The long-running European Commission's challenge to the benevolent corporate tax regime in Gibraltar has been resolved by a European Union court in favour of the tiny Mediterranean nation. The many online gambling companies based in Gibraltar have been keeping an eye on the case, which originated in 2002, due to its potential influence on the economic viability of operating in the country.
The Luxembourg court's ruling entrenches Gibraltar's decision to levy a competitive tax rate of only 15 percent of profits on offshore companies which have established domicile in the British territory.
The European Commission launched its challenge to the low tax regime in Gibraltar back in 2002, basing its objections on the territory's fiscal autonomy from the British government. The Commission contended that the low corporate tax rate gave Gibraltar-located companies unfair advantages over their U.K. counterparts, and charged that for taxation purposes the territory should be considered part of the U.K. and therefore be subject to its [higher] corporate tax rates. The Gibraltar government responded by referring the Commission to Gibraltar's 1969 constitution which explicitly gives the territory fiscal autonomy.
The fight has been protracted, with a 2004 decision going against the territory, a ruling which has been superceded by the current decision, which specifically dismissed the EC's conclusions regarding the relationship between Gibraltar and the U.K.
In its ruling, the EU court in Luxembourg drew on a 2006 judgment on the tax regime of the Azores (an archipelago belonging to Portugal) to support its decision that from a constitutional standpoint, Gibraltar's political and administrative status is indeed separate from that of the U.K. government.
Prominent online gambling groups based in Gibraltar include PartyGaming Plc, 888 Holdings Plc, Victor Chandler International and Mansion Group. Local estimates put the percentage of Gibraltarians employed in the industry as high as 12 percent.