18/02/21

GIBRALTAR: OECD says jurisdiction meets ‘almost all’ requirements for effective resolution of tax treaty disputes.

As published on chronicle.gi, Thursday 18 February, 2021.

Gibraltar meets “almost all” the requirements of an international mechanism to strengthen dispute resolution procedures related to the interpretation and application of tax treaties.

That was the conclusion of the Organisation for Economic Co-operation and Development following a review of Gibraltar’s legal and administrative mechanisms for resolving tax disputes.

In a report published this week, the OECD noted too that Gibraltar is addressing the few deficiencies identified.

The review focused on one element of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting [BEPS], a global mechanism to strengthen tax transparency and ensure profits are taxed where economic activities take place and value is created.

In an increasingly-globalised economy where cross-border business is routine, having the mechanisms to resolve which jurisdictions can tax different types of income is vital.

Gibraltar joined the BEPS framework in 2019 after Spain lifted its veto against the backdrop of the tax treaty for Gibraltar and Spain agreed as part of the Brexit negotiations.

The Gibraltar Government said at the time that joining the BEPS framework demonstrated Gibraltar’s commitment to international standards of tax transparency and cooperation.

That message was echoed on Wednesday by Chief Minister Fabian Picardo.

“This is in-line with Gibraltar's strategy and approach in ensuring that, whilst it seeks to expand its treaty network, it complies with international standards on such matters and ensures that it is actively participating in measures designed to combat base erosion and profit shifting as a member of the OECD's Inclusive Framework,” Mr Picardo told the Chronicle, reacting to publication of the OECD report.

“This is something that Gibraltar is fully committed to.”

The BEPS framework centres on a 15-point action plan that members must adopt.

The OECD review on Gibraltar focused on point 14 on that plan, which seeks to make dispute resolution more effective through a mutual agreement procedure to assist in the interpretation and implementation of tax treaties.

“Overall Gibraltar meets almost all the elements of the Action 14 Minimum Standard,” the OECD report concluded.

“Where it has deficiencies, the Gibraltar is working to address them.”

Gibraltar currently only has one tax treaty, it double-taxation treaty with the UK, and the review found that its text was consistent with the requirements of the Action 14 Minimum Standard of the BEPS framework.

That standard requires that jurisdictions should ensure their tax treaties contain a provision which requires their competent authorities endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of their tax treaties.

The OECD, while noting that Gibraltar was actively seeking to conduct further tax treaty negotiations with prospective partners, said there was no need to modify its existing sole treaty.

The treaty with the UK “…provides for a mutual agreement procedure for resolving disputes on the interpretation and application of the provisions of the tax treaty.”

“In addition, the treaty provides for an arbitration procedure as a final stage to the mutual agreement procedure.”

It added that Gibraltar had responded to the review in a timely and comprehensive manner and was committed to continued improvement in line with the BEPS framework.

Despite not having substantive recommendations, the OECD requires Gibraltar to seek to approach any future ‘mutual assistance procedure’ cases in-line with domestic policy.

Gibraltar must also ensure that any future treaties it negotiates include the relevant provisions to ensure compliance with the Action 14 Minimum Standard.

The deficiencies detected by the OECD review team related to issues such as the need to publish guidance on the mutual agreement procedure for dispute resolution.

That guidance has now been published and is available both on the Gibraltar Government and the OECD websites.

The OECD team noted that Gibraltar had no experience with resolving ‘mutual agreement procedure’ cases, as it had not been involved in any.

The report published this week is phase one of the OECD review and will be followed by in a second stage to ensure it recommendations are acted on.