Tax treaty for Gibraltar and Spain will put paid to ‘irritating myths’

- In treaty text, Spain recognises for the first time the existence of registered Gibraltarians and the Gibraltarian Status Act.

The UK and Spain yesterday signed a tax treaty for Gibraltar and Spain, in a landmark development that will put an end to the “irritating myths” of Gibraltar as an uncooperative and opaque tax jurisdiction.

The agreement seeks to improve co-operation in the field of taxation and assist in the resolution of disputes as to the proper tax residence of companies and individuals based in Gibraltar and Spain.

The treaty also provides for Gibraltar to keep EU-equivalent legislation after Brexit on matters related to transparency, administrative cooperation, harmful tax practices and Anti-Money Laundering.

Gibraltar has long been committed to doing this and has also vowed to comply with OECD and G-20 principles, which already provide for similar standards.

The treaty was signed yesterday in London by the UK’s de facto deputy Prime Minister, David Lidington, and in Madrid by Spain’s Minister for Foreign Affairs, Josep Borrell.

Mr Lidington signed the treaty on Gibraltar’s behalf – and only after having been asked to do so by Chief Minister Fabian Picardo - as the UK retains constitutional responsibility for Gibraltar's external relations, including the execution of international treaties.

For the purposes of the Tax Treaty, the UK therefore acts as the state responsible for Gibraltar's external relations.

“This is an important moment for Gibraltar and for our relations with our neighbour,” Mr Picardo said.

“This treaty recognises the existence of a separate and distinct tax authority in Gibraltar.”

“Even more importantly, in the treaty Spain recognises, for the first time in history, the existence of registered Gibraltarians and of the Gibraltarian Status Act.”

“This is the Act that determines who are the people that can register and describe themselves as ‘Gibraltarians’.”

“This is massively significant.”

“Additionally, the Gibraltar rates of corporation tax are also recognised by Spain.”

Mr Picardo said that in agreeing to the treaty, Gibraltar had conceded nothing in respect of its absolute autonomy in tax affairs.

“What we have done - as we have long been offering to do - is reach an arrangement with our nearest neighbour to resolve cases of dispute as to the residence of individuals and companies,” the Chief Minister said.

“As a result, I trust we will now be able to end the irritating myth that Gibraltar is anything other than entirely cooperative when it comes to the exchange of tax information.”

“This treaty and the cooperation it supports should put an end to that myth.”

“Indeed we have obtained a commitment from the Spanish Government that the effective implementation of this treaty will lead to Gibraltar being removed from the Spanish blacklist of tax haven jurisdictions in the future.”

“This is also massively significant.”

The Treaty will also bring an end to any doubt about Gibraltar’s inclusion in international conventions which relate to tax and financial services, including the OECD BEPs inclusive framework, which Gibraltar will this week apply to join.

Additionally, the treaty also provides for information to be provided by the Spanish tax authorities to the Gibraltar authorities.

“The flow of information is anticipated to be in both directions,” Mr Picardo said.

“Needless to say, we are fully committed to the commitments associated with this treaty – and the Spanish have said the same.”

“Cross frontier workers will have the benefit of the elimination of double taxation pursuant to the provisions of the law of the state that they are determined to be resident in.”

The historic agreement was also welcomed by Spain, whose Foreign Minister said “it has taken a lot of work…because it is a sensitive subject and there are many interests at play”.

“It’s the first international treaty between Spain and the UK over Gibraltar since the Treaty of Utrecht [in 1713],” Mr Borrell told reporters.

For Spain, he added, the agreement “…seeks to avoid Gibraltar being a focal point for unfair tax competition.”

The tax treaty was negotiated as part of the package of measures to mitigate the impact of Brexit on Gibraltar and the neighbouring communities in Spain.

But unlike the Gibraltar Protocol and the memorandums that stem from it, the treaty is a stand-alone agreement and is not dependent on the UK adopting Prime Minister Theresa May’s controversial Withdrawal Agreement.

The treaty must now be ratified by both the UK and Spanish parliaments. It would come into force a month after both parliaments have ratified the text.

In Gibraltar, Mr Picardo said he expected to lay a text of the treaty in Parliament on March 14.

Today the Chief Minister will brief the Brexit Select Committee on the content of the agreement.

The detailed text of the agreement will be published in full in coming days as soon as it is published in the UK in keeping with the relevant procedures for the adoption of international treaties.

Yesterday Mr Picardo thanked the the Gibraltar Government’s negotiating team, which was led by the Chief Minister but included the Deputy Chief Minister, Dr Joseph Garcia and the Financial Secretary, Albert Mena, with additional support from the Commissioner of Income Tax, John Lester, and Senior Tax Counsel Terrence Rocca.

Mr Picardo also thanked the UK Government’s teams at the Treasury and the Foreign and Commonwealth Office for their assistance in the complex negotiations.

“I also look forward to the Gibraltar and Spanish tax authorities working together in a spirit of normality and cooperation, as the Gibraltar tax authorities already do with the tax authorities of most states around the world,” Mr Picardo added.

“Together with our agreement on tobacco pricing, this is an important step in slaying the myths that have circulated on Gibraltar.”

“These agreements deal with those irritants in a positive and forward looking way that broaches no concessions and yet normalises the relationship between neighbouring tax authorities.”