The tax treaty for Gibraltar and Spain contains “asymmetric” rules for determining tax residency that are to Spain’s advantage and could potentially raise human rights issues, a House of Lords committee has said in a report.
The finding is detailed in a report by the European Union Committee, which scrutinised the treaty as part of its ongoing work related to Brexit.
The committee acknowledged that the treaty was of political importance and could deliver significant benefits to Gibraltar.
But it recognised too that the agreement had proved controversial in Gibraltar, where the GSD has been critical of its contents.
In its analysis, the committee said the agreement contained special rules for determining tax residence “…which are asymmetric and to the advantage of Spain.”
It was referring, for example, to rules that would keep Gibraltarians resident in Spain within the Spanish tax net for four years even after they had moved back to the Rock, or to other rules that would mean Spaniards living in Gibraltar would always be taxed in Spain.
“This asymmetry and the nature of the measures under the Agreement could potentially have human rights implications for those affected, for example under Article 1 to the First Protocol to the European Convention on Human Rights (ECHR), and under equality laws,” the Lords’ committee said in the report, which was published yesterday.
“We do not seek to resolve the question of the Agreement’s compatibility with the ECHR here, but it is unfortunate that the Explanatory Memorandum provided by the [UK] Government did not include a section on human rights, so it is not possible to identify whether the UK Government has any concerns about this question.”
Quizzed on the finding in the report, a spokesman for the Gibraltar Government last night said the issue of asymmetry arose because of the different taxation systems that existed in Gibraltar and Spain.
But he insisted there were no concerns about human rights.
“The [Gibraltar] Government is advised that there are no human rights issues that arise in respect of the tax treaty with Spain,” the spokesman for No.6 Convent Place told the Chronicle.
“The alleged ‘asymmetry’ in the structure of the treaty arises from the fact that Spain and Gibraltar have different types of tax laws that are enforced in different ways, and not from any inequality in the treatment of persons.”
“If there are, however, any human rights issues, the courts in Gibraltar, Spain or the European Court of Human Rights itself will be able to determine the rights of taxpayers in this respect and the decision will be binding on the relevant tax authorities, as is normal in such matters.”
In their report, the Lords committee looked at the range of measures contained in the treaty both in respect of individual and corporate taxation.
Peers reflected the fact that the treaty had “proved controversial” in Gibraltar, but also that it would be beneficial in many respects.
“The main opposition party, the Gibraltar Social Democrats (GSD), has described the Agreement as ‘intrusive and harmful’ to Gibraltar’s interests, arguing that the Agreement undermines Gibraltar’s fiscal sovereignty and could affect its ability to attract inward investment,” the committee said.
“On the other hand, the content of this treaty should not be considered in isolation.”
“As a consequence of its signing, Spain has removed its veto over Gibraltar signing up to the OECD’s Base Erosion and Profits Shifting programme and has agreed to remove Gibraltar from Spain’s blacklist of tax haven jurisdictions, subject to effective implementation.”
“This could deliver reputational benefits for Gibraltar.”
“Through the Agreement, Spain also directly recognises the activities performed by Gibraltarian tax authorities, a recognition that is considered to be politically important by both sides.”
“The Agreement is also mentioned in the Protocol on Gibraltar contained in the UK-EU Withdrawal Agreement.”
“For these reasons, the Chief Minister of Gibraltar has described the Agreement as ‘massively significant’.”
The committee concludes its report by stating that it had scrutinised the document and raised these issues because of the importance of the treaty, which was signed by the UK on Gibraltar’s behalf and which must still be ratified by the UK Parliament.
“It is politically important and gives rise to issues of public policy that the House may wish to debate prior to ratification,” the Lords committee concluded.
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