The GSD Leader, Keith Azopardi in a PPB on the Tax Treaty today covered the Party’s perspective on the Tax Treaty and why it is bad for Gibraltar.
The main points covered include the effect of the Treaty on:
1. Individuals returning to live in Gibraltar;
2. Individuals who actually live in Gibraltar but may be caught by the scope of the Treaty
3. The business community and the ability to attract inward investment;
4. The lack of Parliamentary scrutiny in relation to this and the breach of the promise to provide a copy of the draft to the Opposition
5. The effect of the Treaty on Spanish nationals and Spanish companies in Gibraltar and the lack of equivalence on Gibraltarians/Gibraltar companies;
6. How in our view the Treaty is loaded towards Spanish interests
7. The GSD’s decision to move a Motion on the possible request to terminate the Treaty in Government
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Recently the Government announced a Tax Treaty with Spain. It has been in the news over the last few weeks and I wanted to explain to you what we in the GSD say about it because it will affect people in Gibraltar and our economy in a negative way. And the Government have signed up to it.
This is a deal that is harmful to Gibraltar’s interests and is intrusive to the lives of manyGibraltarians or Gibraltar residents. It fails to respect our tax sovereignty and is the opposite of what you are being sold by the Government. In fact it is incomprehensible why the Government signed this deal and they have studiously tried to avoid debate on the issue. It is a deal that favours Spain and is loaded towards Spanish interests.
Let me explain why the Tax Treaty is bad.
The Tax deal sanctioned by the Government affects Gibraltarians and residents of Gibraltar negatively and unfairly.
Gibraltarians who may have been living in Spain because unfortunately they could not afford to live here and who decide to return home to Gibraltar will be considered Spanish tax residents for four years even after they return home to Gibraltar. In practice those Gibraltarians are being punished for coming home. Why should they have to pay tax as Spanish residents for four years after coming home? And the effects of that could lead to all kind of unfair and unforeseeable results on a family that after coming home will be treated under Spanish tax laws.
Additionally some Gibraltarians who actually live in Gibraltar may – because of the effect of the Treaty – be presumed to be Spanish tax residents even though they do not live in Spain because perhaps they have ploughed their life savings into a small holiday home in Spain which is their only asset. Those people are going to have to present evidence to the Spanish authorities to demonstrate that they do not live in Spain. And unfortunately the Treaty is unclear as to what evidence is acceptable so it is possible that it will be the Spanish authorities who will decide such questions. It also makes the determination of certain questions a matter of Spanish law.
Conversely Spanish nationals who come to live in Gibraltar or Spanish companies who move their business to Gibraltar and only operate here will always be treated as Spanish tax residents. Why is that unfair or important? Because Gibraltarians and Gibraltar companies are not treated the same if they live or operate in Spain. Secondly because it erodes our sovereignty as those people or companies are not treated within our tax net. Why did the Gibraltar Government agree a scheme that treats our nationals and companies unfairly and without equivalence to Spanish nationals? Why didn’t the Treaty say that Gibraltarians evenif they live in Spain or when they return to Gibraltar from Spain will only be treated as Gibraltar tax residents? That would be the equivalent to what Spain have achieved in respect of their nationals or companies. Why has the Government agreed that some companies that only operate in Gibraltar or some individuals who only live here will be treated as Spanish tax residents. This is the same as accepting the argument that those people are as good as in Spain for those purposes. In that it is a surrender to Spanish interests.
The Treaty is also bad for business and a disincentive to inward investment. This can affect our economy and place an obstacle in front of job creation. Why? Because if someone wants to set up a Gibraltar company that will only conduct business in Gibraltar and employ 100 people here the company itself will be treated as a Spanish tax resident just because the owner or the directors live in Spain. That is unprecedented and is a device created by Spain and a concession given by the GSLP Government which will undermine our tax sovereignty and our economy. One of the selling points to attract investment to Gibraltar has been the ability of people to trade here, create jobs and wealth for our community and live in Spain if they wish. That is what being in a free market is all about. But we are now going backwards and the Government has accepted provisions obviously designed by Spain to hamper our economy. In those circumstances there may be people who would have been willing to invest or create jobs in Gibraltar who now will not because they do not want their company to be treated as a Spanish tax resident when it does no business in Spain. It is a bit like saying that a company operating only in Germany or in France should be taxed as Spanish because the owner lives in Spain. That makes no sense and doesn’t happen in other neutral tax agreements but the Government accepted it.
These provisions are now enshrined in an international agreement – a document recognized under international law which will lead to binding changes to our tax laws.
And if you want to see how unfair the Gibraltar Tax Treaty is you only have to compare it with the Treaty that the UK entered with Spain for itself in respect of UK nationals and UK companies. The UK-Spain Double Taxation Agreement is neutral and much fairer than the Gibraltar Treaty. It does not have the presumptions of Spanish tax residence that affect individuals or companies. In reaching that agreement for itself the UK has not accepted the punitive, concessionary and one-sided measures that have been accepted by the Gibraltar Government in this Treaty.
And what have we got in return? A promise that – one day – we may be taken off the Spanish blacklist of finance centres. We want to be removed from that blacklist of course – but not for any price. Let’s not forget that our presence on that list was politically motivated and not because of anything we have done.
It had been known for some months that the Government was negotiating a tax deal with Spain. In the Gibraltar Protocol that is part of the Withdrawal Agreement with the EU it was clear that an agreement on tax was being contemplated. That was 6 months ago. We had been asking for publication of that since.
In January the Chief Minister promised to show the Opposition a draft of the Agreement before it was signed. That would have allowed some discussion before it was entered into. In fact he never did. The next thing we knew was speculation one weekend in early March in the Spanish press – subsequently confirmed by Mr Picardo – that a deal was being entered into with Spain on tax that weekend.
By doing that the Government avoided any scrutiny of it or any public discussion of the deal it was prepared to sanction. It was wrong and undemocratic for our Parliament to be bypassed in this way by Mr Picardo especially on an issue as important as this and at a time of the most serious challenge in years. This was no accident and it was a direct breach of his promise.
Later that week and once it had already been signed Mr Picardo issued a statement proclaiming what a wonderful agreement he had reached with Spain. At that stage he was still holding back publication of the Agreement – instead trying to load the public presentation of the deal without of course giving anyone the chance to say anything different because he was not publishing the Agreement. In this he was, as usual, more interested in spin than substance.
By the time the Agreement was published Gibraltar had been exposed to a shameless hard sell of the deal. The publication of it revealed a deeply contrasting picture of another bad deal that affects individuals and companies in a negative way.
For those reasons we reject the Gibraltar tax Treaty. We think this is bad for Gibraltar. It was signed by the UK on our behalf because Mr Picardo gave his consent. This was a mistake because the agreement is flawed. That is why we are moving a Motion at our meeting this Thursday that in Government we will request the UK to terminate this Treaty.
Our meeting this Thursday is open both to members and also to any person who wishes to come and attend the proceedings. All are welcome. I urge you to come and attend. We will be sharing our ideas on a number of important topics that can affect you. Come and participate in our meeting for change.