Gibraltar is engaged in a legal battle with the European Commission regarding its right to offer a corporate tax regime that is more favorable to businesses than that of the United Kingdom.
The EC has ruled that a favorable tax regime for Gibraltar, a crown dependency of the United Kingdom, is contrary to E.U. rules on state aid.
In particular, the commission has objected to Gibraltar's tax reforms of 2002, which include, among another things, the removal of corporation tax. Under the reforms, companies that satisfy certain conditions--such as not trading with or being owned by residents of Gibraltar--qualify for a corporate tax exemption.
Gibraltar has launched an appeal against the EC's ruling, but an outcome will not be delivered until 2008 or 2009. In the meantime, Gibraltar has negotiated a plan to phase out exempt companies.
Companies that had obtained exempt status prior to February 2005 will remain exempt from corporate tax until 2010. Companies that applied for exemption after February 2005 may only enjoy exemption until 2007, and there is a quota on the number of companies that may obtain the exemption. No new companies can obtain tax-exempt status after 2006.
As a result of the phasing plan, it has become extremely difficult to obtain an exemption because of the quota and the large number of applicants. The government is using a high degree of selectivity in awarding exemptions by closely scrutinizing applicants' physical presence and potential contribution to the government.
For gaming companies, the contribution comes through gaming tax, which is regarded separately from the corporate tax. Companies can typically negotiate their tax payments with the government, but defined limits dictate how much an annual tax contribution must be. The gaming tax is typically 1 percent of turnover, varying a little depending on the operator, and capped at a total of £287,000. The minimum payment for the first year of operation is £28,700 and £57,000 from the second year onward.
While gaming companies are bound like all the others to lose their exemption status by 2010, the impact should not be too overwhelming for operators. They will in all likelihood still be able to negotiate the rate of their gaming tax.
Meanwhile, policymakers are reportedly considering updating Gibraltar's remote gambling regulations, but there is no confirmation on whether this is the case and, if so, where they are in the process.