On 24 October 2019, Advocate General ("AG") Hogan published his opinion in the case ‘GVC Services (Bulgaria)’ EOOD v Direktor na Direktsia Obzhalvane i danachno-osiguritelna praktika – Sofia (Case C-458/18) pending in front of the European Court of Justice ("ECJ") and addressing the entitlement of Gibraltar companies to benefit from the provisions of Article 2 of the EU Parent-Subsidiary Directive (EU) (2011/96) as further amended ("PSD"), together with its Annex I. The request for a preliminary ruling more specifically relates to the withholding tax exemption on dividend distributions made by a limited liability company (GVC Services EOOD) governed by Bulgarian law to its parent company (PBG Limited – Gibraltar), a company established in Gibraltar ("GibCo"). The distributing company applied for the withholding tax exemption by arguing that the GibCo should be considered as a foreign legal person resident for tax purposes in a Member State of the EU and thus benefit from the PSD as implemented into Bulgarian tax legislation. Such interpretation has been rejected by the Bulgarian tax authorities and subsequently challenged before the Sofia Administrative Court, Bulgaria, which decided to refer the question to the ECJ for a preliminary ruling.
As a reminder, Gibraltar is a European territory, the external relations of which are under the responsibility of the United Kingdom. As such, Gibraltar is entitled to the benefit of any EU acts with certain exceptions. For the purpose of the PSD, which provides for a withholding tax exemption on dividends derived by an EU Member State company in respect of its shareholding in a company of another Member State, the parent company must take one of the company forms listed in Annex I, Part A of the PSD and be subject to one of the taxes listed in Annex I, Part B of the PSD. Since Gibraltar companies and taxes applied by Gibraltar are not listed in the Annex I of the PSD, the question is whether it might fall under the provisions of Annex I related to the United Kingdom. Indeed, as far as the United Kingdom is concerned, Annex I lists (i) "companies incorporated under the law of the United Kingdom" and (ii) "corporation tax in the United Kingdom".
In the opinion of AG Hogan, Annex I is exhaustive and cannot be extended to include Gibraltar companies and Gibraltar taxes, even if they were comparable to UK companies and taxes. Gibraltar companies should thus be considered as falling outside the scope of the PSD. However, AG Hogan also analyses whether the refusal would be compatible with the freedom of establishment. In this regard, he takes the view that a more general analysis of the Bulgarian law should be performed in light of the EU freedom of establishment principle and that national laws like the Bulgarian national law cannot refuse to exempt dividends paid by a subsidiary located in an EU Member State to its parent company solely on the ground that such company is incorporated in Gibraltar. A refusal can only be admitted, if it results from the application of anti-avoidance measures that should be assessed on a case by case basis.
The judgment by the ECJ on the case is still pending. In the event that the ECJ would follow AG Hogan’s opinion, the Luxembourg participation exemption regime implementing the PSD would have to be interpreted accordingly.
Parent-Subsidiary Directive and Gibraltar Companies
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ARTICLE24 January 2020