New Reporting Deadline for Spain Tax Agreement

The deadline for the submission of information for the purposes of Article 2(2)(d) of the International Agreement on Taxation and the Protection of Financial Interests between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland regarding Gibraltar (the “Agreement”) has been extended until Friday 7 May 2021.

 

In applying (2)(b) of the Agreement, the Gibraltar tax authorities are required to provide the designated Spanish tax authorities with a list of the persons charged with effective management and the legal beneficial owners of any Gibraltar-based legal person, entity or other legal structure or arrangement which  fall within the residency rules outlined in (2)(a)(iii) or (2)(a)(iv).

 

This information will be used to establish residency for tax purposes. The Agreement contains a safeguard which allows such legal persons, entities and other legal structures or arrangements that may fall under the criteria set out in 2(a) (iii) or 2(a) (iv) to retain their residency only in Gibraltar, provided they were incorporated prior to 16 November 2018, and that they can demonstrate sufficient physical presence and business and economic operations in and from Gibraltar.

 

What next?

For further information or for assistance with filing the return please contact: Emma Lejeune emma.lejeune@isolas.gi; Adrian Pilcher adrian.pilcher@isolas.gi; or Stuart Dalmedo stuart.dalmedo@isolas.gi.

 

The PJI Foundation Helps Fund Education for Local Clinical Nurse

Together with Kusuma Trust, the Peter J Isola Foundation has helped to fund HOS Clinical Nurse Specialist Daniela Ayre’s MSc in Palliative Medicine from Cardiff University.

 

Specialist education that assists in improving cancer services and patient care is an important aspect of what Cancer Relief Gibraltar does. Funding and facilitating ongoing educational initiatives, with the support of associations such as the PJI Foundation, is a big part of their overall vision.

 

Daniela is pleased and proud to have completed her MSc, which has provided an excellent basis for further training, and is very grateful for the support. She is now in a position to implement her new learning and skills within her role at Cancer Relief for the benefit of all patients and their families in our community.  

 

A cheque of 50% for £2238.00 was presented by Tammy Isola, with the remaining 50% donated by Kusuma Trust.

Trustee Peter Isolas said: “We are grateful to be able to assist local charities, and the incredible work they do. The Foundation is pleased to support educational and sustainable projects that give back to our community, such as Cancer Relief Gibraltar’s educational initiatives. Congratulations to Daniela on the completion of her MSc, and the best of luck with her continued studies.”

The PJI Foundation and Kusuma Trust Gibraltar Join Forces to Support the Mental Health of Young People in Gibraltar

The PJI Foundation have teamed up with Kusuma Trust Gibraltar to fund a pilot project that will support young people with mental health issues.

The JM Memorial Foundation is a local charity which focuses on “value-based education, participation and inclusion.” Over a period of 12-18 months, the charity will work with young people aged between 16 and 25 to build a needs-profile for each individual in order to offer practical psychological support, assistance with educational or employment needs, and guidance for their continued social integration into the community.

Kusuma Trust Gibraltar and the PJI Foundation have donated £8,000 to this worthy cause, which will enable the charity to identify and work with young people in need of support, providing them with the necessary tools to improve their mental health.

The charity hopes that the project will demonstrate that early, proactive intervention and personalised support for each individual, leads to a reduction in relapses and a long-lasting positive impact for the individuals as well as the community.

Peter Isola, senior partner of ISOLAS Law firm and a trustee of both the PJI Foundation and Kusuma Trust Gibraltar, commented:

We are delighted to support the JM Memorial Foundation in its endeavour to improve mental health issues of young vulnerable individuals in a safe environment. They have been working tirelessly for our community for many years and continue to offer invaluable support to services users and the Mental Health Service.”

About PJI Foundation

The Peter J Isola Foundation was established to celebrate the life of ISOLAS former senior partner, the Hon Peter Joseph Isola OBE, who passed away in 2006. The main goal of the Foundation is to support local charities to which Peter, and his wife Rosie, dedicated much of their time.

The Foundation has donated funds to a substantial number of Gibraltar charities including Gibraltar Alzheimer’s and Dementia Society, Calpe House, Cancer Relief and The Gibraltar Health Authority. Details of The PJI Foundation’s initiatives can be found on the website www.pjifoundation.com or follow us on Instagram @isolafoundation  

About Kusuma Trust Gibraltar

Kusuma Trust Gibraltar is a family-led trust making philanthropic investments in the community in Gibraltar. We give grants to causes, organisations and people that are making a positive difference to society. We choose partners based on our shared values and mutual interests.

Kusuma has supported numerous worthwhile causes such as the Kusuma University Talks, Excellence prize, Childline Gibraltar, Commonwealth Gardens and the beautification of Europa Point. Details of Kusuma Trust Gibraltar’s work can be found on the website www.kusumatrust.gi or follow us on Twitter, Facebook and Instagram @KusumaGibraltar.

