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Tax
New UK and Spain Tax Treaty provides certainty for Gibraltarian HNWIs
By Gavin Gafan, Senior Manager, Tax, Deloitte Limited
Like so many other Gibraltarians of my generation I was blessed with the chance of going to University, where I had the pleasure of meeting not only a
good number of people, but where I was challenged by a varied number of
opinions. I would stand behind the notion that these non-academic experiences were instrumental in moulding me into the person I am today, as was the education I received at that ripe age of ‘somewhere between my late teens and early twenties’.
By way of example, I remember fondly the sporting aptitude of one of my flatmates who was a brilliant fencer. Upon winning Gold at a tournament a colleague said to him in passing “you are a very lucky man,” to which he answered in mock-jest “indeed...the more I practice, the luckier I get.” This expression stuck to my mind like glue and to some extent may have helped me achieve certain goals in life. Applying these thoughts to tax (well I am a tax consultant after all!) and the recently signed Tax Treaty, it is important to develop a good understanding of the tax legislation that one is potentially exposed to, particularly where different jurisdictions are involved.
Spanish lifestyle
Given the proximity of Spain to Gibraltar and the attraction of the Spanish lifestyle there are many situations where Gibraltar High Net Worth Individuals (HNWIs) may be exposed to Spanish tax and there has never been a mechanism to deal with conflicts between the two tax systems. In this sense the recently signed tax agreement between the United Kingdom and Spain concerning Gibraltar is a welcome development.
It would be fair to say that there has been quite some debate regarding this agreement and not just among the tax boffins, but also amongst the general populace. As a
general consensus it is evident that the agreement does not follow common double tax treaty models and that aspects of the agreement will benefit Spain more than it does Gibraltar. However, notwithstanding this and without delving too deep into the rules laid-out by the agreement itself, it is worth considering the fact that many of the provisions set out in the agreement itself should already apply under Spanish domestic law, and which will in all probability continue to apply whether or not the agreement is ratified.
What has become evident is that the agreement may have awoken dormant fears amongst some taxpayers of the likelihood of non-intended dual tax residence, which thus merits the question as to whether they have historically handled their compliance obligations correctly. Whether you are for or against the content of the agreement does not detract from the fact stipulated in the body of the agreement itself, that “natural persons shall be tax resident in Spain or in Gibraltar in accordance with their domestic law...”
Tax residence
So how do most tax jurisdictions determine tax residence? Invariably tax residence provisions can be rather complex (take the UK Statutory Residence Tests as an example, which is an article in its own right), but in a
nutshell most tests employed to ascertain tax residence chiefly focus on the number of days spent in a jurisdiction, as well as ‘ties’ to that jurisdiction.
In most cases (Gibraltar included) any individual who spends either 183 days (or more) a year, in a given tax jurisdiction tends to be held as being tax resident there.
In cases where an individual spends less than 183 days in any given jurisdiction but who has their centre of vital and economic interest in a particular jurisdiction (i.e. principal dwelling, children attending school there, investments and businesses there etc) it can trigger tax residence in said jurisdiction, despite not meeting the 183 day ceiling. Therefore taxpayers who are spending more time in Gibraltar than in Spain and who have real substance in Gibraltar shouldn’t be affected by legislation for dual residents.
Overall, the treaty is a welcome clarification of tax legislation and individuals considering relocating to Gibraltar now have at their disposal agreed provisions they can rely on.
www.deloitte.gi
18 Gibraltar International
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