Spain and the United Kingdom have had a Double Taxation Treaty since 1975 which was amended in 1993. However, there was a more recent need for modernising its provisions due to the current economic and commercial relationships between Spain and the United Kingdom (UK) and a new treaty is coming into force on 12 June 2014.  It was signed in March 2013 with a view to avoiding double taxation in relation to taxes on income and on capital, and for the purposes of preventing tax evasion and assisting international tax enforcement.

The treaty will be relevant in particular to individuals and companies who may be a tax resident in one country but their income comes from another. It will also be relevant to individuals who may be considered a tax resident in both countries because both Spain and UK have different rules to ascertain tax residency. If you would like to avoid the tax authorities of both countries to come after you, you should establish where you or your company are liable for taxes.

Finding out which country you or your company are a tax resident may be straightforward in many situations (i.e. domicile, residence, place of management, place of incorporation or similar criteria). However, in relation to individuals, it could turn out to be a complicated issue. If you are one of those individuals who may be expected to pay taxes under the domestic laws of both countries, the new treaty includes some guidelines. In the first instance, it will be necessary to consider where your permanent home is. If you have one in both countries, then you need to consider which country your personal finances are more closely linked to. If this cannot be determined, you need to consider which country you will spend more time in. If by any chance, this is in both or neither of them, then you will be a tax resident in your country of nationality. These provisions are in line with the old treaty. However there have been situations in which individuals had double nationality and therefore an issue arose between the tax authorities in both countries. The new treaty has, in theory, solved this problem by incorporating a new mutual agreement procedure when there is a conflict.

Some of the new treaty provisions can be summarised as follows:

-       Interest and royalties will be taxed in the country where the beneficiary who owns them is a tax resident, unless the beneficiary carries on business in the country in which the interest or royalty arises through a permanent establishment and the interest of royalty is connected with that establishment.

-       The interests and royalties withholding tax rates (also called retention tax rates) have been reduced from 12% and 10% to 0%. Also, the dividends withholding tax rate has been reduced from 15% to 10% in general. For qualifying companies and when the beneficiary is a pension scheme in the other country they have been reduced from 10% to 0%.

-       Another innovation of the treaty is that it has new rules for the application of the treaty when an item of income, profit or gain is obtained by a partnership, trust, and group of persons or other similar entity.

-       Trusts are not recognised in general terms from a Spanish point of view. However, the new treaty has now introduced “trust” in the definition of “person”. It states that the term “person” includes an individual, a trust, a company, and any other body of persons. The treaty also states that “trust” means a trust which is a resident of the UK under its domestic law. The residents of Spain who are beneficiaries of a UK trust will now be taxed in Spain on the gross amount of income they receive or are entitled to receive from the trust.

-       The new treaty also contains an anti-abuse clause in order to evaluate if there is a legitimate right to use the benefits of the treaty. There will not be relief under the treaty if the main purpose or one of the main purposes of, for example creating a right in respect of which income arises, was to take advantage of the treaty. It is essential for companies to be extremely careful about their strategies to avoid unnecessary discussions with the tax authorities or additional costs as a consequence of improper use of the treaty.

-       Regarding capital gains, the old treaty stated that capital gains derived from the transfer of shares would be taxed in the country of residence of the seller. Therefore if you were a UK tax resident you would not be taxed in Spain. The new treaty however shifts the taxation to the country where the property is located when more than 50% of the value of the company is based in real estate. This will be significant for some companies selling their property in Spain.

-        There have been some changes in respect of the income from a share or right of enjoyment. The new treaty states that the income from the direct use, letting or use in any form, of such right to enjoyment, may be taxed in the country where the property is situated. However, this income will not be attributable to the owners of rights to the enjoyment of such property on a time-sharing agreement, when such enjoyment does not exceed two weeks per year (the old treaty provided for four weeks).

Some practical notes may be helpful:

-       If you are a tax resident in UK and you own a property in Spain and decide to rent it out, you should declare the income before the HMRC in the UK. But you are also liable to pay the Spanish tax as a non resident in Spain. It would be unfair if you had to pay twice. Therefore in situations like these, you should declare in Spain and then in the UK where you can deduct the tax paid in Spain. Unfortunately, if the UK tax rate for that type of income is higher, you will end up paying an excess.

-       In respect of pensions, if you are currently living in Spain and are tax resident there, your UK state pension will probably be paid gross and you will need to declare this before the Spanish tax authority paying the appropriate taxes. However, if you get a UK government pension, the new treaty establishes that it will only be taxed in the country of origin (in the UK), regardless as to where you are tax resident.

Apart from the treaty provisions stated above, we cannot ignore the fact that one of the main purpose of these treaties is to prevent tax fraud.  With this purpose and to facilitate the administration of statutory provisions against tax avoidance, the new treaty establishes a procedure for exchange of information between both countries. So, be informed, be warned!