ISOLAS LLP Assists with the Drafting of Further Changes to the Proceeds of Crime Act 2015, Including Legislation to Implement the FATF ‘Travel Rule’ in Gibraltar

ISOLAS Partners Adrian Pilcher and Joey Garcia, and Associate Michael Adamberry have assisted Her Majesty’s Government of Gibraltar (“HMGoG”), the National Coordinator for Anti-Money Laundering and the Combatting of Terrorist Financing (“National Coordinator”) and the Gibraltar Financial Services Commission (“GFSC”) in the drafting of the following pieces of legislation:

  • Proceeds of Crime Act 2015 (Amendment) Regulations 2021 (“POCA Amending Regs”)
  • Proceeds of Crime Act 2015 (Relevant Financial Business) (Registration) Regulations 2021 (“RFBR Regs”)
  • Financial Services (Specified Regulatory Decisions) (Amendment) Regulations 2021 (“SRD Amending Regs”)
  • Proceeds of Crime Act 2015 (Transfer of Virtual Assets) Regulations 2021 (“TR Regs”)

 

This work follows from Adrian and Michael’s recent involvement with drafting the Proceeds of Crime (Miscellaneous Amendments) Act 2021 passed by the Gibraltar Parliament on 5 February 2021 (and which came into force on 9 February 2021). The drafting team has had a further opportunity to work as part of a dedicated taskforce guided by the National Coordinator and the GFSC, making further amendments to Gibraltar’s legislation related to anti-money laundering (“AML”), combatting financing of terrorism (“CFT”), and counter-proliferation financing (“CPF”) otherwise known as AML/CFT and CPF. Additionally, ISOLAS Partner Joey Garcia was also called upon for his expertise in the Fintech and distributed ledger technology (“DLT”) space. Joey Garcia was involved following the gap analysis he had been instructed to conduct in relation to Gibraltar’s DLT Framework and the FATF Recommendations, and VASP definitions.

The changes brought about by the above pieces of legislation, in part, deal with the implementation of the so-called ‘travel rule’ prescribed under the revised Recommendation 15 (as read with Recommendation 16) of the Financial Action Task Force’s (FATF) Recommendations [1] on the International Standards on combatting money laundering and the financing of terrorism and proliferation, adopted by the FATF plenary in February 2012, as amended.

 

Travel Rule

The travel rule is essentially a requirement (derived from the FATF Recommendations) to collect and submit, immediately and by secure means, certain information along with transfers of virtual assets. In Gibraltar, these obligations are now placed on relevant financial businesses (RFBs), as defined in s.9 of the Proceeds of Crime Act 2015 (“POCA”), who send (on behalf of a “payer”) or receive (on behalf of a “payee”) virtual assets to or from “virtual asset service providers” or “VASPs”.

The TR Regs operate by obligating the RFB acting for the payer in a virtual asset transaction (which we can refer to as the “originator RFB” for simplicity) which has been captured by the TR, to obtain and submit certain information on the payer and on the payee. In many cases the RFB may already have information on the payer, as part of its customer due diligence (“CDD”) obligations under POCA which apply to regulated DLT firms in Gibraltar, as well as other RFBs. However, unless the payee is also one of its clients, the originator RFB is unlikely to have information relating to the payee and will therefore need to have the relevant industry systems in place which allow this information to be securely provided.

The RFB receiving the virtual assets on behalf of the payee (which we can refer to as the “beneficiary RFB” for simplicity) has the obligation to ensure it receives the required information from the originator RFB and then corroborate this with its own records in respect of the payee’s name and, where applicable, the payee’s account number.

The information-gathering requirements shift slightly depending on whether the RFB is acting on behalf or a payer, a payee, or both (as well as on its own behalf). However, regardless on whom the onus is to obtain, submit, or corroborate the information with their own records, virtual asset transfers covered by the TR Regs will be accompanied by the following specified information:

  • the payee’s name;
  • the payee’s virtual asset account number;
  • the payer’s name;
  • the payer’s virtual asset account number;
  • where the payee or the payer does not have a virtual asset account number, a unique transaction identifier; and
  • one of the following:
    • the payer’s address;
    • the payer’s national identity number;
    • the payer’s customer identification number; or
    • the payer’s date and place of birth.

 

RFBs also have to consider the obligations when they receive virtual asset transfers from a person other than a VASP (e.g. virtual assets received from an unhosted wallet). In such cases, the information they are expected to obtain from the payee is limited to:

  • the payer’s name; and
  • one of the following:
    • the payer’s address;
    • the payer’s national identity number;
    • the payer’s customer identification number; or
    • the payer’s date and place of birth.

However, the travel rule does not apply where the RFB sends a virtual asset transfer to a person other than a VASP. In this case there are no information gathering requirements, other than the usual CDD requirements that an RFB has to meet under POCA.

Given the overlap of travel rule information and CDD information obtained during the normal course of an RFB’s activities, the TR Regs make clear (r.6) that any requirement, under the TR Regs, for a RFB to obtain the information specified in r.4(2), or any part of it, shall constitute a CDD measure as if the requirement to obtain that information was listed in s.10 POCA. The record-keeping requirements under s.25 POCA are also applicable to information obtained when sending or receiving virtual asset transfers.

 

Virtual Assets and VASPs

Gibraltar has included a VASP definition which replicates the FATF definition of the same – this is contained in r.3 of the TR Regs. The only purpose of this definition is to define transactions between RFBs operating in Gibraltar and VASPs operating outside Gibraltar (and not therefore RFBs). Likewise, a definition of “virtual asset” is also used, which aligns with the FATF definition of the same – this concept is now defined in s.7 POCA and used in the TR Regs.

