26/02/21

GIBRALTAR: Parliament gives effect to tax treaty with Spain after tense exchanges in marathon session.

As published on chronicle.gi, Friday 26 February, 2021.

The Gibraltar Parliament last night passed a motion giving effect in Gibraltar law to the tax treaty for Gibraltar and Spain.

The motion was approved by government majority with support from Together Gibraltar, with the GSD voting against.

The vote came at 11.30pm after a marathon seven-hour session during which the Gibraltar Government and the Opposition exchanged bitter blows over the treaty and its effect on this community.

The Government said the treaty provided certainty to local businesses and was a key step in normalising relations with Spain and building trust as Gibraltar left the European Union.

For the GSD, the treaty is a damaging agreement that gives Spain a say in Gibraltar’s economic affairs and has a detrimental effect not just on the community’s business prospects, but on Gibraltarians who live in Spain too.

The debate on the motion - and an earlier one tabled by the GSD and defeated by the Government and TG – was in large part a re-run of arguments put forward by both sides in the two years since the tax treaty was first announced.

Keith Azopardi, the Leader of the Opposition, said the treaty was “intrusive and harmful to Gibraltar’s interests,” adding it should be replaced with a “neutral and fair” agreement based on the OECD model.

“It’s a bad agreement, a failure, that is intrusive and harmful to Gibraltar, its people and its economy,” he told Parliament.

He accused the Gibraltar Government of “trying to massage public opinion” and said the Spanish Government had repeatedly stated the treaty was beneficial for Spain and would give Madrid inroads on “fiscal sovereignty.”

He dismissed the government’s position that under the treaty, Spain would recognise Gibraltar’s tax authorities, insisting: “It’s not about recognition, it’s the opposite of that.”

Mr Azopardi argued too that the deal was bilateral between the UK and Spain and was “going backwards instead of forwards” from the trilateral negotiations under the GSD and Sir Peter Caruana.

“This is nothing more than an attempt by Spain to gain economic controls and handles in the way we run our affairs,” he said, accusing the Chief Minister of becoming “an apologist for Spain.”

The response from the Chief Minister was as swift as it was scathing.

Fabian Picardo dismissed Mr Azopardi’s arguments as “nonsense” and a “self-serving vehicle for politics,” insisting the Leader of the Opposition had said nothing new.

He reminded Mr Azopardi that the GSD had deployed the same arguments ahead of the 2019 general election and had lost because the people of Gibraltar were “clever enough” to understand the issues at play.

Mr Picardo said too that Mr Azopardi’s assertion that the treaty should be scrapped and replaced was unrealistic and that if he had been unable to convince Gibraltarians of his position, he would have little prospect of negotiating a better deal.

“I’d like to see him in the Ministerio de Asuntos Exteriores,” he said, adding: “I don’t think he’d survive five minutes.”

Mr Picardo reminded the GSD Leader that Sir Peter Caruana had provided a legal opinion to the Gibraltar Government that concluded the treaty made no sovereignty concessions.

In that opinion, Sir Peter had said the agreement, while bilateral between the UK and Spain because it was an international agreement, had only been entered at the request of Gibraltar and in line with the Constitution.

Not only that, Gibraltar’s obligations under the treaty would be implemented by Gibraltar’s authorities.

Mr Picardo said it was “absolutely remarkable” that Mr Azopardi was putting the views of Spanish ministers over those of a former Chief Minister of Gibraltar and the former leader of his own party.

“The people of Gibraltar can see through that,” he said.

As a result of the treaty, Gibraltar has been able to join the OECD’s BEPS framework, an international agreement on tax information sharing, and would be removed from Spain’s own blacklist of tax havens.

Without joining BEPS, Gibraltar risked ending up not just on the Spanish blacklist, but on the EU one too, he said.

Mr Azopardi had argued that the treaty was “a Spanish Trojan horse” that would disincentive businesses from setting up in Gibraltar because they risked being taxed in Spain if shareholders lived there, and even if the company had no operations there.

Mr Azopardi said that went against Gibraltar’s model, which was based on taxation where a company’s management and control was based.

The treaty, Mr Azopardi said, would “hamper the development” of Gibraltar’s economy by making it “less attractive” to do business from.

“One of Gibraltar’s unique selling points was always to attract people who wanted to set up their business, bring in money and set up jobs and new economies, while also enjoying the lifestyle in Spain,” Mr Azopardi said.

