Gibraltar Location

5.18 Anti-Avoidance

General anti-avoidance provision

Section 40 of the Income Tax Act 2010 empowers the Commissioner of Income Tax to disregard part or all of any arrangements that are deemed to be artificial and/or fictitious and whose purpose is to reduce or eliminate tax payable in Gibraltar.

Notifiable arrangements and proposals

Section 41 of the act includes a requirement for promoters of a scheme to disclose to the Commissioner any “notifiable arrangement” or “notifiable proposal.”

The act defines a notifiable arrangement as being any arrangement or arrangements that:

Guidance notes produced by the ITO state that, “For the purposes of the Act, a notifiable arrangement will not include advice provided in respect of specific allowances, deductions and/or exemptions.”

A “promoter” is either a bank, a person providing taxation services or a person involved in the provision of financial products capable of reducing tax, that is, to any extent, responsible for:

Disclosure of a notifiable arrangement or proposal must be made within 30 days from the earlier of:

If the promoter is not a Gibraltar resident or when there is no promoter, the taxpayer is responsible for the disclosure of the arrangement or proposal to the Commissioner.

There are detailed procedures for seeking clearance in advance of any notifiable arrangements, setting out a timetable for the Commissioner to either:

Where such an application is made, the Commissioner may publish a description of the arrangement and their decision in such a way that the taxpayer concerned will remain anonymous.

Thin capitalization rules

These rules apply to interest payable by a company to individuals or trusts that are connected parties, and to interest payable by a company where the loan is secured on assets belonging to individuals or trusts that are connected persons. Interest paid by the company may be treated as a dividend and not as a deductible expense, if the loan capital to equity ratio of the company is greater than 5 to 1. This does not apply to credit institutions or deposit takers licensed under the Banking Act.

Transactions with connected persons

In certain circumstances, the deduction for expenses incurred in relation to a transaction with a connected person or connected persons may be restricted by the Commissioner to the lowest of:

Interest paid to a connected person in excess of the amount that would have been charged on an arm’s-length basis is deemed to be a dividend, and not a deductible expense.

Back-to-back loans

Interest expense is not deductible in cases where:

Parent-subsidiary directive

Anti-avoidance provisions in respect of recent amendments to the Parent-subsidiary directive have been included in the Income Tax Act 2010.

Dual employment contracts

When an employee of an ordinarily resident employer in Gibraltar has contracts with that employer or with a party connected to that employer, then the employee’s income from all of the employers or the connected person is taxable in Gibraltar.

Note: To know about the exemption for occasional presence in Gibraltar and double tax relief, please refer to (Sections 5.10.2 and 5.3.14, respectively.

Transfer of assets abroad

There are rules to prevent avoidance of tax by transferring assets abroad.