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Commission refers UK to European Court for failure to fully recover illegal tax exemption aid in Gibraltar

Christian Fernsby |
The European Commission has decided to refer the United Kingdom to the Court of Justice of the European Union for failing to fully recover illegal State aid of up to around €100 million, granted as a tax exemption for passive interest and royalties in Gibraltar, as required by a Commission decision.

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Topics: GIBRALTAR   

This case relates to facts that took place before the United Kingdom's withdrawal from the European Union.

On 19 December 2018, the Commission adopted a Decision regarding Gibraltar's corporate tax exemption regime for passive interest and royalties applicable between 1 January 2011 and 30 June 2013 and between 1 January 2011 and 31 December 2013 respectively, as well as five tax rulings granted between 2011 and 2013.

The decision declared those measures unlawful and incompatible with State aid rules, and therefore the aid must be recovered from the beneficiaries. As a matter of principle, EU State aid rules require that illegal State aid is recovered in order to remove the distortion of competition created by the aid.

In line with standard procedures, the deadline for the Gibraltar authorities to implement the Commission decision and recover all illegal aid was on 23 April 2019 (i.e. four months from the official notification of the Commission decision). Until the illegal aid is fully recovered, the beneficiaries continue to benefit from an illegal competitive advantage, which is why recovery must happen as quickly as possible.

The Commission has been in regular contact with the Gibraltar authorities throughout the recovery process. Such authorities have already recovered part of the illegal aid from the beneficiaries.

However, more than two years after the Commission decision, the Gibraltar authorities have not yet recovered all the illegal aid: those authorities identified four aid beneficiaries subject to the recovery order, but recovery has only be completed from two of them and less than 20% of the total illegal aid amount has been repaid. Recovery is still pending from Mead Johnson Nutrition (beneficiary of a tax ruling) and partially from Fossil (beneficiary of the unlawful aid scheme).

The Commission has therefore decided to refer the United Kingdom to the European Court of Justice for failure to implement the Commission decision, in accordance with Article 108(2) of the Treaty on the Functioning of the European Union (TFEU).

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