Gibraltar’s status as a tax haven has suffered a blow after the ECJ upheld a Commission decision that the proposed corporate tax reforms conferred material selective advantage on offshore companies. In its Judgment on 15 November 2011, the ECJ annulled (in Cases C-106 & 107/09) an earlier appeal against the European Commission’s findings.

Gibraltar is a UK Crown colony and in 2002, the UK proposed a series of corporate tax reforms for all companies established in Gibraltar. The scheme was based on employment and business property occupation. Under that scheme business property operation tax was capped at 15 per cent of profits and there were other features of the tax regime which made it more favourable than that which applies to companies established in the UK.

The ECJ found that although the proposed tax reform may represent a reasonable strategic choice, the scheme nevertheless offered offshore companies a selective advantage for which the Government had failed to adduce any justification.