Are Jersey, Guernsey and the Isle of Man double taxation agreements (“DTA”) indicative of the Gibraltar DTA?
The intention to conclude a DTA between the UK and Gibraltar (“Gibraltar DTA”) within months has been announced. There is no hint of what the Gibraltar DTA will contain, beyond general statements about the benefits of such an agreement. Indications of what will likely be covered in the Gibraltar DTA can be gleaned, however, from the DTAs concluded by the UK with each of Jersey, Guernsey and the Isle of Man (together “Dependencies”), whose terms are fundamentally identical.
These DTAs were concluded with each of the Dependencies as recently as the 2nd July 2018 (“Dependencies DTAs”). The Guernsey and Isle of Man DTAs entered into force on the 19th December 2018, and that for Jersey on the 7th January 2020.
The Dependencies DTAs in large measure comply with international tax standards, following generally the OECD’s Model Tax Convention, and contain several measures taken from the Base Erosion and Profit Shifting (BEPs) provisions. In this aspect Gibraltar has some provisions that are already compliant, so we might expect the Gibraltar DTA will exclude that which is already applicable to Gibraltar.
The terms included in the Gibraltar DTA will need to be seen and studied as and when it is published, but it seems unlikely the Gibraltar DTA will differ too greatly from the Dependencies DTAs, when read together with OECD compliant provisions and BEPs that already exist in Gibraltar.
All the Dependencies DTAs contain provisions dealing with the following:
- Persons and taxes covered, income tax in the Dependencies and income tax, corporation tax and capital gains tax in the UK;
- Provisions to determine the residence of individuals and companies with arrangements to resolve conflicts;
- A wide definition of ‘permanent establishment’, that includes a place of management, a branch, an office, a factory, a workshop and a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
- Place of taxation of income from immovable property, being essentially where the immovable is located with a list of specific exclusions following;
- Place of taxation of business profits, especially where an enterprise carries on business in one territory and has a ‘permanent establishment’ in the other territory, with provisions to prevent double taxation;
- Taxation of enterprises concerned in the operation of ships or aircraft in international traffic;
- Taxation of associated enterprises, being those in one territory that have an element of direct or indirect participation in the management, control or capital of an enterprise of the other territory, or have the same persons participating in the management, control or capital of an enterprise of the other territory;
- Taxation of dividends paid by a company resident in one territory to a resident of another territory;
- Taxation of interest as between one territory and the other territory, with specified withholding tax reliefs;
- Taxation of royalties arising in one territory and beneficially owned by a resident of the other territory, with specified withholding tax reliefs;
- Taxation of capital gains derived by a resident of one territory from immovable property situate in the other territory, with some reliefs available on profits from the sale of shares of property companies traded on recognised stock exchanges that come within a tax charge in the UK as from April 2020;
- Taxation of income from employment to be taxed in the place of employment, unless the employment is exercised in the other territory save if it is the income of artistes and sportsmen in which case it will be taxed in the place where the personal activity has been exercised;
- Directors fees to be taxed in place of residence of the director if derived from a company resident in the other territory;
- Pensions, subject to specified withholding tax reliefs, will be taxed by the territory if residence, save special provisions are made for pensions arising from government service;
- Students and business apprentices receiving moneys from sources outside the territory where studies are undertaken are exempted from paying tax in the territory, subject to not having been resident prior to commencement of studies;
- All other income not covered by the relevant DTA is taxed in the territory in which it arises;
- Activities connected with exploration or exploitation of the seabed and subsoil and their natural resources carried on offshore in a territory are taxable in that territory;
- Provisions to eliminate double taxation;
- Removing the ability to obtain a benefit under the DTA artificially;
- Avoiding any discriminatory application of the DTA by one territory treating a legal person, partnership or association differently from the status derived in the other territory;
- Allowing disputes to be referred for resolution to the competent authority of either territory within 3 years that also outlines other procedural matters;
- Exchange of relevant information, some of which may already be covered, in the case of Gibraltar, by its Tax Information Exchange Agreement with the UK but effect may be given to changes made by an exchange of letters dated 21st November 2013, concerning automatic and spontaneous exchange of information, which are not yet in force;
- Undertakings for both territories to assist in the collection of taxes of the other;
All the above indicate what will likely be covered in the Gibraltar DTA on similar terms, subject to reading them together with the OECD compliant provisions and BEPs currently existing in Gibraltar. The probability is that there will be, with minor changes to cover any rare specifics that may apply to Gibraltar only, albeit that none are obvious.