Brussels to pore over Gibraltar’s tax law in response to Spanish complaint

The European Commission is to open an investigation into Gibraltar’s corporate tax system, which was introduced in 2010, citing “serious concerns” about the possibility that it could provide unwarranted benefits to companies that have no physical presence on the British territory, which is commonly known as the Rock.

The probe, which will be handled by the EU’s Directorate General for Competition, headed by Spaniard Joaquín Almunia, comes in response to a complaint on the part of Spain lodged in June 2012.

Brussels will pay particular attention to so-called passive deposits, such as royalties and certain types of interest, which are not subject to Gibraltar’s corporate tax laws. In preliminary investigations, the EC considers that these passive deposits may constitute state aid to the companies that generate them, and believes that there is no valid reason for their existence.

The Commission declared Gibraltar’s previous corporate tax system illegal in 2004. In 2011, the European Court of Justice upheld the ruling, noting that the system provided benefits for companies that have neither offices nor employees on the Rock.

Recent tensions on the border between Spain and Gibraltar have been justified by Madrid as a response to its claims that money-laundering is rife there.