The tax treaty covering Gibraltar and Spain favours Spain and potentially puts Gibraltar residents and companies at a disadvantage, the GSD insisted yesterday, as it accused the Gibraltar Government of trying to “pull the wool over people’s eyes” with its defence of the agreement.
The government had rebutted the GSD’s claims that the tax treaty was “intrusive and harmful” and delivered nothing of substance, adding that the agreement recognised the existence of a separate tax authority in Gibraltar and conceded nothing in doing so.
But the initial exchanges have flared into a full-blown row in which the GSD is maintaining its critical analysis of an agreement which the party says is damaging for Gibraltar.
“The Government’s long and defensive reaction to the GSD analysis of the tax treaty does nothing to meet the fundamental criticisms of it,” said GSD Leader Keith Azopardi.
“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.”
Mr Azopardi said the treat was “neither neutral nor fair” and differed from a “classic” double taxation treaty, making it wrong for the government to “harp on” about its benefits.
“In doing so it is just showing that it has entered into another bad deal and cannot even recognise it,” Mr Azopardi added.
To illustrate its point, the GSD compared some of the provision in the Gibraltar tax treaty to a UK-Spain tax treaty signed in 2013 and underlined the following points:
• The UK-Spain Treaty does not contain the “one-sided and concessionary provisions” that the Gibraltar tax treaty does, neither does it “undermine the UK’s fiscal sovereignty”;
• In the UK-Spain tax treaty there is no presumption of Spanish tax residency for individuals. Conversely in the Gibraltar treaty there is a clear presumption of Spanish tax residence that can affect people who actually live in Gibraltar.
• The test of residence in the UK-Spain tax treaty is whether a person has a permanent home or where their centre of vital interests is. When this cannot be determined the general presumption is that the person is tax resident of the country of their nationality. 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.
• 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. The Gibraltar tax treaty specifically says that Spanish citizens moving to Gibraltar “shall in all cases only be considered tax residents of Spain”.
• 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. 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. Conversely in the Gibraltar tax treaty, Gibraltar companies can be considered tax resident in Spain if the shareholders live there, and 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. 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 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”.
• The UK-Spain treaty establishes a general requirement to exchange information. 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.
The GSD said the tax treaty could have implications for Gibraltar’s economy.
It referred to a document issued by the Spanish Government last Friday after a Cabinet meeting that rubber-stamped the agreement, which must now be ratified by the Spanish Parliament as the final stage in the legislative process in Spain.
In that document, the Spanish Government highlighted as a specific achievement the provisions through which Gibraltar companies whose majority shareholders or directors live in Spain will be considered as tax resident 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,” the GSD said.
“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 GSD also questioned the Gibraltar Government’s statement that the treaty could only be terminated if Spain breached its provisions.
The government made that statement after the GSD said it would seek a mandate from its members to terminate the treaty if it was elected into government after the next general election.
The government’s latest statement on this issue “…is different to what it initially said,” the GSD 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 on Monday – to put a motion to the membership to endorse its policy position on request for termination.”