The concepts of VASP and virtual asset are intended to be self-contained to a large extent, and thereby do not substitute Gibraltar’s existing DLT framework, prescribed under the Financial Services Act 2019 (“FSA19”) and its subsidiary legislation and guidance (the “DLT Framework”). Gibraltar’s DLT Framework, in place since 2017, already captured most of the activity falling into the FATF’s classification of VASP activity. As a result of recent changes to POCA [2], a new s.9(1)(q) POCA now brings the following within the scope of that Act:

(q) persons that, by way of business, exchange, or arrange or make arrangements with a view to the exchange of:

(a)          virtual assets for money;
(b)          money for virtual assets; or
(c)          one virtual asset for another.

For the purposes of paragraph (q) above, “virtual assets” has the meaning given to in s.7 POCA as amended, and “money” has also been defined in a self-contained definition that applies for the purposes of s.9(1)(q). Under the revised s.9(1A) POCA, “money” means: “(a) money in sterling; (b) money in any other currency, or (c) money in any other medium of exchange, but does not include a virtual asset”.

As a result of these changes, VASP activity as classified by FATF now falls within s.9(1)(j), (p) and (q) POCA.

 

Other notable amendments

The occasional transactions threshold under which CDD needs to be carried out is reduced from 15,000 euro to 1,000 euro in the case of in the case of virtual asset transactions (newly inserted s.11(g) POCA), whether these are carried out as a single transaction or as several transactions which appear to be linked.

As a result of changes to s.30(3) POCA, persons convicted of a relevant offence under POCA (or their associates) will be prevented from holding a management function in, or being a beneficial owner of a broader category of RFBs in s.9 POCA, which now includes estate agents and letting agents (s.9(1)(h)), all controlled activities (s.9(1)(j), as read with FSA19), DLT firms involved in tokenised assets (s.9(1)(p)) and those persons that, by way of business, exchange, or arrange or make arrangements with a view to the exchange of− (a) virtual assets for money; (b) money for virtual assets; or (c) one virtual asset for another (s.9(1)(q)).

Under changes to s.25A POCA, RFBs must now factor in the impact of developing technologies (e.g.  virtual assets and DLT) for both new and existing products when they assess the risks of money laundering, terrorist financing and proliferation financing.

 

New registration requirements for four classes of RFB

The RFBR Regs impose an obligation on four classes of RFB, who are now required to register with the Gibraltar Financial Services Commission (“GFSC”) for the purposes of AML/CFT and CPF supervision, to the extent they are not already supervised.

The following RFBs must now apply for registration (with transitional arrangements for existing RFBs to apply within 3 months of the legislation coming into force):

  • external accountants;
  • tax advisors;
  • undertakings that receive, whether on their own account or on behalf of another person, proceeds in any form from the sale of tokenised digital assets involving the use of DLT or a similar means of recording a digital representation of an asset; and
  • persons that, by way of business, exchange, or arrange or make arrangements with a view to the exchange of− (a) virtual assets for money; (b) money for virtual assets; or (c) one virtual asset for another [3].

Failure to register is a criminal offence punishable with up to 2 years’ imprisonment and/or a fine.

The registration regime should not to be confused with any application for regulatory permissions required under FSA19, in respect of regulated activity defined under that Act. Such permissions would need to be sought if the RFB intends to carry out regulated activity.

Additionally, the registration requirements are not applicable where a person carrying out any of the above RFB activities is already subject to supervision by a supervisory authority, whether that supervisory authority is the GFSC, or any other supervisory authority specified in paragraphs (a) to (d) or (h) of Schedule 2 to POCA. As an example, an audit firm that is subject to GFSC oversight will not need to seek a separate registration for its accountancy practice.

The RFBR Regs also provide fitness and propriety criteria that the GFSC will need to consider when accepting or refusing registration (including the withdrawal of registration after it is granted).

Notably, these Regulations are only intended to make the GFSC responsible for supervision of the four classes of RFB within the context of AML/CFT and CPF systems and controls required under POCA, and do not therefore task the GFSC with the regulation and supervision of those RFBs in respect of their conduct of business, nor impose prudential and other regulatory requirements outside of this scope, as is the case with regulated activity under the FSA19.

 

New Specified Regulatory Decisions

The Financial Services (Specified Regulatory Decisions) Regulations 2020, which came into force last year, provided for certain decisions taken by the GFSC to be “specified regulatory decisions” within the meaning of s.24 FSA19. The SRD Amending Regs expand these further to include certain decisions made under the RFBR Regs as follows:

  • the decision to issue a decision notice under R8(5) RFBR Regs, where the GFSC decides to refuse an application;
  • the decision to issue a decision notice under R9(3) RFBR Regs, where the GFSC decides to suspend or cancel a person’s registration;
  • the decision to suspend or cancel a person’s registration with immediate effect under R9(5) RFBR Regs; and
  • the decision to publish information under R9(7) RFBR Regs in respect of any action taken under R9(3) or R9(5) of those Regulations.

 

The practical effect is that these decisions are now subject to the GFSC’s Decision Making Committee (“DMC”) processes. Notably, the DMC process is not invoked for positive registration considerations under the RFBR Regs.

 

Further guidance on the above changes has also provided by the National Coordinator [4].

