Gibraltar has cautiously welcomed an European Union commission decision ordering the UK to phase out a tax break for offshore companies base...

Gibraltar has cautiously welcomed an European Union commission decision ordering the UK to phase out a tax break for offshore companies based in the territory. The decision will see the tax break limited to around 8,500 companies, although around 8,500 companies will continue to enjoy the benefit until 2010 in a phased out agreement. Gibraltar’s chief minister Peter Caruana said, that given the extremely difficult negotiations, which led to the EU’s decision, the outcome was “reasonably good.” Under the new proposal, the number of companies benefiting from the scheme would be capped at current levels and no new entrants will be allowed into it from July 2006 prior to the scrapping of the tax break at the end of 2010. Under the “Exempt Company” scheme offered by the authorities in Gibraltar, a British territory on the southern tip of Spain, the offshore firms escape having to pay income tax on their earnings. Instead they have to pay a fixed annual tax set at a nominal £225-300($420-560). Companies qualify if they register in Gibraltar but do not conduct any business there or have any Gibraltarian shareholders. Other firms trading in the territory must pay a standard 35 per cent tax on their profits. The commission said that the selective nature of the advantage was “liable to distort competition”. Gibraltar's efforts to attract companies with favourable tax schemes has been a consistent complaint of Spain, which disputes Britain's sovereignty over the territory.