The European Commission has opened an in-depth investigation to verify whether Gibraltar's new corporate tax regime is in breach of EU state aid rules by selectively favouring certain categories of companies. The Commission will in particular examine the exemption from corporate tax for passive income on royalties and interest.

The Gibraltar corporate tax regime, as introduced in 2010, taxes all activities deriving from or accrued in Gibraltar but provides for an exemption in respect of passive income on dividends, royalties and certain types of interest, irrespective of where the source of the income is located.

At this stage, the Commission considers that the tax exemption for passive interest and royalty income may involve state aid because it departs from the general corporation tax system and grants a special advantage to the particular group of companies that produce this type of income.

In response, Gibraltar has, as of 1 July 2013, repealed the exemption for inter-company loan interest, whether from Gibraltar or abroad. Despite this change, the Commission intends to examine whether the passive interest exemption was in breach of the state aid rules during the period when it was in force.