 

Partner Adrian Pilcher commented: “We are pleased to have worked with industry and lawmakers once again on these latest developments in a dynamic space. The travel rule has been the subject of some controversy in many jurisdictions, given the limited amount technological solutions to facilitate the collection and submission of information, securely and immediately. We are particularly grateful to the Finance Centre, the National Coordinator, the GFSC and Government Law Offices, as well as Joey Garcia, whose previous work with industry and HMGoG in assessing the travel rule issues and its practical implementation has been pivotal to the drafting”.

Partner Joey Garcia commented: “Although most DLT businesses will have been aware of the original FATF recommendations relating to the Travel Rule, their transposition into law has been very fast. What needs to be understood is that a lot of work has gone into the requirements being introduced in the right way to meet the Recommendations, but to do so in as practical and industry conscious a way as possible. The practical transposition of the FATF Recommendations has in reality varied significantly from jurisdiction to jurisdiction and Gibraltar’s approach to this has been excellent. The GFSC have also been very open with the industry around the introduction of the requirements and the local GANT association has also already taken the training around the practical introduction of the systems required forward with the industry so I would see this as being as positive and constructive an approach as possible.”

ISOLAS LLP Partner, Adrian Pilcher, who specialises in private client, tax and financial services law, and Associate, Michael Adamberry, who specialises in Banking & Regulatory Services, AML and Data Protection, are available to advise further on AML/CFT and CPF matters. Contact Adrian on adrian.pilcher@isolas.gi or Michael on michael.adamberry@isolas.gi. Additionally, for specific queries on DLT, Fintech and travel rule implementation, contact Partner Joey Garcia, who is a recognised expert in this space: joey.garcia@isolas.gi.

 

________________________________

[1] Find the FATF Recommendations here: http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html

[2] Note that s.9(1)(q) and s.9(1A) POCA introduced by the POCA Amending Regs (defined above) have since seen further amendment via the Proceeds of Crime Act 2015 (Amendment No.2) Regulations 2021, published on 29 March 2021. The wording in this article reflects the latest wording as at 31 March 2021.

[3] Note that r.4 RFBR Regs (defined above) has been amended via the Proceeds of Crime Act 2015 (Relevant Financial Business) (Registration) (Amendment) Regulations 2021, published on 30 March 2021, so this aligns with the wording in s.9(1)(q) POCA, as amended. The wording in this article reflects the latest wording as at 31 March 2021.

[4] Find the National Coordinator Guidance here: https://www.gfiu.gov.gi/publications

Reporting Deadline for Income Tax (International Tax Agreement) Return Moved to End of April

In a Notice gazetted yesterday, Monday 29 March 2021 (the “Notice”), HMGoG clarified that the deadline for any legal person that wishes to avail itself of the exclusionary provisions set out in Article 2(2)(b) of the UK/Spain tax agreement regarding Gibraltar (the “Agreement”), is the 30 April 2021.

 

The exclusionary provisions are designed to override Article 2(2)(a) of the Agreement, which provides that legal persons, entities, and other legal structures or arrangements registered in Gibraltar shall be considered to be tax resident in Spain if:

  1. the majority of assets are located in Spain; or
  2. the majority of income accrued in a calendar year derives from sources in Spain; or
  3. the majority of natural persons in charge of effective management are tax resident in Spain; or
  4. the majority of capital/equity, voting or profit-sharing rights are under the control of individuals who are tax resident in Spain or legal persons linked to tax residents in Spain.

 

However, under Article 2(2)(b), legal persons which were registered in Gibraltar before 16 November 2018 and which fall within the scope of Article 2(2)(a) (iii) or (iv), can benefit from exclusionary provisions which will allow those entities to remain tax resident in Gibraltar, notwithstanding that they would otherwise be considered tax resident in Spain. In order to avail themselves of the exclusion, these entities must satisfy all of the following five conditions, as at 31 December 2018:

  1. the entity must have a fixed place of business in Gibraltar through which the business is wholly or partly carried out with adequate staff (number and qualifications) and expenditure to support its core income-generating activities; and
  2. it is liable to and has paid corporation tax in Gibraltar; and
  3. it has operated in Gibraltar from its incorporation to 31 December 2018 and there has been no interruption or change in its trade since 1 January 2011; and
  4. more than 75% of its income for the last financial year before 31 December 2018 accrued in and derived from sources in Gibraltar; and
  5. for the last financial year before 31 December 2018, income accrued from sources in Spain cannot have exceeded the following thresholds:
    (a) 15% for legal persons with an annual turnover of not more than €3m.
    (b) 10% for legal persons with an annual turnover between €3m and €6m.
    (c) 5% for legal persons with an annual turnover of over €6m.

 

In order to avail themselves of this exclusionary clause, legal persons were, in the original version of the agreement, required to notify the Income Tax Office by 31 March 2020. Given that the agreement was ratified this month, the original filing deadline had become obsolete, and the Notice clarifies and confirms that the original deadline is now replaced by 30 April 2021. The Notice also prescribes the form which must be used for the purposes of this notification.

 

Peter Isola, Senior Partner, commented: “We welcome the recent clarification offered by HMGoG with regard to the new reporting date. The new deadline will allow those affected sufficient time to make the necessary returns regarding tax residency. Those seeking further advice are encouraged to contact our expert legal team who are on hand to assist with any concerns.”

 

What next?

