Spain's Ministry of Foreign Affairs, the European Union, and Cooperation has announced the signing of a tax agreement with the UK concerning Gibraltar. The agreement is designed to combat tax fraud and money laundering in Gibraltar once the UK leaves the European Union and includes new rules on tax residency for both individuals and companies.
The tax agreement has the status of an International Treaty, and it is the first Treaty that Spain has signed with the United Kingdom regarding Gibraltar since the Treaty of Utrecht in 1713. This Agreement constitutes an essential element so that Gibraltar’s exit from the European Union pursuant to the Withdrawal Agreement and its Protocol on Gibraltar takes place in an orderly way, in accordance with Spanish interests in matters of taxation and in the fight against fraud and tax evasion.
In particular, the objectives of the agreement can be seen as follow:
In order to reduce and eliminate the tax fraud, the agreement establishes a reinforced administrative cooperation regime between the relevant authorities of the respective tax offices. This regime includes the exchange of information on certain categories of income and assets of particular importance in the fight against fraud in the area.
Moreover, with regard to the tax residency issue, the agreement establishes a series of rules in order to resolve the conflicts regarding the tax residency of natural persons. The purpose of the series of rules is to solve the problems of the false residencies in Gibraltar of natural persons who actually reside in Spain.
Referring to the rules, tax residency is established in Spain when the taxpayers have a significant relation with Spain, either due to the location of the majority of their assets or the obtaining of the majority of most of their income in Spain, or when the majority of their owners or directors are tax residents of Spain.
The measures under this agreement will still be useful, even though the United Kingdom not sign the Withdrawal Agreement and leave the European Union without an agreement, as it ensures Spain that there will be a high degree of cooperation from the relevant tax authorities when European Union law stops being applicable in Gibraltar.
One of TPA’s technology partners Cygnet Infotech has developed a comprehensive VAT solution named R7VAT MTD, which is amongst others recently approved by HMRC for use by companies in the UK to automate and manage their VAT returns filing process but can also be used broadly within the EU.
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