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Gibraltar companies outside the scope of the Parent-Subsidiary Directive

On 24 October, Advocate General (AG) Hogan opined that a company incorporated, and subject to corporation tax, in Gibraltar cannot avail itself of the benefits of the Parent-Subsidiary Directive (PSD). On a more positive note for the taxpayer concerned, the AG, however, also indicated that the relevant domestic law which imposed a withholding tax indiscriminately on dividend payments to all Gibraltar companies infringes the principle of the freedom of establishment.


GVC Services (Bulgaria) EOOD (GVC), a limited liability company incorporated and tax resident in Bulgaria, was wholly owned by PGB Limited – Gibraltar (PGB), a company incorporated and tax resident in Gibraltar. GVC paid dividends to PGB without withholding Bulgarian tax. GVC’s view was that the PSD applied to the payments, because PGB could be equated with a UK-incorporated company and was subject to corporation tax in Gibraltar, which could be equated to UK corporation tax. The Bulgarian tax authorities disagreed.

AG’s opinion

As a European territory for whose external relations a Member State (i.e. the UK) is responsible, Gibraltar is within the territorial scope of the PSD. The application of the PSD is, however, limited to companies taking one of the forms, and subject to one of the taxes, listed in Annex I to the PSD. The AG underlined that the lists in Annex I must be interpreted strictly. As the lists neither included Gibraltar-incorporated companies nor Gibraltar corporation tax (and references to companies “incorporated under the law of the United Kingdom” and “corporation tax in the United Kingdom” cannot be read to include their Gibraltar equivalents), a company incorporated, and subject to corporation tax, in Gibraltar could not benefit from the PSD.

On a more positive note for the taxpayer, the AG, however, opined that the indiscriminate application of the Bulgarian dividend withholding tax to all dividends paid to parent companies resident in Gibraltar constituted an unjustified restriction of the freedom of establishment, given that equivalent dividends paid to parent companies in EU member states could be paid free from Bulgarian withholding tax.

Where do we go from here?

We consider that it is likely that the ECJ will follow the AG’s opinion, given its rejection of previous attempts to extend the scope of the PSD by analogy (see para 43 of the judgement in Case C-247/08).

A more interesting question may be what this means for dual resident companies. Given that Annex I limits the application of the PSD to the forms of company listed therein, a company incorporated outside the EU could never benefit from the PSD (even if it was tax resident in a Member State). Conversely, a company incorporated in one, but tax resident in two Member States (e.g., in one Member State, on the basis of its place of incorporation and, in the other, on the basis of its place of management) could presumably still benefit from the PSD.


mdimonte, bonellierede, tvelling, slaughterandmay, eu law, parent subsidiary directive, gibraltar, dividends