EU clampdown on Gibraltar tax

BRUSSELS said today it will end Gibraltar's use as a tax haven. The European Commission has given the UK one month to agree a five year phase-out for firms using 'The Rock' for tax-reducing purposes or face a fully-fledged EU probe into the tax breaks.

Such tax concessions are viewed in Brussels as giving companies an unfair competitive advantage through Government help, and as such could be deemed illegal 'State aid' under EU rules. Almost 8,500 firms benefit from Gibraltar's tax-exempt companies scheme.

'The Commission intends to put a definitive end to the last offshore tax regime in Gibraltar,' said a Brussels statement. All corporate tax breaks under the Exempt Companies scheme would end in 2010. Until then, the number of new companies applying for the scheme would be strictly limited, with no new firms eligible after June 2006.

The move follows an unsuccessful attempt last year by the Treasury to pacify the EU by making changes to the tax regime. The Commission decided then to challenge the Treasury's new system in the EU courts.

Friday's ultimatum will do little to calm relations between Brussels and Gordon Brown, already at loggerheads over customs checks, public spending and VAT on children's clothing.