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22nd March 2019, 18:16

Some nasty bits in Tax Treaty with Spain but overall 'a great thing to have', says senior tax professional

There are “some nasty bits” in the Tax Treaty with Spain but “overall... it’s a great thing to have a tax treaty with Spain”.

That's the opinion of Neil Rumford, Tax Partner at EY.

He told our reporter Jonathan Scott that the treaty may not stop some in Spain trying to make the case that Gibraltar is a tax haven, but it should disarm the argument.

Mr Rumford said the Tax Treaty should not bring anyone into the Spanish tax net who isn’t already there. The negative impact, he said, is that individuals in the Spanish tax net will take longer to get out of it: four years for non Spanish and "forever" for Spaniards.

Is it slanted in Spain’s favour? Reading the document on its own makes you think, "yes - it is slanted", says Mr Rumford. Certain companies could be pulled into Spanish tax residency but not the opposite way. But "what would Gibraltar gain anything from trying to keep people in our tax net if they move to Spain?" He thinks it is unlikely that Gibraltar would gain additional revenue from that. So: "what’s the point?"

Companies in Gibraltar are taxed on where their activity is carried out. In Spain and elsewhere it is different, Mr Rumford says. In Gibraltar, where you are resident is not directly relevant, he says, so a company not being resident in Gibraltar should not impact much on Gibraltar's tax revenue.

Does the Gibraltar-Spain Tax Treaty look like other tax treaties? While treaties come in all shapes and sizes, says Mr Rumford, there are a couple of models: the UN's and the OECD's, which is the most commonly used. He told GBC this one doesn’t particularly follow either. "I think we have to recognise it’s something done in specific circumstances to address specific issues" that Spain claims to have with Gibraltar. "There’s a perception in certain parts of Spain, which is misplaced, that there are things being hidden here regarding business in Spain. And that Gibraltar companies are used to run businesses in Spain or own lots of assets that are hidden from the Spanish tax authorities. I think that’s a misconception but I think that possibly explains some of the focus on things like stopping people coming out of the Spanish tax net when moving to Gibraltar."

The accountant and senior tax professional says the treaty gives a bit more certainty as to whether someone is resident in Spain or not. "It can look a bit scary" he says, "183 days, how many did I spend (in Spain) last year"? But those rules have always been there, says Mr Rumford. "One thing the Treaty has done is perhaps bring this to people's attention" If you are genuinely resident in Gibraltar, you will need to be very vigilant about the amount of time spent in Spain."

"Someone with a second home who goes there every weekend. Plus holidays... it quickly adds up." He recommends keeping a record. "But this isn’t coming from the Treaty: that’s always been there."

While Mr Rumford thinks we are seeing more vigorous enforcement from the Spanish authorities he doesn’t think it has anything to do with the Treaty. "If an employee is working in Gibraltar but has an address anywhere else in Europe, including Spain, then the Tax Authority has been obliged to send information over since 01.07.2014. Information has been flowing through to Hacienda and they are slowly catching up."

Who gains more from the Tax Treaty in anticipated tax revenue? "Overall, the Tax Treaty linked in with the existing information exchange would probably give the Spanish more tax revenue if anything, but it won’t necessarily take it off Gibraltar. Certainly, it won’t take tax revenue out of the hands of Gibraltar and give to Spain. Nor does it mean that they (Spain) will have the right to tax instead of Gibraltar. If someone is working in Gibraltar and earning in Gibraltar, or a company has activities in Gibraltar, they should remain taxable in the same way."

Mr Rumford recommends that companies with links to Spain look at what they’re doing against what the Treaty says. But he thinks it’ll be a minority of companies.

In summary, he said there is a big move towards transparency and the automatic exchange of information, giving other tax authorities access to information. "And with Brexit, there could otherwise have been a possibility that Gibraltar stops exchanging information with other jurisdictions as a lot of it is (currently) done under EU directives. Without these could Gibraltar stop providing information? I think that would be going against the direction everyone else is going and the expectation is - particularly for a finance centre - that there be a level of transparency. And I believe Gibraltar has been working very hard to meet the highest standards of tax transparency, and control against money laundering and terrorist financing. What the Treaty does is it ensures that there is continuity applying those directives: I think that is the direction Gibraltar has to go."