The purpose of double taxation treaties is to prevent the same transaction, the same income and the same capital from being taxed twice because of differences in national rules.
In the event of double taxation, a single taxpayer may be subject to comparable taxes in two countries on the same item during the same period.
This definition is therefore based on a fourfold identity, which must be established with regard to the taxpayer, the object of the tax, the tax period and the tax itself. The taxpayer then bears a burden which would be greater than that which would result from the intervention, under conditions of ordinary law, of a single tax authority.
Art.2 (1) (a) of the Agreement sets out the principle that the domestic law of Spain or of Gibraltar must be applied in the first instance in order to assess whether or not it is necessary to resort to the provisions of the Agreement in the second instance.
Implementation of the Agreement will then be subject to the taxpayer proving that he is taxed in another country as a resident of that other country.
Activation of the Agreement will therefore depend on the outcome of the application of the residence/residency conflict, with both Spain and Gibraltar claiming to tax the same taxpayer on an unlimited basis.
Such a conflict may thus arise from different reasons for connecting residence, so that the same taxpayer may be considered resident in Gibraltar and in Spain by each of the two legal systems, and therefore subject to tax in this dual capacity.
In such a case of conflict, the contracting parties to the Agreement have favoured the most effective connecting link, as the objective is that, ultimately, the tax should be levied by the country or territory which seems most legitimate to do so.
Art. 2 (b) (i) determines the tax residence in Spain of individuals on the basis of the following criteriae:
- The habitual residence - Art. 2(1) (b) A
This is an alternative criteria, if there is no permanent home, or if the criteria of economic and vital interests is inaccessible.
This criteria is based on a purely material approach, based solely on the length of the stay, i.e. 183 days, which will give priority to Spain as the country of residence, the place in which the taxpayer will have spent the greatest number of days.
There remains, however, the case of multiple stays in more than two countries. In this case, the number of days spent in a third country will be added to the greater number of days spent either in Gibraltar or in Spain to determine the place of habitual residence.
- The criteria of family interests - Art. 2(1) (b) B
The criteria of recognition of the permanent residence or habitual residence of the taxpayer's spouse or their ascending or descending family on Spanish territory applies.
- The criteria of permanent residence - Art. 2(1) (b) C
The criteria is that of the home, which must be permanent. Permanence is essential here, the form of the dwelling does not matter. It may be a house or flat owned or rented by the person concerned, a furnished room rented out, or a dwelling provided free of charge. On the other hand, a stay in a hotel, even for a long period, is not in principle considered to be a stay in a permanent home.
The permanent nature of the dwelling is essential, which means that the person concerned takes the necessary steps to have the dwelling available to him at all times, on a permanent basis.
The occasional use of a dwelling for a pleasure trip, a business trip or a study trip, for example, does not satisfy this durability condition.
This habitual residence remains the taxpayer's home even if, due to the requirements of his profession, he is obliged to stay elsewhere temporarily or for most of the year, as long as the family normally continues to live there and all its members can be found there.
- The criteria of the centre of economic interests - Art. 2 (1) (b) D
The centre of economic interests corresponds to the place where the taxpayer has made his main investments, where he owns directly or indirectly two thirds of all his assets (net assets), determined according to the law applied in Spain and held directly or indirectly.
The Agreement provides that under art. 2 (1) (b) (iii) the taxpayer will be presumed to be resident in Spain for tax purposes if the result of the application of none of the above criteria is conclusive.
The presumption of Spanish residence can then only be rebutted if the taxpayer demonstrates that two cumulative criteria are met in Gibraltar, namely the criteria of habitual stay of at least 183 days spent in Gibraltar AND the criteria of permanent residence in Gibraltar.
If the taxpayer has a permanent home in both Spain and Gibraltar, he will be considered resident in the territory where he has the centre of his vital interests, i.e. the territory with which his personal and economic ties are closest. This will take into account the family and social relationships of the person concerned, his or her occupations, social, cultural or other activities, the place where his business is based, the place where he administers his assets, the distribution of his assets, both immovable and movable, and so on.
These circumstances will be examined as a whole, but the taxpayer's personal behaviour will be crucial.
Finally, under one of the special rules set out in the Agreement, non-Spanish nationals who have spent at least one full tax year in Spain will retain their tax residence in Spain for the year of the change of residence and for the following four years.
In the context of the application of the Agreement and more generally in the context of inter-country exchanges of information, the Gibraltar Income Tax Office will provide the Spanish tax authorities with the following non-exhaustive list of information:
- Direct and free access to the registers of the Registrar of Companies in Gibraltar and the Gibraltar Land Registry;
- Direct access to public information or, on request, to the Gibraltar Commissioner of Income Tax, on companies, legal entities, partnerships and foundations, concerning beneficial owners;
- Direct access to information publicly available or available to the Gibraltar Commissioner of Income Tax on the settlors, trustees, beneficiaries and assets of all types of trusts and other legal structures or arrangements established or administered in Gibraltar, or governed by its laws, where the settlors, trustees, protectors or beneficiaries are resident for tax purposes in Spain or the assets held by all types of trusts are located in Spain.
The information and comments on the law contained in this article are provided for information purposes only and not as legal advice. No legal action should be taken on the basis of this information without specific legal advice.
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