As published on chronicle.gi, Thursday October 31, 2019.
The GSD last night remained firm in its criticism of the tax treaty for Gibraltar and Spain, insisting that it was “harmful and intrusive” despite the Gibraltar Government’s decision to publish a legal opinion from Sir Peter Caruana, QC, in which the former Chief Minister and GSD leader concluded the agreement makes no legal concessions on sovereignty.
The GSD dismissed the “selective” publication of an “undated” section of Sir Peter’s advice as “a smokescreen”, insisting that it did nothing to address the concerns it had raised over the past six months since the text of the treaty was published.
The GSD believes the treaty is a disincentive to inward investment, treats some Gibraltar-based companies who may exclusively be operating in Gibraltar as if they were tax resident in Spain, and presumes the same about some Gibraltarians irrespective of the fact that they only live here.
It adds that Spanish tax treaty with Gibraltar “is nothing like” the tax treaty the UK signed with Spain for itself in 2013.
“It is not like the OECD-model tax convention which generally is much more neutral and fair,” the GSD said in a statement. "It is remarkable that the Government should continue to defend it when it is, for example, so different to the agreement announced last week between the UK and Gibraltar which is based on the OECD model. Additionally, it is obvious from the selective quote of Sir Peter’s opinion that this is legal in nature and very limited.”
No.6 Convent Place took the unusual decision to publish the section on sovereignty of Sir Peter’s legal opinion – the remainder of the advice focused on technical law drafting issues, the government said – after the GSD challenged it to do so last week, and after clearing the move first with Sir Peter himself.
“Spain is granted no political, administrative, executive, legislative or judicial competences as to what should be Gibraltar’s tax or any other laws, or its enforcement,” Sir Peter wrote in the advice.
“Nor is Spain the arbiter of Gibraltar’s compliance with its obligations under the treaty.”
“Gibraltar’s agreement to conduct certain aspects of its tax regime in accordance with criteria so agreed does not in my opinion constitute a legal concession on its sovereignty.”
In its reaction to the government’s partial release of the legal opinion, the GSD noted that Sir Peter had expressed no political view “one way or the other” on the treaty or whether it represented a good or balanced agreement for Gibraltar.
And while he did not express a political view on the treaty, Sir Peter had also made clear that “sovereignty is a legal, not a political concept”, although he acknowledged that sovereignty “is sometimes colloquially used to express purely political sentiments.”
But he added: “This does not engage legal sovereignty.”
In defending its position, the GSD said its had consistently maintained that the tax treaty for Gibraltar and Spain “was not neutral or fair”.
“In other words it was not politically balanced and it produces harmful economic effects,” the GSD said.
“It is a treaty that does not maintain any status quo.”
“It is a new agreement that would load fiscal presumptions towards Spain in a discriminatory way that is nothing like what would be the standard approach in these kinds of agreement.”
“The GSLP Government has agreed these deals. They were wrong to do so as it is bad for our economy and discriminatory against our people.”
According to the GSD, the treaty:
* Hampers the development of our economy by making Gibraltar less attractive to do business from and to attract future inward investment to;
* Is massively intrusive to the lives of some Gibraltarians who under this regime will now need to account to the Spanish state as to where they live, what they own and where if they wish to avoid being classified tax resident in Spain;
* Creates a presumption of Spanish tax residence in a number of cases leaving individuals or companies to have to fend for themselves with the Spanish authorities who may treat them based on suspicion and accusation;
* Hits some Gibraltarians who may be living in Spain because they could not afford to live in Gibraltar and treats them as Spanish tax residents for a period of four years even after they have returned home to Gibraltar;
* Conversely treats Spanish nationals or companies resident in Gibraltar as only Spanish tax residents - and so under exclusive Spanish tax sovereignty - whether or not they work or reside here permanently or own or are businesses that only operate here in Gibraltar.
The GSD questioned why the treaty for Gibraltar and Spain had not followed the OECD model, adding that had it done so, “it would not have these flaws”.
It said the emphasis in other treaties would be on taxing people where they live or where they work or, in the case of companies, where they have a permanent establishment or effective management.
“This treaty is neither neutral nor fair,” it added:
“It turns those principles on their head by creating presumptions of Spanish tax residency for some workers, Gibraltar residents or companies purely because of the location of assets or where business owners live - even if the business and employees are in Gibraltar - or what their nationality is.”
“The Government has condoned and signed up to a system that can expose Gibraltar residents, Gibraltarians or Gibraltar companies to greater Spanish tax scrutiny and investigation by agreeing to place some of our people or companies within the Spanish tax net.”
For the GSD, the government’s decision to publish Sir Peter’s legal opinion was “a smokescreen”.
It doubted whether the No.6 Convent Place could publish advice from an international tax law specialist to say that the treaty was neutral, fair and in line with the OECD model.
It noted too that the Spanish Council of Ministers had approved the Gibraltar tax treaty last March and, in so doing, had highlighted as a specific achievement the provisions by which Gibraltar companies will be considered Spanish tax resident if the majority of shareholders or directors live 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 tax treaty for Gibraltar and Spain is “permanent and enduring” whether or not Gibraltar leaves the European Union.
“The only saving grace is that it can be terminated on six months’ notice by the UK,” the GSD said.
“We have made clear that we are concerned about the form and content of this treaty.”
“Those concerns hold good irrespective of [Monday’s] attempted smokescreen.”
“We have been raising these points for six months and the Government has not even engaged with us on the economic criticisms we have made or attempted to defend this treaty as neutral and fair.”
“Indeed the reason they do not is that they cannot defend it on that basis.”