Tax Newsletter - April 2019 | Miscellaneous

Approval of an international agreement on taxation and the protection of financial interests with the United Kingdom regarding Gibraltar

The Spanish cabinet has approved an international agreement on tax and the protection of financial interests between Spain and the United Kingdom, signed “ad referendum” in Madrid and London on March 4, 2018.

The agreement sets out:

• Criteria for resolving disputes over residence for tax purposes of individuals in favor of residence in Spain, linked to presence and the place where the center of vital and economic interests is located. Where these criteria cannot be applied, tax residence in Spain is presumed, unless the taxpayer provides proof of residence in Gibraltar.
• Special rules on residence for Spanish nationals. Among other rules, a four-year "tax quarantine" has been included in which any non-Spanish nationals tax resident in Spain who change their residence to Gibraltar will not lose their tax residence in Spain.
• Residence criteria for legal entities. Residence in Spain will be presumed for companies and other types of Gibraltarian entities that have a significant relationship with Spain, in other words, where (i) the majority of the entity’s assets are located in Spain, or (ii) the majority of their income is obtained in Spain, or (iii) the majority of their owners reside in Spain or, lastly, (iv) the individuals managing them are tax resident in Spain (all of the above with a few exceptions).
• A special arrangement for administrative cooperation which will ensure bilateral use of the highest international standards existing from time to time, and the exchange of information on certain individuals, entities or assets, particularly relevant for combatting fraud in the area: cross-border workers, vehicles, vessels, beneficial ownership of all types of companies and other entities, persons related to trusts linked to Spain, among others.

  That exchange of information applies retroactively from January 1, 2014 for automatic exchanges, and from January 1, 2011 for other types of exchange of information.

The VAT Committee approves guidelines in relation to certain elements of Brexit

At a meeting held on March 12, the Commission’s VAT Committee “almost unanimously” agreed on certain criteria for interpreting the application of VAT legislation when the United Kingdom’s withdrawal from the EU takes place.

Most notably the following:

1. Any supplies of goods to an EU member state that take place before Brexit but the goods arrive in the EU after Brexit (in other words, where the VAT on the import is charged when the goods enter the EU) cannot be declared as intra-Community acquisitions.
2. The return to the EU after Brexit has taken place of goods sent to the United Kingdom before Brexit can benefit from the reimportation arrangement (which means these transactions are exempt from VAT). For these purposes it must be evidenced by the person making the reimportation that the relevant legal requirements are met, and in particular, that the goods are returned to the EU in an unaltered state except normal depreciation due to the use made of them.
3. The rules on VAT refunds to operators not established in a member state but established in the EU will cease to apply to those established in the United Kingdom when Brexit takes place. From that time, the rules in the 13th Directive (article 119 bis of the Spanish law) will apply.

   Although taxable persons will not be able to send applications electronically on the portals set up by the national tax authorities, any VAT charged before Brexit must be refunded under the rules applicable to operators established in the EU (regarding time limits, restrictions, etc.).

   Any VAT charged after Brexit will be subject to the rules for operators not established in the EU, which means they may be subject to additional conditions such as the existence of reciprocity or the appointment of a tax representative.