Although no bilateral Tax Information Exchange Agreement (“TIEA”) exists between Spain and Gibraltar, the reality is that Gibraltar has started to exchange certain information related to year 2014 and subsequent.
The Spanish tax authorities are sending notifications to frontier workers requesting them to file and pay Income Tax as residents in Spain for year 2014, based on information provided by the Government of Gibraltar on income earned there in said year.
On 22 December 2016 Gibraltar Government published the Regulations that implement the Common Reporting Standard (CRS) into Gibraltar law. These regulations also apply to the EU Directive that implements the CRS between EU Member States, by which jurisdictions have to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. CRS sets out the financial account information to be exchanged, the financial institutions obliged to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.The first reporting period refers to year 2016 with the first report due to be filed by the Gibraltar Government by no later than 31 July 2017.
Last September 2017, Gibraltar and Spain started sharing financial information for year 2016 according to the activated bilateral exchange relationship. Prior to CRS there was no automatic exchange of information with any EU state other than the UK (FATCA). Gibraltar didn’t supply information automatically prior to FATCA and CRS.
Gibraltar has TIEAs in place with various countries but Spain is not one of them as yet and of course they dont provide for automatic exchange anyway.
The Spanish tax authorities have strengthened their research for residents who failed to declare income earned in Gibraltar or claimed pretend residency in Gibraltar, implementing a number of new measures and adopting new IT tools over the last years. The letters sent to frontier workers could be the result of this research but they literally say “according to the information provided by the Tax Authorities in Gibraltar…” when there is no exchange agreement prior to 2016.
The reason behind this is that Gibraltar has committed to exchange certain information in compliance with EU Directive 2011/16 and is indeed exchanging automatically information to Spain on workers who have given an address in Spain, based on Gibraltar Taxation (Mutual Administrative Assistance) Act 2014-06, as Robert Guest, Chairman of Abacus Financial Limited, has confirmed with the Gibraltar authorities.
Article 9 of the above mentioned Act states that where the Government agrees with one or more States to the automatic exchange of information on income or profits in respect of particular categories of cases the Competent Authority shall automatically exchange that information.
Article 10 states that information shall be spontaneously exchanged to another Party, without prior request, if there are grounds for supposing that there may be a loss of tax in the other Party, among other circumstances.
Frontier workers are a vulnerable group. They split time between Spain and Gibraltar and it is not always easy to define the place of residence from a tax point of view. Although they may spend more hours altogether in Gibraltar per annum, if they spend more than 183 days a year in Spain they will be classified as resident for tax purposes, and that would be the case if they sleep in Spain. And for Gibraltar, the fact that they may have a correspondence address in Spain is a strong evidence to consider their residency in Spain thus, based on Act 2014-06, report to Spain.
Should Gibraltar remain as a tax haven for Spain?
Gibraltar is one of the 48 jurisdictions included in the Spanish 1991 black list as a tax haven. Those countries and territories that have signed a TIEA or a Double Tax Treaty with an automatic exchange of tax information clause are excluded as a tax haven, as long as the agreement is in place, although they remain listed. In addition, in 2014 this possibility was extended to the territories that entered into the Mutual Assistance Agreement on Fiscal matters of the OECD and the Council of Europe. On the contrary, the standard was amended so that those who did not effectively exchange tax information could be re-included.