The new double taxation treaty between Spain and United Kingdom is now in force.

By Carmen Calvo-Couto

Thanks to the 2014 Budget, we can now save money when we drink beer, play bingo and we can even invest these savings (or at least up to £15,000) on a new cash ISA.  But this is not all – hopefully we will be able to have cheaper holidays to long-haul destinations soon. The Chancellor has reduced the air passenger duty we will be paying from April 2015.

Air passenger duty was introduced in 1994 and since then, it has increased significantly. It started as a flat rate of £5 for domestic and European Union destinations and £10 for flights everywhere else. In 2009, four bands of air passenger rates were introduced, depending on the distance from the city of London to the capital city of the country of destination. Different rates will also apply subject to the class of travel you choose – the lowest rate being for economy seats, the standard rates for a business/first class seat and the highest rate would apply, for example, if you decide to fly on a private jet with capacity of fewer than 19 passengers. Children under the age of two are exempt from paying the duty, but you most likely will need to pay at a rate which would vary from £13 to £388.

A family of four travelling on holiday to Spain or Italy in economy seats will currently pay an extra £52 towards this duty. If they decide to fly to Singapore instead, the amount they would have to pay increases to £388 or an astonishing £776 if they decide to splash out on business class tickets.

Air passenger duty has always been very controversial and there has been a lot of criticism, in particular from the aviation and travel industry. Campaigns have been in place for a long time trying to convince the government of its inadequacy, as the rates are the highest in Europe. It is clear that this duty does affect businesses and individuals alike. Not only has it made holidays more expensive, but also it has not helped the recovery of the UK’s economy. No doubt it penalises UK exporters who are trying to enter emerging economies such as China and Brazil.

Surely it can be seen that the first step towards total abolition has been the government deciding to scrap the two highest bands (band C and D). This would mean that the rate for flights travelling over 4,000 miles will be reduced from April 2015, with a saving of £112 or £224 for the above family of four travelling to Spain/Italy or Singapore respectively (at the reduced rate). The saving should contribute to increase the confidence of holidaymakers and exporters and provide a grain of sand to the recovery and growth of the economy.

To assist you to calculate how much you are actually paying towards this duty, the current reduced and standard rates, together with the new ones from April 2015, are below:

Bands (approximate distance in miles for the UK)

Reduced rate (i.e. Economy class)

Standard rate (i.e. Business/First class)

Rate from 1 April 2014 Rate from 1 April 2015 Rate from 1 April 2014 Rate from 1 April 2015
Band A (0-2000 miles) £13 £13 £26 £26
Band B (2001-4000* miles) £69 £71 £138 £142
Band C (4001-6000 miles) £85 Abolished £170 Abolished
Band D (over 6000) £97 Abolished £194 Abolished
*from April 2015 this will include all long-haul flights currently in band C or D

By Carmen Calvo-Couto

For holidaymakers and people looking to move to Spain, it is important to keep on top of the ever-changing laws – particularly those relating to driving.

The Spanish government has recently approved changes in traffic law with the main aim being, in theory, to reduce the amount of accidents on Spanish territory. I say in theory, as critics of the changes say it is more about recovering funds, especially as penalties have increased. However, statistics show that tougher traffic norms in Spain have reduced accident rate considerably since the 90’s (6,000 deaths per year in 1990 compared with approximately 1,128 at the end of 2013).

The new Traffic Law is not yet in force as it has not been published in the Government Official Bulletin.  Once published, we will see subsequent regulations developing its content. However, if you are planning a driving holiday in Spain or living there, you many want to check whether some of the following points are already in force.

Current regulations already establish that you are obliged to carry certain items in the car. Under Spanish law, it is compulsory to carry a reflective waistcoat and wear it if you stop at the side of the road. You must carry two approved red warning triangles, a full set of spare bulbs and fuses and a spare wheel. If you wear glasses, make sure you also have a spare set in the car. Also, do not forget that the first thing the authorities will ask you, if you are unfortunate to be stopped on the road, is to show your passport and a copy of your insurance certificate, so make sure they are in hand.

The current alcohol limit in Spain is 0.25 mg/l of breath (compared with 0.35 mg/l in the UK) and 0.15 mg/l for drivers with less than two years experience and professional drivers.  Penalties for being over the limit attract fines of 500 euros. However, the new law will increase penalties to drivers who have already tested positive in the previous year or tested at least double the limit. The penalty will now be 1,000 Euros and these fines will also be extended to the use of any other type of drug.

The increase is not surprising as, why would you drink if you are the designated driver anyway? Maybe the best option would be to buy a portable breathalyser, which are currently obligatory whilst driving through France (although not in Spain or the UK at the moment). It will give you an indication as to whether you should or should not hit the road.

