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GSD says tax treaty is ‘intrusive, harmful and politically inexplicable’

By Eyleen Gomez

The GSD has issued a scathing analysis of the tax treaty covering Gibraltar and Spain, insisting it is “intrusive and harmful” to the Rock’s interests and “politically inexplicable”.

Keith Azopardi, the Leader of the GSD, said the party had deep concerns about the treaty and its effect on some individuals and companies in Gibraltar who have interests in Spain.

The treaty was signed by the UK on Gibraltar’s behalf and, according to the Gibraltar Government, concedes nothing in respect of Gibraltar’s “absolute autonomy” in tax affairs, while recognising the existence of a separate tax authority in Gibraltar.

Chief Minister Fabian Picardo has defended the treaty as a good agreement for Gibraltar that improves co-operation in the field of taxation and assists in the resolution of disputes as to the proper tax residence of companies and individuals based in Gibraltar and Spain.

But Mr Azopardi expressed a starkly different conclusion on the agreement and signalled that the GSD could seek to terminate it if elected into government.

“The UK Tax Treaty with Spain which the GSLP Government has endorsed is harmful to Gibraltar’s interests, intrusive to Gibraltarians and is politically inexplicable as nothing of substance has been gained in return,” Mr Azopardi said.

“It is, once again, another bad deal which is being given the hard sell by the Government.”

And he added: “Accordingly at our forthcoming GSD AGM we will move a motion seeking the support of members to take the position that, in government, the GSD would request the UK to terminate this treaty.”

In its analysis, the GSD said the treaty favoured Spain’s economic and political interests, even “carving out” Spanish nationals by making them Spanish tax residents if they live in Gibraltar and treating them differently to other Gibraltar residents.

The treaty, the GSD added, did little to protect Gibraltar’s interests at a time when Gibraltar remained under “clear political and economic assault” from Spain.

“The tax treaty will make some Gibraltarians resident in Gibraltar or companies that operate in Gibraltar subject to Spanish tax,” Mr Azopardi said.

“In effect some Gibraltarians and Gibraltar companies will be treated like Spanish tax residents even though they are actually physically resident in Gibraltar or operate as businesses in Gibraltar.”

“The effect of these provisions is that both Gibraltarians and companies could now face scrutiny from the Spanish state even when they are operating businesses and generating their income in Gibraltar exclusively.”

The GSD’s analysis of the treaty concluded that it:
• Hampers the development of Gibraltar’s economy by making the Rock less attractive to do business from and to attract future inward investment to;
• Is “massively intrusive” to the lives of some Gibraltarians who under this regime will now need to account to the Spanish State as to where they live, what they own and where if they wish to avoid being classified tax resident in Spain;

• Creates a presumption of Spanish tax residence in a number of cases leaving individuals or companies to have to “fend for themselves” with the Spanish authorities who may treat them based on “suspicion and accusation”;

• Hits some Gibraltarians who may be living in Spain because they could not afford to live in Gibraltar and treats them as Spanish tax residents for a period of four years even after they have returned home to Gibraltar;

• Conversely treats Spanish nationals or companies resident in Gibraltar as only Spanish tax residents - and so under exclusive Spanish tax sovereignty - whether or not they work or reside in Gibraltar permanently, or own or are businesses that only operate in Gibraltar.

The GSD said tax agreements between different countries would normally be “fair and neutral”.

It questioned why the government had not based the treaty on the OECD model for double taxation agreements, which would have removed the “flaws”.

The party said other tax treaties put emphasis on taxing people where they live or work and, in the case of companies, where they are permanently established or have effective management.

It the said the treaty covering Gibraltar and Spain was “neither neutral nor fair” and created presumptions of Spanish tax residency for some workers, Gibraltar residents and companies purely because of the location of assets, nationality or where business owners lived, even if the business and its employees were in Gibraltar.

According to the GSD, the Gibraltar Government had “condoned and signed up to” a system that could expose some Gibraltar residents, Gibraltarians or Gibraltar companies to greater Spanish tax scrutiny and investigation by agreeing to place them within the Spanish tax net.

The GSD also dismissed the Gibraltar Government’s claim - announced, it said, “with great fanfare” - that the treaty recognised the Gibraltarian for the first time through a reference to the Gibraltarian Status Act.

The only reference to that Act in the treaty, the GSD said, “…is so as to penalise Gibraltarians and subject them to Spanish tax.”

It also questioned the government’s announcement that, as a result of the treaty, Gibraltar would be removed from the Spanish black-list of tax havens, adding that the agreement contained nothing in writing in respect of that commitment.

The GSD also repeated earlier accusations that the Chief Minister had reneged on a commitment to share a draft of the treaty with the Opposition before it was signed.

The government, it said, had sought to avoid scrutiny of its tax plans both in Parliament and elsewhere.

Given that legislation will be needed to give effect to some of the treaty’s provisions, the GSD said Parliament had been presented with a done deal that circumvented democracy and “real debate” on the issues.

Failing to pass that legislation risked putting the UK in breach of its treaty obligations and, in so doing, threatened to put Gibraltar in conflict with the UK, it added.

The GSD also asked to see any specialist Spanish tax advice received by the government prior to entering into the treaty on the impact on Gibraltarian individuals and businesses.

It raised concerns that many technical issues arising from the treaty were subject to interpretation under Spanish law, adding that this placed an onerous burden on individuals and companies.

“Are Government expecting individuals and companies now to understand this or undertake the cost of Spanish legal advice to understand the effect of the liabilities and commitments that they have exposed citizens to?” the GSD said, adding that the government should issue a guidance note on these issues.

The GSD said “the only saving grace” was that the treaty could be terminated with six months’ notice by the UK, and that the Gibraltar Government claimed it had a commitment that the UK would do so if requested by Gibraltar.