Gibraltar is no longer a Tax Heaven

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Treaty between Spain and the United Kingdom

This Treaty is the first to be signed between Spain and the United Kingdom on Gibraltar since The Treaty of Utrecht in 1917 in which Spain first surrendered the region to the British.

The former Minister of Foreign Affairs, Josep Borell, and the British Minister of the Presidency, David Lidington, signed this taxation agreement, which aims to protect the financial interests of Spain and the United Kingdom, on 4th March 2019. Since pending parliamentary approval, it has finally come into force after being published in the Official State Bulletin (BOE) on 13th March 2021.  

It should be noted that this treaty does not imply any change in the Spanish or British position regarding the sovereignty and jurisdiction in the region. Instead, this treaty seeks to resolve tax sovereignty in Spain’s favour by stopping people from taking advantage of Gibraltar’s tax system. In order to achieve this, administrative cooperation has been increased and reinforced, aiming to put an end to tax fraud or evasion and money laundering that until now have been possible as a result of taking advantage of a lax tax regime that allowed occurrences such as paying corporate income tax only on profits obtained in Gibraltar, or being considered a resident in this territory while actually having one’s main residence in Spain.

The agreement contains a series of rules to put an end to false residency conflicts. On the one hand, it establishes that individuals are considered Spanish tax residents when any of the following circumstances occur:

  • They stay overnight for more than 183 days during the calendar year.
  • Their spouse and minor descendants are residents.
  • That it is where they have their only permanent residence at their disposal.
  • Two thirds of the net assets are located there.

On the other hand, when it comes to Gibraltarian legal entities, they will be assigned Spanish tax residence when they are considered to have a significant relationship with Spain.. This situation is determined by several factors such as:

  • The location of the majority of assets.
  • Where most of the income is generated.
  • Whether the majority of the owners or directors are tax residents there.

Other measures of particular relevance included in the treaty are those regarding mutual administrative assistance in tax matters meaning an exchange of information to strengthen control by offering free and direct access to entries registered in the Registro Mercantil of Gibraltar (Companies Register), and to public information on the true ownership of companies, legal entities, foundations, and trusts.

This treaty comes as no surprise, as Gibraltar’s intention to put an end to tax fraud and money laundering has already been made clear through a series of actions that have been carried out in recent years such as the modification of its internal regulations, the signing of multilateral agreements or the implementation of specific measures, which have resulted in the loss of its consideration as a tax haven for all members of the European Union and international organisations, except for Spain.

With this treaty, however, there is no doubt that Gibraltar will also disappear from Spain’s list of tax havens, given that the Spanish Tax Agency has sufficient knowledge and the necessary means to detect fictitious uses of tax residence. When it comes to people, it has enough information regarding their real estate, consumptions, bank transactions, schools, etc. to determine tax residence, while, thanks to the measures that this agreement contains, the tax authorities will also have sufficient information at its disposal to determine the tax residence of legal entities and ensuring that all those companies created in Gibraltar in order to hide their true owners are taxed in Spain.

In conclusion, it is a very effective tool to end using Gibraltar as a tax haven, in spite of the complications that may arise when applying it to the already existing companies.

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