Technical Tax Treaty And Its Implications

Gibraltar’s Tax Treaty with Spain is fairly technical and therefore, after a preliminary Government briefing, party leader Marlene Hassan Nahon MP requested further clarifications from the Government which was provided today. Together Gibraltar is grateful to the Government for the opportunity to review the treaty and discuss its ramifications in detail for the benefit of the wider community. As an Opposition spokesperson, we must be fully informed on such technical matters prior to releasing comment to the public domain.

We believe the average Gibraltarian citizen and even trained professional reading this treaty would benefit from additional explanatory notes that could and should be provided by the Government to a highly technical document which constitutes Gibraltar’s first tax treaty of its kind. This is even more pronounced given the particular counterparty of the treaty.

This is a key treaty for Gibraltar. Together Gibraltar believes that receiving legitimacy from Spain for our fiscal affairs is a positive step, albeit one that is long overdue and fully deserved prior to any treaty every being put in place. As a jurisdiction Gibraltar prides itself in operating to the highest standards of tax transparency and ensuring consistency of such efforts has always been held in the utmost importance. We also however recognise that broadly speaking, Gibraltar is better off with a Spanish tax treaty than without one. A tax treaty with Spain ought to serve as the last frontier in paving the way to establishing Gibraltar as the quintessential business and financial jurisdiction that it is, free from relentless and baseless attacks from Spain.

However, much of the tax treaty appears one-sided and biased, almost as if it was unilaterally drafted by Spain. Detailed explanatory notes could go only some way in addressing this perception. With reference to Spain and its own interpretations, the challenge that remains to be seen is whether Spain will honour the new narrative of transparency and accountability in a way that it has never done before.

In the first instance, the treaty must not serve as an admission of past wrongdoing by Gibraltar. Spain’s Minister for Foreign Affairs, Josep Borrell used the signing of the treaty to claim that Gibraltar has to date been a focal point for unfair competition, ignoring the years of work undertaken in ensuring complete transparency in our tax reporting and financial conduct. As a minimum, the treaty has been a lost opportunity to acknowledge the formidable work undertaken by Gibraltar to date in connection with tax reporting and compliance. Gibraltar desires and deserves a level of normality afforded to other compliant countries. However, the Spanish tax treaty is peppered with provisions which are a far cry from typical normal and reciprocal relationships observed between two neighbouring economies.

Together Gibraltar’s main concerns are as follows:

  1. Gibraltarians living in Spain – this agreement fails to protect Gibraltarians living in Spain who upon their return to reside in Gibraltar will continue to be treated as Spanish tax residents for an additional four years. This is especially relevant for younger Gibraltarians and married couples who cannot access affordable housing in Gibraltar and therefore resort to living in Spain. With the ongoing increase in Gibraltar house prices, some of which will likely be spurned by this treaty, this issue becomes ever more pronounced. This should not be the case and not what one would call, normal relations between two countries.

  2. Spanish nationals in Gibraltar – many Gibraltarian families today and historically include a Spanish spouse. The Spanish tax treaty establishes that where a Gibraltarian marries a Spaniard and together they reside in Gibraltar, the Spanish partner continues to be tax resident in Spain for the rest of his or her life. This is wholly discriminatory and is certainly not the case with a Spaniard marrying other nationalities. True the Spanish partner could renounce his or her citizen, however that is not always possible or desirable for a range of reasons.

  3. Gibraltarians with assets in Spain – in certain situations Gibraltarians living and working in Gibraltar may be deemed to be Spanish tax residents purely because two thirds of their assets are located in Spain. Gibraltarians for example who rent an apartment in Gibraltar and own property in Spain could fall into this category. Gibraltarians owning businesses in Spain could also fall in to this category. Indeed, in various cases that may not be conclusive or areas of conflict, the treaty establishes that the default position is always that the Gibraltarian is tax resident in Spain and must pay Spanish taxes, unless proven otherwise. Granted the Government has assured us that this will not impact the Gibraltarian individual or companies, however we are yet to see an impact assessment demonstrating the number of individuals this would impact and the potential costs in additional taxes that would be borne by the Gibraltarian. Given that this is a seminal treaty for Gibraltar, we would expect the Government to conduct a comprehensive impact assessment which is yet to be provided.

  4. Spanish nationals residing in Gibraltar – Any Spanish national that legitimately relocates to Gibraltar will be considered a Spanish tax resident for life. This will mostly affect spouses but there could be other reasons for Spaniards wishing to move to Gibraltar, making such a decision therefore undesirable or impossible.  And effectively, this is like a tax on citizenship but only for Gibraltar and that’s not a level playing field, and an unreasonable request because it wouldn’t happen in any other country that they would move to.

  5. Nuances – Page 3 of the Treaty, article 2.b.(i) shows an example of how nebulous nuances could be interpreted or used against us e.g.: “adequate number of employees, with the necessary qualifications and an adequate amount of operating expenditure with regards the core income generating activities

Well, what is adequate? And, who decides this? And how do we know the Spanish won’t use cloudy terminology like this to cause mischief or difficulties when it suits them?

In summary, adopting a tax treaty and legitimising our tax code and jurisdiction is a good idea but there remain concerns to certain sectors of society and business. We would hope the tax treaty will encourage more business between Gibraltar and Spain but it has the propensity to actually have the opposite effect.  

We also hope that as a result of this Treaty, Spain will stop alluding to our jurisdiction as a ‘tax haven’, but we are not confident this will be the case.

We are also very surprised that the Treaty gives the Spanish direct access to the Beneficial Ownership register, when the Government of Gibraltar has in the past has said the Beneficial Ownership register will be private and only disclosed for a number of legitimate reasons. Now we are giving them direct access.

Further, we are giving the Spanish direct access to information that is available to Commissioner of Income Tax and it doesn’t work the other way round unfortunately, meaning there is no reciprocity and therefore the spirit of the agreement is totally one sided to the point that parts of the agreement look like they have been drafted by the Spanish.

If this agreement paves the way for Gibraltar’s legitimacy which we always felt it should, in the global arena, then it will be a good thing, but there is no evidence that the Spanish will abide by it or stick to the practice, so at this point in the story of the Tax Treaty, time and events will tell how things transpire.

Together Gibraltar