Our In-Perspective series continues with part two of our interview with Hassans Partner and tax expert Grahame Jackson, who will be discussing the wider significance of Gibraltar’s tax agreements with Spain, in March, and with the UK in October.
The biggest news of the year has to be the landmark tax agreement between the UK and Spain affecting Gibraltar. Can you tell us a little bit more about the implications of this and what are the positives and negatives as you see them?
On the positive side, when there is anything to do with Spain and Gibraltar there is always going to be a political element – so the pros are in the political sphere mostly. The agreement with Spain is absolutely necessary from the perspective that, without such an agreement, we are never going to get any other DTAs (Double Tax Agreements) anywhere in the world.
For example, if we had no agreement with Spain as soon as France announces that it’s negotiating a DTA with Gibraltar, Spain will urge them not to and there will be a diplomatic spat – which nobody wants. As the Chief Minister said at a Chamber of Commerce dinner in September, the cost of benefit for a country like France to negotiate a tax agreement with Gibraltar is actually quite low because there aren’t that many French nationals here who are likely to be impacted by it, so we’re not at the top of their list.
But if President Macron wakes up tomorrow and thinks, “I’d like a tax agreement with Gibraltar”, or our man in Paris persuades him to have one, he will always hesitate if it causes diplomatic tensions with his neighbour, Spain.
Or at least, that would have been the case, because, now that we have a tax agreement with Spain they can hardly say, well it’s ok for Gibraltar to have one with us but tell France they shouldn’t..
So, in that respect, it is vitally important to have this in place first, if the aim of the government is to have a comprehensive network of international tax agreements.
It also formalises the arrangements that have always been there and adds a tie-breaker. The tie-breaker is secondary tests of residence..
It provides greater clarity and limits the ability of people to hedge around the rules. Ultimately, if you are tax compliant with Spain the day before the agreement then you are still tax compliant the day after. It makes very little difference to those who are following the rules anyway.
If you were a tax evader the day before the agreement, then it’s just clearer on how that will be exposed. Even though there are some elements of eliminating double taxation the emphasis of the agreement is strongly in favour of anti-avoidance.
Now, compare that with the brand-new UK Double Taxation Agreement (UK DTA). The Spanish agreement was all about anti-avoidance i.e. “we need to stop them avoiding tax” and in the UK one it was “let’s have in internationally recognised DTA in the OECD form” – you could change the country names on the top of the UK DTA and people would still know what it looked like and how it worked because it follows the OECD Model Convention, whereas our agreement with Spain is completely standalone, there’s nothing else like it in the world.
It is a credit to the Gibraltar government that they achieved an agreement with the Spanish government. It is important that Spain has finally recognised laws made in Gibraltar, by Gibraltarians, in some formal document with a signature on it. It is the first time we’ve had this.
Moving away from the international side of things, what about matters closer to home…
If you are a tax compliant person living in Spain and working in Gibraltar it makes no difference, but Gibraltar has strong political gains out of its existence.
If you are a non-compliant person playing with the border, moving backwards and forwards, it makes it more likely you will get caught.
And so, how about cross border workers, be they British, Europeans or non-EU nationals working in Gibraltar and living in Spain? For example, people employed in gaming, living in the La Linea area who commute here every day. What advice do you have for them?
Simple, get registered and pay your tax in Spain. You are obliged to pay your tax in Spain and you are considered tax resident in Spain if you live there for more than 183 days. You can’t have a full-time job in Gibraltar and live in Spain and not be there for 183 days. So register, pay your tax, be a good citizen.
The point to keep in mind is that you’re not double paying tax, what you’re doing is you’re topping up, so you pay your Gibraltar tax first and then you pay the difference to Spanish Hacienda, probably around 3 or 4%, but that depends on how much you earn. People should take advice from Spanish advisers if they have any queries.
Where things get more complicated is when there’s any capital gain tax or inheritance tax, for example, which we don’t have in Gibraltar. That would make a difference, same goes for property.
