The European Commission referred the UK to the European Court of Justice (ECJ) on Friday over failing to recover illegal state aid received by corporations in Gibraltar.
In 2012, Spain raised concerns about unfair taxation practices by Gibraltar. The following year, the Commission launched an investigation into the allegations. Shortly afterwards, the UK submitted an amendment to Gibraltar’s tax code resolving the issue to the Commission. To determine the extent to which corporations had benefited from the tax laws, the Commission continued the investigation. In 2018, the Commission decided that between 2011 and 2013 Gibraltar’s tax structure for royalties and passive interest violated state aid rules. The Treaty on the Functioning of the European Union expressly bans the usage of state aid “unless it is justified by reasons of general economic development.” The Commission gave Gibraltar until April 23, 2019, to implement steps to recover the aid received by the beneficiaries. Since then, Gibraltar has recovered only 20 percent of the aid. As a result, the Commission has referred the UK to the ECJ.
Despite the UK’s withdrawal from the EU, the Commission retains the right to refer them to the court. The agreement governing the UK’s withdrawal from the EU permits the Commission to enforce penalties for failures to comply with Commission decisions if the decision was made before December 31, 2020.
While a two-year delay might be regarded as unreasonable, it is unclear how much of it has been caused by difficulty in recovering the aid, reluctance to recover the aid, or issues due to the pandemic and global economic crisis.