If you do have any concerns whether this could affect your company, or require assistance with filing the return please contact:

Emma Lejeune emma.lejeune@isolas.gi; Adrian Pilcher adrian.pilcher@isolas.gi; or Stuart Dalmedo stuart.dalmedo@isolas.gi.

 

Legal Disclaimer

Please note that the information and any commentary on the law or otherwise contained in this article is only intended as a general statement and is provided for information purposes and not for the purposes of providing legal advice. No action should be taken in reliance on it without specific legal advice. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequence of relying on it, is assumed by the author and/or ISOLAS LLP.

 

 

Gibraltar/United Kingdom Double Tax Agreement – Working Examples

On 24th March 2020 H.M. Government of Gibraltar announced that, pursuant to the relevant notifications having been exchanged, the Double Tax Agreement which was signed by H.M. Government of Gibraltar and H.M Government of the United Kingdom in October 2019 (the “DTA”) is now in force.

What is a Double Tax Agreement?
Double taxation agreements (also known as double taxation treaties or conventions) (DTAs) are primarily aimed at reducing juridical double taxation. A double taxation agreement is an agreement made between (usually) two jurisdictions, which allocate taxing rights on various items of income and gains between them. DTAs typically alleviate double taxation in one of the jurisdictions or by requiring the country in which the person subject to tax is resident to grant relief for source state taxation through a credit or exemption mechanism.

The DTA
The main purpose of the DTA is to eliminate double taxation between residents in Gibraltar and/or the United Kingdom in respect to taxes of income and gains. The DTA further strengthens the economic relationship of both territories ahead of the effects of Brexit, and although based on the Organisation for Economic Co-operation and Development (“OECD”) model, some key differences arise, which will be highlighted within this article, together with working examples.

What taxes will be covered? (Article 2)
The existing taxes covered by the DTA are:
• Gibraltar – income tax and corporation tax; and
• United Kingdom – income tax, corporation tax and capital gains tax.

Resident of a territory (Article 4)
Individuals
Article 4 applies to individuals who are resident in both Gibraltar and the United Kingdom. However, how can an individual be resident in both Gibraltar and the United Kingdom?

Gibraltar
Under Gibraltar law an individual will be considered resident when, irrespective of whether such individual is domiciled in Gibraltar, in any tax year of assessment (which runs from 1 July to 30 June):
• he is present in Gibraltar for a period of, or periods together amounting to, at least 183 days; or
• he is present in Gibraltar in any year of assessment which is one of three consecutive years in which the total of the days on which the individual is present in Gibraltar exceeds 300.

United Kingdom
Under English law an individual will be considered resident if they satisfy any of the Statutory Residency Tests (SRT), as set out below:
1) The Automatic Overseas Test
2) The Automatic UK Test
3) The Sufficient Ties Test

For example, under the Automatic UK Test, an individual will be UK resident if they (1) spent more than 183 days in the UK; or (2) have a home in the UK which is available to him for at least one period of 91 consecutive days and in which he is present on at least 30 days in the tax year.

If residence cannot be determined by either the Automatic Oversees Test or the Automatic UK Test, then the ‘ties’ which an individual has with the UK will need to be considered. There are five different ties: (1) family; (2) work; (3) accommodation; (4) 90 days; and (5) country.

Example
Paul Garcia, a UK national, is currently working in Gibraltar for a Gibraltar insurance company. Paul’s wife and three children have remained in the UK and Paul flies to the UK every weekend to visit his family.

Paul is Gibraltar resident by virtue of being in Gibraltar for more than 183 days, but could also be deemed to be UK resident by virtue of satisfying any of the SRTs. For the purpose of this example we shall assume that Paul is also UK resident, and therefore resident in both Gibraltar and the UK.

Paul will be considered resident under the DTA in the territory (Gibraltar or the UK) where:
(a) he has a permanent home available to him. If he has a permanent home available to him in both Gibraltar and the United Kingdom, he shall be deemed to be a resident only in the territory with which his personal and economic relations are closer (centre of vital interests);
(b) if the territory in which he has his centre of vital interests cannot be determined, of if he does not have a permanent home available to him in either territory, he shall be deemed to be resident only in the territory in which he has an habitual abode;
(c) if he has a habitual abode in both territories or in neither of them, the competent authorities of the territories shall settle the question by mutual agreement.

Companies
Article 4 applies to persons other than individuals (which for the purposes of this example shall mean companies) which are resident in both Gibraltar and the United Kingdom. However, how can a company be resident in both Gibraltar and the United Kingdom?

Gibraltar
Under Gibraltar law a company will be considered resident in Gibraltar when:
• it is managed and controlled in Gibraltar; or
• it is managed and controlled outside Gibraltar by persons who are resident of Gibraltar.

United Kingdom
Under English law a company will be considered resident in the UK if:
• it is incorporated in the UK; or
• its central management and control is carried out in the UK.

Example
Paul Garcia is the sole director and shareholder of a UK incorporated company, Garcia Limited (the “UKCo”). Paul manages and controls the UKCo exclusively from Gibraltar. The UKCo will be resident in the UK by virtue of being incorporated in the UK, but could also be deemed to be resident in Gibraltar if the UKCo is managed and controlled from Gibraltar. For the purpose of this example we shall assume that the UKCo is also Gibraltar resident, and therefore resident in both Gibraltar and the UK.