Another scenario, if you live in Gibraltar and have a property in Spain and you go there at weekends or for holidays, don’t stay over 183 days pa. And if your use of that property increases, or the value increases significantly, and it is starting to look like you live in Spain, then you need to reconsider your tax liability.
My advice to anybody who has a property in Spain and/or anyone who moves over the border backwards and forwards is – don’t try to play games. And don’t think you’re cleverer than the Spanish Hacienda because you’re not; Spain has been collecting taxes for approximately 1,000 years so there is nothing that neither you nor I sat around the kitchen table can come up with to try and beat the system that they haven’t already seen.
So, in simple terms, just get your house in order?
Yes, get your house in order, pay your tax in the right place or restructure your life if you think that would help. But don’t play games because an investigation will last for years, if they want it to, and they will pick over your life and it will cost you a fortune… Just accept that if you live in X country you should pay tax in that country.
And paperwork means nothing, it’s all about days. So, saying, “I’m not resident in Spain”, does that mean you don’t ‘live’ there or you haven’t ‘registered’ there? Not registering is not a defence against tax residence, it’s about day count in reality, tax law counts days and administrative law is the registration.
The residencia card is not the test of whether you are tax resident, the test of tax residence is day count – how long you have actually been in the country.
To the person who says to me that they’re not tax resident in Spain, I ask, “how many days did you spend in Spain?”
“So, you live there?”
“No, I’m not registered.”
It doesn’t work that way I’m afraid.
And the new UK treaty?
The new UK treaty is very different. The OECD publishes a standard model tax treaty – it follows that model closely, though there are some deviations. It looks and feels like an OECD model treaty. It divides up the taxing rights, predominantly where you have payments coming out of one country to another country.
It deals with how capital gains will be taxed, where a Gibraltar resident makes a capital gain in the UK, it tie-breaks for residents like the Spanish agreement but in a less anti-avoidance fashion.
The Spanish agreement doesn’t have a tie-breaker for companies, it just says companies like this will be tax resident in Spain, it doesn’t rely on tax residence first.
What’s vitally important is that it’s got what’s called a non-discrimination clause in it; because there’s quite a few UK anti-avoidance measures that are deactivated when you are in a territory with a double taxation treaty with a non-discrimination clause in it.
That’s good because it turns off some of the transfer pricing rules, it allows dividends to flow, it will make things easier for Gibraltar companies to invest into the UK. It makes things much more fluid, it’s really a good step forward.
I’m pleased with it. I’m pleased that now the last roadblock to a wider DTA network has been taken away.
So again, let’s reimagine our scenario with President Macron and our man in Paris saying, “can we have a tax treaty?”
He is no longer going to be worried whether Spain will create grief but then his civil servants say, “well they haven’t even got one with the UK, so why are we going to waste our time and energy on this when their home country doesn’t do it?”
So that issue is fixed now too. And I think that’s a really positive step. A lot of the other CDOTs (Crown Dependencies and Overseas Territories) have had treaties with the UK for a long time, it’s always been a weird anomaly that we haven’t had one and I’ve never understood it and I don’t think anyone else has ever understood it.
Here in Gibraltar, when we go and sell structures and tax advice to people in the UK one of the questions they ask is, is there a double tax treaty? And we have always had to say no – and now we can finally say yes.
One of the things it will do is it will help counteract the effect of Brexit – there has always been a break on UK dealings because we didn’t have a DTA. People previously asked the question, “have you got a DTA?” without actually having a secondary question behind it, so as soon as we said no, the shutters would come down. The DTA means we are considered more a full partner of the UK.
And of course, you recently hosted an event at Hassans where you detailed the benefits of the UK DTA and how it works – it proved to be quite a popular event, didn’t it?
Yes, there was 100 people in total, a few from inside the firm and well over 80 external people. GBC were there, we had a broad selection, there were some professionals, some lawyers, some accountants, there were some individuals of different stripes… it was a challenging pitch. It needed to be clear enough for somebody who doesn’t know anything about tax treaties and technical enough for lawyers to still get something out of it. That was a difficult balance to have, but that’s always a balance that you try and strike right because it’s an open event, it’s not lawyer-only. It’s awareness raising, more than anything else.
