Chairman: Milton Grundy
Gibraltar now has a tax treaty with Spain. It has a strong and diversified economy. Motor insurance and private client business are important. It has always had an open attitude to import of overseas expertise. The basis of taxation is territoriality. There is no VAT or stamp duty. There is a 10% tax on interest and royalties. There are special regimes for retirees and high-paid executives. Companies pay 10% on local income. Resident trusts are taxed at 10%. Non-resident trusts – with no beneficiaries in Gibraltar – are not taxed. There is a regime for experienced investor funds. A register of trust beneficiaries was established in 2017. It applies only to resident trusts and is not open to the public. Sector 40 of the Income Tax Act prohibits avoidance, and the EU Anti-tax Avoidance Directive is implemented in Gibraltar.
Business based in Gibraltar with tax advantages include ship chartering, providing consultancy services, trading in securities on external exchanges, crypto-currency funds, E-money, social trading platforms and a human resources hubs. Gibraltar will continue to have access to the UK market after Brexit.
Non-EU nationals require a permit to reside in Spain. Dual nationality is forbidden. There is a “golden visa” available for investment of over €500,000. A contingently law regulates position of UK nationals residing in Spain after Brexit, but many aspects are unclear. UK nationals will be treated like other non-EU nationals.
There are rules for determining residence of individuals. Ownership of foreigner properties by Spanish companies is no longer advantageous. There is an imported rental income regime. Individuals moving to Spain experience tax traps relating to inheritance and gift taxes. The Golden Visa allows investors to stay fiscally resident Spain.
Trump came to office with a programme for tax reforms – reducing and simplify in radical ways. The TCJA of 2017 aimed to reduce individual and corporate rates, to adopt partial territoriality, to prevent use of offshore jurisdictions, to keep operations in the US and increase the gift tax and estate tax threshold. Deduction of state taxes is no longer allowed. The corporate tax rate was reduced from 35% to 21%. A transition tax encouraged corporations to repatriate overseas profits. There are benefits for small enterprises and real estate developers. The use of low tax jurisdictions is penalised by GILTI. The rules relating to attribution of income of foreign companies were tightened. Life insurance offers opportunities to mitigate estate tax exposure.
The discretionary trust is perhaps too tax-efficient for its own good. The discretionary principle is not confined to trusts. Now that there is a widespread belief that people associated with trusts are avoiding tax, can other discretionary vehicles be used instead? There is an example in a commercial contract and examples in relation to partnerships, onshore and offshore.
The speaker’s second favourite example is the discretionary with trust, and his favourite example the discretionary life insurance policy.
There is a lot of variations between the Cantons, but the country as a whole is competitive, confidential – lacking any public registers, conservative and complex. Its tax characteristics are certainly, a business-minded approach and inter-cantonal competitiveness. Switzerland is an alternative location, but not a tax haven. Permits are required for residence and there is a limited number of them except for EU citizens. Tax residence is determined by a day count. A requirement for citizenship is the ability to speak one of the national languages.
Some Cantons are more highly taxed than others. Capital gains on moveable property are not taxed. There is a privileged tax rate on dividends, Swiss and foreign. Individuals are entitled to deduct interest. However, Switzerland has wealth tax, again varying from one Canton to another. The tax on gains from Swiss real estate decreases with the holding period, with deferral for re-investment. There is a lump sum tax option in almost all Cantons for non-working individuals; rulings are available. The lump sum regime provides no relief from inheritance tax. Foreign nationals have choice of law applicable to inheritance. Gift and succession taxes are levied at a Cantonal level only.
Switzerland recognises foreign trusts. Legislation for Swiss trusts is under consideration. Tax is not levied on trusts or trustees, but on beneficiaries or settlors. A pre-immigration trust avoids taxation on the settlor.
The expected tax reforms have not materialised. There appears to be no majority for widespread reform, but some changes have been enacted. Income tax deduction at source has been introduced, applicable to salaries and rent and paid by direct debit. There is a flat rate of 30% on investment income, but the taxpayers can opt for the normal rates. There is an incentive for direct investment. Corporation tax is being much reduced. The scope of wealth tax has been restricted to real properties, but its abolition would meet political opposition. Loans are deductible in valuing property, but there are provisions preventing the use of loans to reduce values.
Art 30 of the 4th AML Directive introduced company registers and Art 31 trust registers. The 5th AML Directive provided for the company register to be available to the public, and for the trust register to be open only to persons with legitimate interest. They have been enacted in France, Austria, Malta and the Czech Republic, and are in progress in Italy and Cyprus – and also in Luxembourg (for companies only) which gives rise to a number of interpretation issues.
The Road is a development strategy by the Chinese government. There is a land route and a seaborne route. They are part of the trade “war” between China and the US. China has a wide network of tax treaties. The Chinese government and financial institutions are giving strong support to Chinese enterprises going overseas.
This is an increasing focus of the international community. Its history begins with the 1998 OECD publication and the measures of the EU Code of Conduct Group on harmful tax practices, initially targeting preferential regimes, and extended very recently to low and zero tax jurisdictions. Criteria for adequate substance developed by the EU and OECD have used a blacklisting to punish insufficient progress in introducing a substance requirement. The activities generating the income need to take place in the low-tax jurisdiction in order to meet the substance requirement. The jurisdiction has to have monitoring machinery. A pure equity-holding company does not require significant substance, but there can be a principal purpose test or denial of treaty relief for abuse. Another area of challenge is in relation to the holding of IP in a zero or nominal tax jurisdiction. The core research, development and marketing must take place in the country, to shelter the income derived from such activities. The element of income derived from strategic decision-making might be capable of being sheltered, providing those decision-makers reside permanently in the jurisdiction – but there is a rebuttable presumption against sheltering where the entity deals only with related parties. The UK has introduced a diverted profits tax. Its effect has been to increase corporation tax revenue by “encouraging” multinationals to take less robust transfer pricing provisions. It is believed that there are thousands of companies which are not complying. Under the “Profit Division Compliance Facility”, they have the opportunity to come forward and clear things up on a cooperative basis, or otherwise face an invasive investigation. The DAC requires reporting of “cross-border arrangements”, which include certain “hallmarks” indicating tax avoidance.
Misbehaviour appears to be a recurring feature of the international tax world. There are investigation into payments made by Nike to companies lacking substance. There are rulings found to be not specific and not in accordance with the tax regime as a whole. There have been customs investigations in the UK, alleging that the UK allowed China to make use of the country as an entrance to the EU. The grey lists and black lists are ways of disciplining non-compliant states. There is a general anti-avoidance policy in the EU, encompassing ATAD. The effect of the Withdrawal Act is to make UK law EU law. The Commission wants unanimity in tax matters.