The UKCo’s tax residency shall be determined under the DTA by the competent authorities of Gibraltar and the United Kingdom (the Income Tax Office and HMRC respectively), where they shall endeavour to determine by mutual agreement the territory (Gibraltar or the UK) where the UKCo will be deemed resident, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors.

Permanent establishment (Article 5)
The term “permanent establishment” includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, oil or gas well, a quarry or any other place of extraction of natural resources.

Also, where a person (other than an agent of an independent status) is acting on behalf of an enterprise, that enterprise shall be deemed to have a permanent establishment in that territory in respect of any activities which that person undertakes for the enterprise (subject to certain exemptions).

Example
Paul Garcia is also the sole director and shareholder of a Gibraltar company, Paul Limited (“GibCo”). GibCo is managed and controlled from Gibraltar and is tax resident in Gibraltar. GibCo does some business in the UK so Paul has decided to set up an office in the UK in respect of the UK Business. It is likely that GibCo has created a permanent establishment in the UK. The significance of this shall be highlighted below (within Business profits (Article 7)).

Business Profits (Article 7)
Profits of an enterprise (which includes a company) of a territory shall only be taxable in that territory unless the enterprise carries on business in the other territory through a permanent establishment. If the enterprise carries on business through a permanent establishment, the profits that are attributable to the permanent establishment may be taxed in that other territory.

Example
As set out above, GibCo is managed and controlled from Gibraltar and is tax resident in Gibraltar. Under Gibraltar law, the profits of GibCo would be taxed in Gibraltar. However, on the basis that GibCo has created a permanent establishment (as set out above), the profits attributable to the permanent establishment may also be taxed in the UK. If GibCo would not have created a permanent establishment then, possibly, the profits derived from the UK would not be taxable in the UK and would only be taxable in Gibraltar.

Dividends (Article 10)
Where dividends are paid by a company resident in either Gibraltar or the UK and these dividends are payable towards the beneficial owner resident in the other territory, such dividends will be exempt from withholding tax, unless the following conditions are satisfied, in which case tax is capped at 15%:
• the beneficial owner of the dividends is a pension scheme established in the other territory;
• the dividends are paid out of income or gains derived (directly or indirectly) from immovable property;
• Dividends are paid by an investment vehicle which distributes its income from immovable property (annually).

Example
Paul Smith’s wife, Angela Smith, is a UK resident and is the shareholder of a Gibraltar trading company (“GibCo2”). GibCo2 declares and pays a dividend to Angela.

Currently there is no requirement to deduct withholding tax from dividends under existing Gibraltar law, meaning that dividends would currently be paid gross, regardless of the DTA. However, should Gibraltar impose a withholding tax on dividends in the future the DTA would be advantageous as, under the DTA, no withholding tax would be payable in Gibraltar in respect of dividends paid to Angela, as a UK resident.

Income from employment (Article 14)
Income from salaries, wages and other similar remuneration derived by a resident within a territory in respect of employment shall be taxable only in that territory, unless, the employment is exercised in the other territory. However, employment exercised in the other territory shall be taxable only in the first-mentioned territory if:
i. The recipient is present in the other territory for a period not exceeding 183 days in any 12 months commencing or ending in the fiscal year concerned;
ii. Remuneration is paid by, or on behalf, of an employer not resident of the other territory; or
iii. Remuneration is not borne by a permanent establishment which the employer has in the other territory.

Example
Paul Smith is employed by a UK company and exercises his employment in the UK. However, Paul is required to exercise some employment in Gibraltar. Prior to the DTA, Paul would have been liable to tax in Gibraltar in respect of the employment exercised in Gibraltar and would then need to set off his Gibraltar tax paid against his UK tax liability in respect of the same income. However, under the DTA Paul would no longer be liable to tax in Gibraltar in respect of the employment exercised in Gibraltar, provided that the criteria set out above is satisfied.

 

Contact us
For further information please contact Emma Lejeune emma.lejeune@isolas.gi; Adrian Pilcher adrian.pilcher@isolas.gi; or Stuart Dalmedo stuart.dalmedo@isolas.gi.

Legal Disclaimer
Please note that the information and any commentary on the law or otherwise contained in this article is only intended as a general statement and is provided for information purposes and not for the pur-poses of providing legal advice. No action should be taken in reliance on it without specific legal ad-vice. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequence of relying on it, is assumed by the author and/or ISOLAS LLP.

ISOLAS LLP Maintains Reputation as a Band 1 Leading Law Firm in Gibraltar

 

Following on from last month’s Chambers and Partners Global Band 1 ranking, ISOLAS LLP has further achieved the top ranking within Chambers Europe.

The Chambers Europe Guide ranks lawyers and law firms in 52 jurisdictions across Europe, from Greenland, the UK and Ireland in the West to Russia, Turkey and Ukraine in the East in addition to coverage on a Europe-wide and CEE-wide scale. Chambers and Partners rankings are based on in-depth analysis gathered by an experienced team of researchers.

The individual lawyers who have once again been recognised for their exceptional contributions to the firm include:

Peter Isola, who has maintained his Band 1 ranking, with clients praising his “excellent strategic, commercial advice in relation to complex negotiations.” Isola advises clients on gaming licences and real estate acquisitions. Clients report that he has “a clear mind and is able to cut through to the essential parts and provide advice on the way forward in complex matters.”

