The tax agreement reached to protect the financial interests of the respective parties is aimed at creating an effective cooperation between Spain and Gibraltar with respect to taxation. This is the first international treaty signed between Spain and the UK in relation to Gibraltar since the treaty of Utrecht in 1713 by which Britain gained sovereignty over Gibraltar.
The agreement has the ingredients of a win-win negotiation and the parties involved or affected seem content with the outcome.
Spain gains its long-demanded transparency with respect to Gibraltar; the UK obtains the support of Spain in the EU for its Brexit plans and Gibraltar obtains security for its people and residents who spend time in Spain, and the removal of Gibraltar from Spain’s black list of tax havens.
The agreement which was signed on March 4, is due to come into force imminently once each country has fulfilled its own approval processes which include cabinet and parliament approval.
The key elements of the agreement include clear “tie breaker” rules on residence of individuals where there is a potential conflict of residence, the treatment of Gibraltar companies as resident of Spain where their main assets are in Spain or Spain constitutes its main source of income, or the owners or management are based in Spain.
The agreement also includes a provision for the respective tax authorities to eliminate double taxation where considered relevant in line with the respective internal legislation.
Another key element of the agreement is the provision for a thorough cooperation between the respective tax authorities. This cooperation will not be restricted to an exchange of information, but will include full disclosure, cooperation and mutual support in all administrative aspects of taxation including tax collection and not only of national tax authorities but also of local entities.
This cooperation will remain in force even after Brexit, if and when it actually occurs; all provisions in place within the EU for mutual administrative assistance will be replaced with equivalent measures to ensure that this cooperation takes place in the broadest terms as applied in the OECD and the EU. Any new standards introduced in the future by the OECD and G20 will also become applicable.
Gibraltar will provide Spain with ample information regarding cross-border workers residents of Spain, vessels, aircraft and motor vehicles registered in Gibraltar belonging to Spanish residents. Direct and free access will be provided to the Spanish authorities to the Registrar of Companies, beneficial ownership information as is public or on request to the Commissioner of Income Tax in Gibraltar, including information regarding settlors, trustees, beneficiaries of trusts as well as other legal structures when the settlors, trustees, protectors or beneficiaries are resident of Spain.
Finally, the agreement establishes liaison bodies to undertake the cooperation and a Joint Coordination Committee formed by the respective authorities which shall have the duty of supervising and coordinating the cooperation activities.
This treaty should contribute to improve the relationship between Spain and Gibraltar and should also remove all suspicions on either side and build mutual trust, which will inevitably benefit the south coast of Spain and Gibraltar, which have reasons to look forward to a bright future of mutual respect and cooperation.
Bernard Fay is one of the managing partners of UHY Fay & Co in Spain, member of UHY International