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Spain To Challenge Gibraltar's Sovereignty, Tax System

by Ulrika Lomas,, Brussels

09 May 2017

Spain could seek to use the upcoming negotiations on the United Kingdom's withdrawal from the European Union to strengthen its influence over Gibraltar and its low-tax regime.

A report by Spain's Minister for the European Union, which has been leaked to Spanish daily El Pais, suggests that Spain could veto any Brexit agreement if its demands for joint sovereignty aren't met.

Gibraltar is an Overseas Territory of the UK but has a large degree of autonomy over its domestic affairs including on taxation, with corporate tax currently set at 10 percent for most companies. Gibraltar entered the EU along with the UK in 1973, but remains outside of the EU's VAT, Common Agricultural Policy, or common external tariff regimes.

Having transposed EU financial legislation, ongoing EU membership and a low-tax regime is seen as vital to the survival of Gibraltar's finance center. However, Spain frequently refers to Gibraltar as a tax haven, and Madrid has long pressed its territorial claim over the jurisdiction - an issue which at various points has marred Spain's relationship with the UK.

According to the document seen by El Pais, the Spanish Government views the Gibraltar situation "as a condition that Spain had to accept" at the time of its entry into the EU in 1986. However, in that time, Gibraltar has gained a position of "unjustified privilege," it reportedly says.

The document is said to go on to state that Gibraltar "has developed its own extremely permissive regime where tax, customs, and the establishment of companies are concerned, which in practice has converted it into a tax haven."

"Spain can not accept that the EU negotiate with the United Kingdom a relationship that [is] not compatible with the Spanish position on territorial claim, which does not respect Spanish interests," the document reportedly says.

However, the Gibraltar Government has repeatedly said that its sovereignty is not up for negotiation, and shortly before last year's UK referendum on EU membership, Chief Minister Fabian Picardo remarked that Gibraltar would "never consider" joint sovereignty as a price for access to the Single Market.

"There is no hope ever for Spain to achieve any advances on our sovereignty," he said, noting the result of a 2002 referendum in which over 98 percent of voters rejected a joint sovereignty proposal.

TAGS: tax | value added tax (VAT) | Gibraltar | interest | United Kingdom | legislation | Spain | Europe

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