The Diplomat
The International Agreement on Taxation and Protection of Financial Interests between Spain and the United Kingdom on Gibraltar, the first treaty between Madrid and London regarding the Rock since the Utrecht Treaty of 1713, will enter into force today following its publication in the Official State Gazette (BOE).
The new Agreement is part of the annexed protocol on Gibraltar included in the Withdrawal Agreement negotiated between London and Brussels for the British exit from the European Union, which was consummated last January 1. The protocol included four memoranda of understanding on Gibraltar signed on November 21, 2018 (on citizens’ rights, tobacco, environmental cooperation and police and customs cooperation) and the Tax Agreement itself, which was negotiated bilaterally with the United Kingdom.
The text was signed ad referendum by Madrid and London on March 4, 2019, but its ratification was delayed since then by changes of government and general elections in the two countries. Finally, the procedures for its ratification were completed on July 15 and September 23, after the Congress of Deputies and the Senate, respectively, authorized its signature.
The main objectives of the agreement are to eliminate tax fraud and the harmful effects derived from the characteristics of the Gibraltar tax regime, to establish clear rules to resolve tax residence conflicts of individuals more easily and to avoid the use of companies subject to the Gibraltar tax regime by tax residents in Spain or for carrying out economic activities in Spain.
To this end, a reinforced regime of administrative cooperation between the competent authorities of the respective tax administrations is established, which includes the exchange of information on certain categories of income and assets of special importance for the fight against fraud in the area. It also provides for the adaptation of this special cooperation regime to the new European Union and OECD standards on transparency, administrative cooperation, harmful tax practices and the fight against money laundering.
“The Agreement therefore constitutes an effective tool in the fight against tax evasion and creates the necessary instruments for that purpose”, the Ministry of Foreign Affairs stated. “Until now there was no legal instrument of this entity in defense of the interests of the Spanish Treasury”, continued the Department headed by Arancha González Laya, who insisted that the Agreement “does not imply any change with respect to the Spanish position regarding sovereignty and jurisdiction in relation to Gibraltar”. According to Ministry sources, one of the main objectives of this Agreement is that “Gibraltar is not consolidated as a tax haven”. The Rock does not appear as such in the European list of tax havens but it was included in the Spanish list approved by Royal Decree in 1991.
The aforementioned sources of Foreign Affairs specified that the entry into force of this Agreement is independent of the fate of the pre-agreement reached between Spain and the United Kingdom last December 31 to facilitate the inclusion of Gibraltar in the Schengen area of free movement. The pre-agreement has been sent to the European Commission and from there has reached all EU capitals, since its implementation requires the signing of a treaty between the EU as a whole and the United Kingdom. The same sources even believe that the entry into force of the tax agreement will help to strengthen the direct negotiations between Brussels and London and will provide “additional security” to the countries that have been more wary of the tax advantages of Gibraltar with respect to the EU.