“This tax treaty will treat the business like it is a tax resident in Spain even though there is no economic activity in Spain.”

But Mr Picardo dismissed that argument and said what the treaty did was to provide certainty for businesses at a difficult time when Gibraltar was leaving the European Union.

He said the treaty was part of a wider process in Gibraltar’s exit from the bloc and had been welcomed by the business community, including tax experts who had stated that no one who was not already caught by Spanish tax laws would be affected.

“Tax is boring,” Mr Picardo said.

“I hate paying it, I hate imposing it.”

“But let’s get it right.”

“Let’s not pretend that I, Joe Bossano and Joseph Garcia fallen into the trap of some Spanish Trojan horse.”

The Chief Minister said that with the treaty, Spain had recognised Gibraltar’s right to have its own separate tax framework based on territoriality.

Not only that, it was the first time that a Spanish minister had signed a treaty that contained references to the Gibraltarian Status Act, the legislation that defines a Gibraltarian in law.

“You’re actually undoing an achievement of our people on our collective journey,” Mr Picardo told Mr Azopardi.

The treaty, he added, allowed Gibraltar’s source-based taxation system to co-exist with Spain’s residency-based system, providing clarity and certainty for businesses and individuals alike.

And he reminded the GSD too that in Spain, as in Gibraltar, the right-wing opposition parties had described the tax treaty as harmful.

“They can’t both be right,” he said.

The Chief Minister added: “Not only have we not surrendered sovereignty, not only have we not disincentivised businesses, we have enhanced our recognition and we have enhanced our cooperation with a neighbouring EU member state.”

“We are normalising our neighbourly relationships, we are depriving the hard-right wing in Spain of the whips with which to beat Gibraltar, and that’s the Gibraltar we will leave to our children, so what is not to like?”

Marlene Hassan Nahon, the Leader of Together Gibraltar, said the GSD motion was “disingenuous” and “objectionable,” adding that it was not realistic to call for the treaty to be cancelled and replaced.

“The outcome that the Leader of the Opposition sets out is not only impossible, but would damage Gibraltar’s reputation,” she said.

“It would make us look capricious and unreliable, if not politically unstable.”

She said it would damage the relationship with Spain and the EU, even as Gibraltar was at a “delicate historical crossroads.”

Much of the lengthy debate, which ended close to midnight, focused on technical aspects of the treaty.

The Gibraltar Government will today publish a detailed note on the technical aspects of the treaty today.

Roy Clinton, the GSD’s shadow minister for public finance, went through multiple examples of where the party believes the treaty will be damaging for businesses and individuals.

Even the Chamber of Commerce, while welcoming the treaty, had said it “comes at a cost,” he told Parliament.
“We need to understand what the implications of this treaty are,” he said.

But Deputy Chief Minister Dr Joseph Garcia said the GSD was “putting politics first… in a manner that was neither positive nor constructive” and had taken their critique “over the top.”

Dr Garcia said: “The treaty we are debating will be of no consequence to the vast majority of the people of Gibraltar. It will have zero effect on most of us.”

“Therefore, when focusing the discussion, we cannot lose sight of this very basic fact, that the impact of the treaty is reduced, that its application is limited, that its provisions are ring-fenced, and applies only to a very narrow category of citizens.”

That argument did not convince GSD MP Daniel Feetham, who said the treaty would have “very real” implications for Gibraltarians who had no option but to live in Spain because the shortage of housing in Gibraltar.

Those people would be affected “in a very unfair and detrimental way,” he said.

“This is a tax avoidance treaty for the benefit of Spain.”

Mr Feetham questioned too the “fad” that had become increasingly common “in some quarters” to say that Gibraltar had little option but to accept the treaty and other Brexit agreements because it was in a weak position.

“To show weakness is to invite pressure, and Gibraltar cannot afford to show weakness at this time,” he said.

That drew a stinging response from Sir Joe Bossano, who countered: “I don’t need lessons on not showing weakness from anyone.”

He said it was the UK’s vote on Brexit that had placed Gibraltar in a difficult position, even as Gibraltar remained stalwart in its desire to maintain its close relationship with the UK.

But there was a need too to “face reality.”

The treaty, he said, was “a wonderful agreement” that had no damaging implications for Gibraltar.

“This is a good treaty from the point of view of the protection of Gibraltar, and the effect on the economy is nil,” Sir Joe said.