State aid recovery doesn't preclude set-off of foreign taxes if domestic law permits.

European Court of Justice · Judgment · Preliminary ruling

(Reference for a preliminary ruling – State aid – Aid schemes implemented by the Government of Gibraltar concerning corporate income tax – Decision (EU) 2019/700 – Non-taxation of passive interest and royalty income – Decision of the European Commission declaring the aid scheme unlawful and incompatible with the internal market – Recovery obligation – Scope – Domestic provision which was not the subject of the Commission’s investigation concerning the State aid at issue – Set-off of the tax paid abroad in order to prevent double taxation)

Rechtsvraag

Whether Decision 2019/700 precludes the national authorities in Gibraltar from applying a domestic provision allowing the set-off of taxes paid abroad against taxes payable in Gibraltar when recovering unlawful State aid.

Regel

  • art. 107(1), TFEU (Treaty on the Functioning of the European Union) (defines State aid as interventions by a State that confer a selective advantage, affect trade between Member States, and distort or threaten to distort competition)
  • art. 16(3), Regulation (EU) 2015/1589 (requires recovery of unlawful aid to be effected without delay in accordance with national procedures, ensuring effective execution)
  • Decision 2019/700 (declares Gibraltar's non-taxation of passive interest and royalty income as unlawful State aid and mandates recovery)
  • art. 267, TFEU (establishes the procedure for preliminary rulings from the Court of Justice)
  • Section 37, ITA 2010 (Income Tax Act 2010) (provides a mechanism for the set-off of taxes paid abroad to avoid double taxation)

Conclusie

Decision 2019/700 does not preclude the application of a domestic tax relief provision like section 37 ITA 2010, which allows for the set-off of taxes paid abroad against those payable in Gibraltar, as long as this provision was applicable at the time of the transactions. This interpretation ensures compliance with EU requirements while respecting Member States' fiscal autonomy.

Tijdlijn

  1. 16-10-2013 The European Commission initiated a formal investigation procedure to verify whether the non-taxation of passive interest and intellectual property royalty income in Gibraltar selectively favored certain companies.
  2. 01-10-2014 The Commission informed the United Kingdom of its decision to extend the procedure to include the tax ruling practice in Gibraltar, particularly concerning 165 tax rulings.
  3. 19-12-2018 The Commission adopted Decision 2019/700, declaring the exemption of passive interest and royalty income in Gibraltar as unlawful State aid incompatible with the internal market.
  4. 19-02-2019 The Commissioner of Income Tax sent the Commission a list of aid recipients, including Fossil (Gibraltar), with calculations of aid to be recovered.
  5. 08-04-2019 The Commissioner proposed to adjust the amount of aid to be recovered from Fossil (Gibraltar) considering additional tax paid in the United States.
  6. 13-05-2019 The Commission's DG Competition expressed the view that the proposed adjustment should be refused.
  7. 06-06-2019 DG Competition reiterated that the adjustment should be refused.
  8. 26-03-2020 DG Competition stated that the Commissioner of Income Tax could not consider US tax paid on Fossil's royalty income for recovery purposes.
  9. 31-10-2020 The Commissioner sent new recovery orders to Fossil (Gibraltar) following the Commission's refusal of the initial calculation.
  10. 04-12-2020 Fossil (Gibraltar) brought an action against the recovery orders before the referring court.
  11. 16-12-2020 The Income Tax Tribunal of Gibraltar made a request for a preliminary ruling under Article 267 TFEU.
  12. 21-12-2020 The Court received the request for a preliminary ruling.