Spanish Government drops legal challenge to Gibraltar’s fiscal independence

The Spanish Government has withdrawn a legal action challenging the European Commission’s state aid decision accepting Gibraltar’s right to set its own taxes.

The decision to withdraw the action means the case has now been struck off by the European Court of Justice.

Spain had sought to argue that the European Commission committed an error in law when it found the state aid principle of regional selectivity did not apply to Gibraltar.

In its decision, the Commission accepted that Gibraltar was able to operate a different tax system to the UK.

Spain’s position, had it succeeded in court, could have forced Gibraltar to operate a system of corporate taxation similar to that in the UK.

“Such a finding would have had devastating effects to our economy,” No.6 Convent Place said in a statement welcoming Spain’s decision to drop the case.

“By withdrawing its legal action, Spain effectively allows the Commission’s decision to stand.”

On Wednesday, Chief Minister Fabian Picardo welcomed the development.

“It is clear that with EU law ceasing to apply in Gibraltar by 1 January 2021, the importance of this case had diminished, but there were still vital issues at stake, not least the retrospective effects of an unfavourable finding,” he said.

“But perhaps more importantly, we will now leave the EU with clarity that on such a fundamental issue as Gibraltar’s independent taxing powers there was never a requirement that Gibraltar should be treated as part of the UK’s fiscal territory.”

“This was the position of the European Commission, the United Kingdom and Gibraltar.”

“We therefore welcome the withdrawal of the case.”

“We were confident, in any event, that Spain’s challenge was unlikely to succeed.”

“The Gibraltar Government could not intervene in the case, but the United Kingdom Government could and did do so, working closely with HM Attorney General for Gibraltar, Mr Michael Llamas QC.”