15/03/21

GIBRALTAR: Tax treaty with Spain enters into force.

As published on chronicle.gi, Saturday 13 March, 2021.

The tax treaty for Gibraltar and Spain has entered into force after the agreement was ratified by the parliaments of the UK, Spain and Gibraltar.

The UK announced on Saturday that it had ratified the treaty after the Gibraltar Parliament recently passed legislation - with GSD votes against – to clear the route for ratification.

On Saturday too, the Spanish Government published the agreement in Spain’s Official Bulletin after the treaty cleared all parliamentary hurdles to ratification, albeit also with votes against by the Spanish opposition.

The agreement entered into force on March 4.

“This treaty will improve tax co-operation between the tax authorities of Spain and Gibraltar. It provides rules for resolving conflicts over tax residency and enables administrative co-operation, through sharing of information and addressing disputes by means of a Joint Committee,” the UK's Foreign, Commonwealth and Development Office said in a statement on Saturday.

“The treaty was signed on 4 March 2019. It is the first between the UK and Spain regarding Gibraltar explicitly for over 300 years. The treaty fully respects the 2006 Gibraltar Constitution.”

“The Government of Gibraltar was involved throughout negotiation of the treaty, and has passed the legislation required to ensure ratification.”

“This tax treaty is in the interest of all parties.”

“It demonstrates the shared commitment of the UK and Gibraltar Governments, together with Spain, to ensure the continued prosperity of Gibraltar and the region as a whole, in the same constructive spirit that marked agreement of a framework on 31st December 2020.”

Gibraltar has for years has been committed to full compliance with international rules on tax transparency in order to protect its standing as a reputable place in which to do business.

It joined the OECD white list of territories committed to tax transparency in 2009 but has remained on Spain’s list of tax havens nonetheless.

With the entry into force of the tax treaty, Spain is now expected to remove Gibraltar from its list.

The Gibraltar Government said the treaty will improve tax co-operation and exchange of information between the tax authorities of Spain and Gibraltar, setting out rules and mechanisms for resolving conflicts over residency.

It said the arrangements in the treaty will provide for greater administrative cooperation, information sharing and for addressing relevant disputes through a Joint Committee structure.

“This is an important step forward in tax cooperation with our neighbours and I trust it will be seen as undeniable evidence of Gibraltar’s commitment to transparency, which is widely recognised internationally,” said Chief Minister Fabian Picardo.

“We are ready to start the work of exchange of information that is provided for in the treaty and we look forward to building strong institutional and interpersonal relationships with the relevant Spanish tax authorities in this field, as we have already done with tax authorities around the world.”

But the treaty has been criticised by the GSD, which says it 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.

During a debate in Parliament late February, 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.

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.”

But the Chief Minister countered 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.

The treaty, he argued, 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.