So, just to recap. In March the UK signed the taxation agreement with Spain – and that is quite unlike the standard form of taxation agreement, it’s completely bespoke, completely original, I’ve never seen anything that looks like it”
Then, on October 15th, the UK and Gibraltar signed a tax agreement which is in the form what’s called the OECD model – so there’s a standard form that the OECD publishes. It’s not exactly the same but if you look at it and see the first line, you think, “ok I know what this is.”
We’ve never had that kind of an agreement in Gibraltar before so it’s going to alter our legislation and introduce some new concepts. This, in turn, means our whole approach will have change, with new considerations and a whole new professional reality to adapt to, essentially.
The seminar that we did, therefore, was basically to introduce the profession to these implications and get them up to speed to give them some pointers and where to go. It’s not possible to say “these are all the ramifications of this tax treaty” in two acts, you can’t do that, so you have to give some highlights and point to the things that the are going to be the main issues.
So that’s what we set out to do. Isaac Levy spoke with me, outlining the broader-brush approach to what is the impact on Gibraltar going to be. One of the things that he spoke about was that it would lead to an upskilling of the profession. I think that’s important that we are going to need to expand our skill base, we’re going to need to understand things in an international way, where it’s purely been a question of Gibraltar perspective previously, there will be people doing different qualifications they will need to understand things, the profession’s going to change.
And this was the key message you wanted to deliver?
Yes. And also to manage the perception people might have. Many people will see no immediate practical difference. There will be some differences around registrations in the UK and how UK entities that trade in Gibraltar will be treated, and there will be some differences that Gibraltar entities that trade in the UK will be treated, and some issues around people who are dual resident. But a lot of the issues were already resolved by domestic law, it’s just that now we’ve got an agreement framework, rather than Gibraltar and the UK doing things unilaterally.
Our profession needs to adapt to these changes, therefore our goal, essentially, was to point people in that direction as much as anything else because we have got the talent, the talent pool is quite deep in Gibraltar considering the size of the jurisdiction – and it’s right that we should be proud of that, there are some very good people here and there is considerable depth to the profession. But the demands of the profession have never been like this so there will be a shift – but everybody’s up to it.
It will be good for Gibraltar in general because it will increase trade, so I think we’ll see the economy lift, especially if we establish a network of treaties. There is a figure of 30 in five years, which has been spoken about…
Does that include President Macron?
[laughs] …Perhaps. It is very ambitious, if we get a broad network like that it will be good for everyone. And now that we have one in the OECD form that’s great too, because it’s not cut and paste, but all the framework, the concepts etc, are familiar. So, if we enter into an agreement with Luxembourg tomorrow, it will look like the one for the UK with some variations.
This is going to equip us to go out and have a treaty network and understand what we’re talking about. We never need to be embarrassed in any room with anybody, because we finally have some tax treaties in place. We can now start speaking the global tax language in a way we’ve never been able to before.
In terms of reputation globally…
It’s brilliant, it’s fantastic – there have been lots of conversations in my life as a tax lawyer where I’ve sat in a room and people have said, “ok so Gibraltar sounds really interesting because of this, that and the other – what treaties have you got?”
And I reluctantly mutter “oh we haven’t got any…”
And that’s the conversation over. But now the door’s open.
And all this in a very short period of time.
Gibraltar’s made a huge step in the last 12 months and I think, as much as anything, this is a consequence of Brexit. The UK agreement is part of the wider refreshing of the UK treaties but because we’ve never had one before, maybe there was no imperative on the UK to do it, but because of Brexit, because we are being taken out of the EU, they are more open. So maybe that’s what threw it into sharp focus, that we don’t have a treaty and we should.
Maybe it would have come in ten years’ time anyway, maybe five years, but Brexit and the attitude of the Gibraltar Government made it happen today.
Do you have your own tax questions?
Do you have any specific tax questions? Have you concerns about how the new tax agreements will impact you, your family or your business? Looking to restructure, buy property or redomicile in Gibraltar? Whatever your questions are the Hassans’ tax team are here to help you find the right answers.