“The Government’s long and defensive reaction to the GSD analysis of the Tax Treaty does nothing to meet the fundamental criticisms of it. The Gibraltar Tax Treaty is flawed and will treat certain Gibraltarians actually resident in Gibraltar or Gibraltar companies that operate in Gibraltar as Spanish tax residents. These things have inexplicably been agreed by the Gibraltar Government for very nothing of substance in return and in circumstances when it can detrimentally affect our economy and undermines our tax sovereignty,” said GSD Leader Keith Azopardi.
“The Gibraltar Tax Treaty is neither neutral nor fair. It is very different to a classic double taxation Treaty. The Government is absolutely wrong to harp on about the benefits of this Treaty. In doing so it is just showing that it has entered into another bad deal and cannot even recognise it” added Mr Azopardi.
Any simple comparison with a classic double taxation agreement shows that the deal that the GSLP Government have signed up to puts our residents or companies at a disadvantage and also can affect our economy. Attached is the UK-Spain Tax Treaty of 14 March 2013 which is the very different agreement that applies between the UK and Spain. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507409/spain-dtc_-_in_force.pdf
- The UK-Spain Treaty does not contain the one-sided and concessionary provisions that the Gibraltar Tax Treaty does. The UK-Spain Treaty does not undermine the UK’s fiscal sovereignty like the Gibraltar Treaty does.
- In the UK-Spain Tax Treaty there is no presumption of Spanish tax residency for individuals [see Article 4 UK- Spain Tax Treaty]. Conversely in the Gibraltar Treaty there is a clear presumption of Spanish tax residence that can affect people who actually live in Gibraltar [Article 2(1)(b)(i) and (ii) of the Gibraltar Tax Treaty].
- The test of residence in the UK-Spain Tax Treaty is whether a person has a permanent home or where his centre of vital interests is. When this cannot be determined the general presumption is that the person is tax resident of the country where he is a national [Article 4(2) UK-Spain Tax Treaty]. Conversely when issues “are not conclusive” in the Gibraltar Tax Treaty then individuals are presumed to be considered Spanish tax residents unless they provide reliable evidence to the contrary [Article 2 (1)(iii) Gibraltar Treaty].
- There is nothing in the UK-Spain Tax Treaty which states that Spanish nationals who move to UK will only be considered Spanish tax residents. Yet the Gibraltar Tax Treaty specifically says that Spanish citizens moving to Gibraltar “shall in all cases only be considered tax residents of Spain” [Article 2(1)c) of the Gibraltar Treaty.
- There is nothing in the UK-Spain Treaty that says that English people living in Spain who return home to England continue to pay tax as Spanish tax residents for four years after leaving Spain. Yet in the Gibraltar Tax Treaty any Gibraltarian who has been living in Spain for over four years and returns home will after arrival in Gibraltar and for the next four years continue to be a Spanish tax resident.
- In the case of companies the UK-Spain Treaty makes clear that a company is tax resident where the effective management is situated [Art 4(3) UK-Spain Treaty]. Conversely in the Gibraltar Tax Treaty Gibraltar companies can be considered tax resident in Spain if the shareholders live there [Article 2(2)(a) Gibraltar Treaty]. Indeed there is a presumption of Spanish tax residency in certain circumstances for Gibraltar companies.
- The UK-Spain Tax Treaty makes clear that an English company would be taxed in England on its profits unless it has a permanent establishment in Spain [Article 7 UK-Spain Tax Treaty]. The Gibraltar Tax treaty makes certain Gibraltar companies tax residents of Spain even when the permanent establishment and operations of the company are in Gibraltar. Additionally the Gibraltar Tax Treaty states that Spanish companies that move to Gibraltar from the date of the Treaty “shall in all cases maintain tax residency only in Spain” [Article 2(2)e)].
- The UK-Spain Treaty establishes a general requirement to exchange information [article 26]. The Gibraltar Tax Treaty establishes much deeper and more specific requirements to exchange information in relation to workers or any persons who are deemed or presumed to be tax residents [Article 3(5) Gibraltar Treaty).
These are only some of the striking differences when a comparison is done. They illustrate how wrong the Government is to say that they have concluded a beneficial Treaty. The Government should not attempt to pull the wool overpeople’s eyes.
“This is a bad Treaty which includes a set of provisions which favour Spain. They have inexplicably been signed up to by the Gibraltar Government and for little in return of any substance” said Mr Azopardi.
On Friday the Spanish Council of Ministers approved the Gibraltar Tax Treaty. In so doing they issued a summary of its view of the process leading to it. This is at http://www.lamoncloa.gob.es/consejodeministros/referencias/Paginas/2019/refc20190315.aspx#gibraltar
In it the Spanish Government highlight as a specific achievement the provisions on companies by which Gibraltar companies will be considered Spanish tax resident if the majority of shareholders or directors live in Spain. This is an issue that will affect the attraction of inward investment and is completely contrary to how a company would normally be treated. If an English company operates in England but is owned by a Spanish person it does not make the English company a Spanish tax resident.
The Government now says that the Treaty cannot be terminated except for cause. This is different to what it initially said. The Chief Minister clearly stated that as the UK had signed on Gibraltar’s behalf at his request that Gibraltar could request a termination at will. He needs to be consistent with what he is saying to the people of Gibraltar. If, in fact, what he has agreed is a permanent deal and he does not have a commitment from the UK that they will accede to a request from Gibraltar to terminate it at any time then he should say so. This would illustrate that contrary to what he has been saying this is, in fact, a bilateral Treaty that he does not control. The GSD intends – as indicated yesterday –to put a Motion to the membership to endorse its policy position on request for termination.