Court Ruling Upholds Gibraltar's 1969 Constitutional Authority on Taxation

The leading UK finance news and information title for accounting and finance professionals, Accountancy Age, reported that as online gaming companies are all dotcom businesses, it was easy for them to establish headquarters in Gibraltar. This has provided the companies with a significant edge on other sectors because they have not had to pay the UK corporation tax rate of 30%, thus creating massive savings for shareholders.

The Gibraltar-based online gambling companies had cause to open the champagne this week as news came in that the European Court had removed the threat of increased taxation by upholding the self-governing territory's autonomy to control its own taxation under its 1969 Constitution.

These tax benefits have been under threat from the European Union, which has been working to abolish Gibraltar’s exempt company tax regime. In April 2004 the European Commission said that tax rules in Gibraltar provided companies domiciled there with an unfair advantage.

This amounted to ‘regional selectivity’, said the EC and took issue with the fact that taxes in Gibraltar were based on payroll and the occupation of business premises, which meant that businesses would be unlikely to pay any tax.

By 2010 Gibraltar would have to abolish its exempt company tax regime and implement a replacement tax regime instead, said the commission. This raised the possibility that online gaming groups based in Gibraltar could find themselves paying corporation tax of 30 percent.

But a recent European Court ruling relieved these fears. Gibraltar's 1969 constitution provides the territory with fiscal autonomy and the region should be able to continue providing companies with an attractive tax arrangement.

Martin Weigold, finance director of the Party Gaming’s group, one of the online gambling companies based in the territory, said the ruling had removed the risk that PartyGaming and other companies based in Gibraltar would have to pay the full UK tax rate of 30 percent.

“Effectively it has removed one of the risks associated with the replacement tax regime that will come into effect at the end of 2010. We expect a low-cost non-discriminatory tax regime that will take its place when the tax-exempt scheme is phased out.”

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