tax authorities which at this stage seem to be a de facto scheme.

(64)

Pursuant to Article 1(d) of Regulation (EC) No 659/1999 a scheme is to be considered as an act ‘on the basis of which, without further implementing measures being required, individual aid awards may be made to undertakings defined within the act in a general and abstract manner’.

(65)

First, section 42 of ITA 2010 can be considered as the basis for the granting of tax rulings to companies in Gibraltar.

(66)

Second, the Commission’s analysis of the tax rulings provided to it showed that the tax ruling practice consistently misapplies the provisions of the ITA 2010. Such misapplication is based on wide powers granted to the Gibraltar tax authorities when applying the provisions of ITA 2010. A legal basis with such a wide discretion is bound to lead to misapplication (for instance, by creating the tax exemption for ‘minimal’ income which is nowhere mentioned in the ITA 2010).

(67)

Third, that consistent tax ruling practice is accompanied by a systematic non-enforcement of key conditions that lead to the granting of an advantage to those companies that receive a tax ruling. As indicated above, the rulings generally are based on the reasoning that the company is exempted from paying taxes in Gibraltar given that the company has to inform the Gibraltar tax authorities if its income is not generated outside Gibraltar. However, the Gibraltar tax authorities seem not to perform any adequate monitoring of such companies’ business in order to safeguard its national tax base. It is thus the tax rulings practice that provides a very superficial assessment (if any) of the situation of the company together with the lack of enforcement from the side of the Gibraltar tax authorities that is objectionable and forms the basis for a State aid investigation.

(68)

The ITA 2010 with the tax rulings procedure as it is applied by the specialised tax authorities thus meets the criteria laid down in Article 1(d) of Regulation (EC) No 659/1999. Therefore the Commission considers at this stage that it can conduct its analysis both on the 165 individual cases of rulings constituting State aid and on the de facto scheme resulting from the application of the tax ruling procedure.

(69)

The Commission concludes, at this stage, that the 165 individual tax rulings examined and the administrative tax rulings practice in Gibraltar constitute a new State aid (46) within the meaning of Article 107(1) TFEU. The Commission has found factual evidence that the United Kingdom grants selective advantages to companies that receive a tax ruling on the basis of a scheme by exempting them from taxation in Gibraltar by way of tax rulings.

(70)

As the measure appears to constitute State aid, it is therefore necessary to determine if such aid is compatible with the internal market. State aid measures can be considered compatible on the basis of the exceptions laid down in paragraphs (2) and (3) of Article 107 TFEU.

(71)

At present the Commission has doubts as to whether the measure in question can be considered compatible with the internal market. The United Kingdom authorities did not present any argument to indicate that any of the exceptions provided for in paragraphs (2) or (3) of Article 107 TFEU applies in the present case.

(72)

The exceptions provided for in Article 107(2) TFEU, which concern aid of a social character granted to individual consumers, aid to make good the damage caused by natural disasters or exceptional occurrences and aid granted to certain areas of the Federal Republic of Germany, do not seem to apply in this case.

(73)

The exception provided for in Article 107(3)(a) TFEU also does not apply, which concerns the authorisation of aid to promote the economic development of areas where the standard of living is abnormally low or where there is a serious unemployment, and of the regions referred to in Article 349 TFEU, in view of their structural, economic and social situation. Such areas are defined by the United Kingdom’s regional aid map (47). Since Gibraltar is not such an area, Article 107(3)(a) TFEU does not apply.

(74)

As regards the exceptions laid in subparagraphs (b) and (d) of Article 107(3) TFEU, the aid in question is not intended to promote the execution of an important project of common European interest nor to remedy to a serious disturbance in the economy of the United Kingdom, nor is it intended to promote culture or heritage conservation.

(75)

Aid granted in order to facilitate the development of certain economic activities or of certain economic areas could be considered compatible where it does not adversely affect trading conditions to an extent contrary to the common interest, according to Article 107(3)(c) TFEU. At this stage, however, the Commission has no elements to assess whether the tax advantages granted by the measure under examination are related to specific investments eligible to receive aid under Union rules and guidelines, to job creation or to specific projects. The Commission considers, on the contrary, that the measure in issue seems to constitute a reduction of charges that should normally be borne by the entities concerned in the course of their business, and should therefore be considered as operating aid. According to the Commission practice, such aid cannot be considered compatible with the internal market in that it does not facilitate the development of certain activities or of certain economic areas, nor are the incentives in question limited in time, digressive or proportionate to what is necessary to remedy to a specific economic handicap of the areas concerned. In addition Gibraltar is not included in the regional aid map for the United Kingdom for the period 2007 to 2013, as approved by the Commission under State aid N673/2006.