Christian Hernandez, who is lauded by clients for his “practical approach that ensures the deal gets done,” also noting that “he leverages his wider commercial prowess to provide a succinct and impressively reliable legal support.”

Joey Garcia, who continues to garner praise from market sources for his FinTech practice. Garcia advises on fintech licensing matters, blockchain mandates and cryptocurrency trading. He also assists clients with acquisitions and establishing new branches in Gibraltar.

Steven Caetano, who is well known for representing clients from the gaming industry. He is particularly active on transactional mandates, representing clients in acquisitions and sales.

Jonathan Garcia, an up-and-coming lawyer who focuses his practice on fintech matters, advising clients on blockchain and bitcoin questions. Garcia also assists clients with private equity and real estate transactions.

Sarah Bray, (now promoted to the partnership) was called an ‘Associate to watch’, and is particularly active on real estate matters and is highlighted for her efficiency.

New to the individual rankings is ‘up and coming’ Christian Caetano, who often assists public sector clients with financial law matters, including anti-money laundering legislation and regulatory issues, and advises international insurance companies on their migration to Gibraltar.

Within the Dispute Resolution sector, this year’s ranked lawyers include:

Mark Isola QC, representing clients in employment law disputes, including allegations of workplace bullying. He also has experience in non-contentious real estate matters and corporate transactions.

Samantha Grimes, with a strong focus on employment law disputes, advising both public and private sector clients on unfair dismissals and discrimination claims.

Also showing clear progression is James Montado, who has advanced from ‘up and coming’ to ‘Band 2’ in the field of Dispute Resolution. James is described as “a very thorough lawyer who provides top advice to clients and follows up with calls to ensure that it is well received and understood.” Montado also acts for clients on trust disputes.

These positive results follow ISOLAS success in the Chambers and Partners’ Fintech and HNW towards the end of 2020.

ISOLAS LLP’s dedicated FinTech department was ranked Band 1, with Partners Joey Garcia and Jonathan Garcia achieving Band 1 and Band 2 respectively, and Senior Associate Karan Aswani an ‘Associate to watch’.

Similarly, in the 2020 Chambers and Partners High Net Worth Guide, ISOLAS once again received the top ranking with Band 1 practitioner status for Senior Partner Peter Isola.

Marcus Killick OBE, CEO at ISOLAS commented: “I am delighted to see the firm solidify its position as a Band 1 leading law firm in Gibraltar. Just one month after also being awarded the top ranking by Chambers Global, this year’s Chamber’s Europe ranking has once again put ISOLAS LLP ahead of the curve.

“I would like to congratulate our lawyers for their enthusiasm and diligence in maintaining the firm’s position at the top of the board, and indeed our whole team for not only keeping business running as usual in the face of a pandemic, but for maintaining the gold standard of service that our clients are used to.”

View the full Chambers and Partners Europe Guide by clicking here.

Spain-UK Tax Agreement Regarding Gibraltar Has Been Ratified

On Saturday 13th March 2021, the Governments and Parliaments of the Kingdom of Spain and the United Kingdom have now taken all steps necessary to ratify the entry into force of the International Agreement on taxation and the protection of financial interests between the United Kingdom and Spain regarding Gibraltar (the “Treaty”). The Treaty entered into force on 4th March 2021 and was published in Spain’s Official State Bulletin on 13th March 2021.

 

Although the treaty came into effect on 4 March 2021, as per the text of the Treaty, Article 2 (Tax residency rules for individuals and legal persons) shall take effect for taxable periods commencing on or after the date of entry into force of the Treaty. Gibraltar’s tax year runs from 1 July to 30 June and Spain’s tax year runs from 1 January to 31 December. For Gibraltar, the rules relating to individuals and legal persons would come into effect as from 1 July 2021. For Spain, the same rules would come into effect as from 1 January 2022.

 

The automatic exchange of information on workers registered with the Gibraltar Income Tax Office as residents in Spain, and vessels, aircraft and motor vehicles registered in Gibraltar relating to tax residents in Spain, and vice versa, will be retrospective, commencing on or after 1 January 2014. In respect of any other exchange of information, the taxable periods will commence on or after 1 January 2011 for all charges to tax arising on or after 1 January 2011.

 

For further information please contact Emma Lejeune emma.lejeune@isolas.gi; Adrian Pilcher adrian.pilcher@isolas.gi; or Stuart Dalmedo stuart.dalmedo@isolas.gi.

Spain-UK Tax Agreement Regarding Gibraltar Becomes Law

On Friday 26th February 2021 H.M. Government of Gibraltar published various notices in the Gazette in relation to the International Agreement on taxation and the protection of financial interests between the United Kingdom and Spain regarding Gibraltar (the “Treaty”).

 

Pursuant to section 3A(2) of the Income Tax Act 2010 (the “Act”) (which requires the Minster, by notice in the Gazette, to publish the texts of International Tax Agreements), the Income Tax Act 2010 International Agreement (Spain) Notice 2021 was published which replicates the text of the Treaty. The Income Tax Act 2010 Notice of Amendment of Schedule 12 (Spain) was also published to amend Schedule 12 of the Act (which lists all of Gibraltar’s International Tax Agreements) to include the Treaty. Gibraltar now has two International Tax Agreements– with the United Kingdom and Spain.

