New tax treaty on Gibraltar

Fiscal News

The UK/Spain International Agreement on Taxation and the Protection of Financial Interests regarding Gibraltar was approved by Spain’s Council of Ministers on 15 March 2019. The next step before the Agreement can come into force is that it be ratified by both the Spanish and British parliaments.
The primary purpose of the Agreement is to safeguard the financial interests and proper governance of both territories. With that goal in mind, article 1 establishes a regime of redoubled administration cooperation between the authorities of Spain and of Gibraltar, and Gibraltar commits to retain cooperative legislation equivalent to that of the EU in the event of Brexit.
Article 2 sets forth the residence criteria for natural and legal persons, entities and other legal structures or arrangements (e.g. escrow funds, trusts, etc).
Under the Agreement, residence for natural persons is determined in reference to the internal regulations for each respective territory. In the event of conflict between the parties, the Agreement provides rules to resolve such matters; these rules weigh clearly in Spain’s favour. Thus, the natural person shall be deemed to be resident in Spain for tax purposes if any one of the following conditions apply within a calendar year:

  1. The natural person in question spends more than 183 overnight stays in Spain over the course of a calendar year. Periods of sporadic absence (where the person is not in either territory) are added to the total of time spent in the territory in which the person spends the majority of overnight stays.
  2. The person’s spouse or a similar relative, parents/forebears or dependent children or other descendants are resident in Spain.
  3. The person’s sole main residence is in Spain.
  4. Two thirds of the net assets the person owns, be it directly or indirectly, are located in Spain.

In addition, as from the date of signing of the Agreement (4 March 2019), Spanish nationals are prohibited from transferring their tax residence to Gibraltar. Foreign nationals’ resident in Spain transferring their tax residence to Gibraltar will be subject to a so-called ‘tax quarantine’; hitherto, tax quarantine has applied only to Spanish nationals, resident in Spain, who transfer their tax residence to a tax haven.
Finally, to clarify, the Agreement establishes that tax residence in Gibraltar under special schemes (HNWI, CAT 2 or HEPSS) shall not, in itself, constitute evidence of tax residence in Gibraltar for the purposes of the Agreement.
With respect to tax residence for legal persons established in Gibraltar under Gibraltarian law (or similar bodies), they shall be deemed to be Spanish tax residents where they have a ‘significant relationship’ with Spain, if any one of the following criteria is met:

  1. the majority of its directly or indirectly owned assets are located in Spain;
  2. the majority of its income in a calendar year originates in Spain;
  3. the majority of its executives or managers (natural persons) are Spanish tax residents;
  4. the majority of its capital, assets, voting rights or beneficial owners are directly or indirectly controlled by natural persons which are Spanish tax residents, or by legal persons or other bodies tied to Spanish tax residents.

The criteria establishing Spanish tax residence referred to in points c) and d) above shall only apply to Gibraltarian companies establish prior to 18 November 2018 if, as at 31 December 2018, they are unable to provide specific evidence on a significant relationship with Gibraltar; notable examples are the existence of human resources and material assets and of material importance for economic activity in Gibraltar or the paying of taxes in Gibraltar.
This precept also eliminates, where relevant the effects of double taxation in accordance with internal regulations.
Article 3 of the Agreement sets out the terms of a special framework for enhanced administrative cooperation between Spain and Gibraltar. In concrete terms, the parties agree that, in the event of Britain’s exit from the European Union, Gibraltar shall retain measures with equivalent effect to EU legislation on the matter of mutual assistance.
The liaison bodies designated by  the two administrations will provide mutual assistance in the field of direct taxation by sharing information, be it automatically, spontaneously or on request; assistance in the compiling and transfer of documents; the Gibraltar tax authorities shall provide the Spanish tax authorities with information pertaining to: cross-border workers, vehicles, vessels, beneficial owners of companies, entities, trusts linked to Spain; and any information, in the public domain or otherwise, on escrow funds (giving the Spaniards access to the Registrar of Companies in  Gibraltar).
The rest of the article refers to the setting up of liaison bodies to serve as a bridge between the two administrations, a joint coordination committee, confidentiality and data protection, and its direction, termination and entry into force.
Though the Agreement will enter into force once both parliaments have ratified it, the exchange of information referred to in article 3 can be applied retroactively as of 1 January 2014, and even as far back as 1 January 2011 for certain information.
It should be remembered that Gibraltar no longer appears on the European Union’s list of tax havens, which has recently been revised by the Council. Gibraltar has transposed, into its own laws, Directive 2011/16/EU, on Administrative Cooperation in the field of Taxation. It has also signed the multilateral Convention on Mutual Administrative Assistance in Tax Matters and implemented the new Global Standard for Automatic Exchange of Account Information in Tax Matters passed by the OECD.
However, in the eyes of Spain, despite all the aforementioned steps forward, Gibraltar continues to be a tax haven. This will cease to be the case upon the ratification and entry into force of this Agreement, as it establishes a framework for administrative cooperation and automatic information exchange between Spain and Gibraltar.
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