Gibraltar’s corporation tax increase to affect online gambling operators

The Gibraltar government has confirmed corporation tax will rise from 10% to a transitional rate of 12.5% in a move which could have significant consequences for the peninsula’s gambling operators.

Delivering his budget address for 2021, Chief Minister Fabian Picardo revealed Gibraltar would look to adopt an interim rate of 12.5%, which is likely to rise to as high as 15% in the coming years.

Describing the previous taxation system as “no longer fit for purpose” to govern a 21^st century digital economy, Picardo revealed the government has joined more than 130 nations in signing up to a new international taxation reform framework.

Part of this includes a commitment to a uniform minimum corporation tax rate internationally, which the Gibraltar government has said could reach 15%.

The move is primarily to comply with recent proposals from the Organisation for Economic Co-operation and Development (OECD) following a meeting of the international economic stimulus body earlier this month.

In the meeting, the OECD proposed two pillars to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits, while adding certainty and stability to the international tax system.

Pillar one targets the distribution of profits and taxation rights paid among countries with respect to the largest MNEs, including digital companies.

It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

The second pillar seeks to introduce a global minimum corporate tax rate which can be used by countries to protect their taxation bases.

Both pillars aim to provide support to governments dealing with the long-term budgetary consequences of the Covid-19 pandemic.

Acknowledging the challenges of implementing pillar two, Picardo suggested it was in Gibraltar’s best interests to sign up to OECD proposals and that an interim 12.5% corporation tax rate would make a further increase to 15% a “less significant” blow for online gambling operators.

“I understand this will present challenges to this jurisdiction and its model of taxation but I do not believe it is in Gibraltar’s interest to be the outlier that would not sign up to this framework and would seek to resist it,” Picardo explained.

“To have resisted this would be to consign Gibraltar to the group of eight countries and jurisdictions that did not support this.

“That would not be a safe ‘Cabal’ to be included in, especially as the measure, being an OECD measure and not an EU measure, will not require unanimity for its application.

“The fact that financial services companies are likely to be exempted, at the instance of the UK, will no doubt make application easier.

“But our future is as a leading, innovating, value-added jurisdiction on the right side of the global transparency and accountability spectrum, not on the opaque side,” Picardo concluded.

In an olive branch to affected businesses, the minister also announced allowances and incentives for corporate entities investing in employment, training and marketing, as well as CSR.

Other nations initially signing up to the OECD proposals include Malta, Curaçao, Germany, France, Netherlands, Sweden, Spain and Portugal, as well as the US and the UK.

However, Gibraltar is one of the first to actually put these proposals into action.

Addressing the consequences for gambling operators, a spokesperson for the Gibraltar government moved to downplay the impact on the industry.

“The government believes operators will welcome its commitment to these international standards and continued compliance.

“The increase announced by the chief minister of its corporate tax rate to 12.5% is potentially a part of and preparation for this process.

“12.5% is the current rate of corporation tax in Ireland and we do not believe this rise in rates will have any negative impact on our operators,” the spokesperson added.