 

The Treaty aims to clarify the tax position of individuals and entities resident for tax purposes in both Gibraltar and Spain, and subsequently help to regulate relations between the two jurisdictions. Under the Treaty, individuals will continue to be tax resident in Spain or Gibraltar in accordance with their domestic law. However, those with dual residency are not exempt from tax residence in Spain if certain criteria are met. For more information on this visit: https://www.gibraltarlawyers.com/uploads/PDF/ISOLAS_Tax_Agreement.pdf 

 

Although the text of the Treaty has been replicated into the Act, the Treaty itself shall only enter into force once both parties have given notice that they have completed their respective internal respective ratification procedures, and shall take effect under the provisions of Article 2 for taxable periods commencing on or after the date of entry into force of the Treaty.

 

The automatic exchange of information on workers registered with the Gibraltar Income Tax Office as residents in Spain, and vessels, aircraft and motor vehicles registered in Gibraltar relating to tax residents in Spain, and vice versa, will be retrospective, commencing on or after 1 January 2014.

 

In respect of any other exchange of information not mentioned above, the taxable periods will commence on or after 1 January 2011 or where there are no taxable periods, for all charges to tax arising on or after 1 January 2011.

 

In addition to the above, the International Agreements on Taxation Matters (Spain) Regulations 2021 (the “Regulations”) were also published, which came into effect on the date of publication. The Regulations have effect for and are in connection with the implementation of the Treaty and, in particular, to enable the Commissioner of Income Tax to provide the Spanish tax authorities with relevant information, as set out in the Treaty.

 

The Regulations also gives effect to Article 3(2) of the Treaty by making provision equivalent to –

 

(a) Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation (“DAC 3”); and

 

(b) Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (“DAC 6”).

 

DAC 3 provides for the mandatory automatic exchange of information on advance cross-border tax rulings and advance pricing arrangements.

 

DAC 6 introduces mandatory disclosure rules for intermediaries (and in some cases taxpayers) in respect of cross-border arrangements that exhibit certain “hallmarks”.

 

DAC 6 had previously been replaced with the European Union Mandatory Disclosure Regime (“MDR”) under Gibraltar law, but has now been re-introduced (although only in relation to arrangements between Gibraltar and Spain).

 

For further information please contact Emma Lejeune emma.lejeune@isolas.gi; Adrian Pilcher adrian.pilcher@isolas.gi; or Stuart Dalmedo stuart.dalmedo@isolas.gi.

 

Legal Disclaimer

Please note that the information and any commentary on the law or otherwise contained in this article is only intended as a general statement and is provided for information purposes and not for the purposes of providing legal advice. No action should be taken in reliance on it without specific legal advice. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequence of relying on it, is assumed by the author and/or ISOLAS LLP.

ISOLAS LLP Retains Chambers & Partners Global Top Ranking

Chambers & Partners, the globally recognised legal directory, has today published their 2021 Chambers Global Guide. ISOLAS LLP has once again retained their ‘Band 1’ leading law firm ranking, further strengthening their world-class reputation.

Often referred to as ‘the gold-standard’, Chambers delivers insight and analysis on the global legal profession that is unrivalled in its reach and depth. The Guide ranks the leading lawyers and law firms in over 200 jurisdictions worldwide, across a spectrum of categories, spanning client service, commercial vision and business understanding, diligence, value for money and the depth of the team.

Individual lawyers are ranked in their practice area(s) based on their legal knowledge and experience, their ability, their effectiveness and their client service.

Noted for his work across financial services, corporate and trust law, Senior Partner Peter Isola is once more ranked as ‘Band 1’. Partners Mark Isola QC, Christian Hernandez, Samantha Grimes, Joey Garcia, and Steven Caetano have also maintained their high standard with a ‘Band 2’ ranking, with Partner Jonathan Garcia identified as ‘Up and Coming’. In addition to his general business law ranking, Christian Hernandez retains his ‘Spotlight Ranking’ in shipping law.

New to the rankings, Partner, Christian Caetano is recognised as ‘Up and Coming’ in General Business Law. Christian specialises in Insurance & Financial Services where, in addition to regulatory matters, he is regularly instructed on mergers and acquisitions of regulated entities. He is also frequently instructed on legislative drafting and advisory work.

Partner James Montado, previously identified as ‘Up and Coming’ in Dispute Resolution is now recognised as ‘Band 2’. James is described as “very thorough lawyer who provides top advice to clients.” He frequently advises on insolvency disputes, as well as other contentious matters in the financial sector.

Described by Chambers and Partners as an “outstanding full-service firm”, ISOLAS has once again demonstrated their commitment to maintaining a high standard of business as they consistently achieve the top ranking, year on year.

Marcus Killick, CEO of the firm, commented: “I am delighted that ISOLAS LLP has once again achieved the Chambers and Partners top ranking, cementing its standard as a leading law firm. This has been achieved thanks in no small part to the diligent work ethic of the entire ISOLAS team. The team has successfully continued to assist new and existing clients throughout the pandemic with no loss of service.  I would like to congratulate our lawyers on their continued success, in particular Christian Caetano and James Montado in the well-deserved enhancement of their previous rankings, and thank our loyal clients, whose testimonials are a credit to the firm.”

View ISOLAS LLP’s Global Rankings here.