If you travel with children, no doubt you will make sure you do have a suitable car seat, or you face a fine and not being able to continue your journey. But the new law also anticipates the banning of children occupying the front passenger seat if they are less than 1.35 metres tall – unless the rear seats are all occupied by minors or there are no rear seats. Bear in mind that it is your responsibility even if you are not the driver or you are travelling by public transport (i.e. taxi). You, as parent, will be the one paying the fine and not the driver.

If as well as driving, you also decide to cycle with your children, it will be compulsory for those under the age of 16 to wear a protective crash helmet, regardless of the type of road they are travelling on.

If you fail to follow the law, as the parent, you could end up with a fine of 200 euros.

Drivers will now be responsible for accidents caused if their vehicle hits a wild animal. Before, drivers would only be responsible if they were in breach of a traffic rule and this let to the accident. With the new law, there are only a few defences which can be used, such as lack of signs or problems with fences. Accordingly, it is more likely than not that you (or your insurer) will need to deal with the repairs of your own vehicle, as well as those of any other vehicle involved.

People moving to Spain will need to ensure that their foreign vehicles are registered with the Spanish authorities. Until these recent changes in the law, it was enough to have met the tax and insurance obligations. It is worth considering that if you are moving to Spain or own a business there whether it would be worth leaving your car behind and getting a Spanish one.

Currently, the cost of registration for a foreign car in Spain (including new plates) could cost in excess of £1,000, so investing in a new one may be the best option. We will have to wait for subsequent regulations to have full details as to what exceptions will be implemented or the procedure to be followed.

There is also a new procedure to facilitate access to information among EU members. This has been included to implement the EU directive on cross-border exchange of information on traffic offences. These new initiatives will enable other EU members to contact the Spanish authorities to identify and locate drivers of vehicles registered in Spain. In the same way, the Spanish authorities will be able to obtain this information from other member states. So, if you get a traffic sanction while in Spain, the probability of receiving notification at your home address is now very high.

So, let’s wait for the new traffic law to be enforced and what other regulations will develop with these reforms. In the meantime, have a happy holiday!

By Carmen Calvo-Couto

Censored ManThe safety of passengers and staff during travel is a key consideration for airlines and tour operators, and the recently published first edition of the Guidance on Unruly Passenger Prevention and Management by the International Air Travel Association (IATA) provides guidance to airlines on how to prevent and deal with unruly or disruptive passengers. Safety in the air is becoming more of a concern to the travel industry and to fellow passengers, and it is important for airlines and tour operators to be aware of what the risks are and what action they are allowed to take during flights to maintain the safety of their passengers and crew.

Passengers often view their flights to and from their destination as an extension of their trip. Alcohol is frequently consumed, and excessive drinking is a major factor in the disruptive behaviour by travellers. Drunk or disruptive passengers can cause a nightmare for both airline staff and passengers alike. Airline staff are aware that they can restrain passengers for the safety of others but it is not always clear what the rules are and how far they can go.

A photo of a passenger restrained in his seat with plastic ties and tape has appeared recently on various social media, reportedly after an incident where he hit, screamed and spat at other passengers during a flight. He was restrained and gagged by crew and passengers during the flight and was arrested on his arrival at the destination airport. Another recently reported incident involved the fellow passengers restraining a man during the flight with their belts. He had been warned by the crew but the passengers took action to restrain him themselves.

These incidents have concerned tour operators and airlines, especially in the wake of the awful terrorist attacks of 9/11 and subsequent attempts on other flights. Most airlines carry restraint kits on their flights to deal with unruly passengers, and airline staff should be given proper training on how to deal with these passengers. A verbal warning should be given first and if that doesn’t work, the plane’s captain should be consulted. Staff should make accurate records of what was said and done and the reasons for any restraints. Staff can request assistance from passengers if necessary. Restraint should be used as a last resort however, and airlines and their crew should be careful not to go beyond the levels of restraint and unreasonably cause injury, which could lead to a claim and possible damages. Restraints and excessive gagging can cause injury and even death if used improperly or too harshly.

The international laws governing the restraint of passengers during flights are mainly covered in the Tokyo Convention (1963) and the Montreal Convention (1971). The Tokyo Convention stresses that the captain of the plane in charge of the safety of the flight and therefore will decide whether a passenger needs to be restrained. The plane’s destination country’s authorities should be notified before landing that there is a person being held under restraint and why they are being restrained. The Montreal Convention governs international air travel and imposes stricter liabilities on airlines and tour operators for injuries caused. It provides the basis for claims for damages by passengers.

Aside from these international conventions, passenger’s behaviour is also subject to the laws of the country in which the plane is registered. Airlines, tour operators and staff should ensure they are aware of the national laws of that country and what they can and cannot do.

Unruly passengers should be mindful that their dangerous or disruptive behaviour will be reported to the UK police and to the plane’s destination authorities, which can lead to a prosecution and a criminal conviction. Following from this an airline or tour operator can make a civil claim against the unruly passenger to recover their costs, such as additional fuel charges, landing charges and other expenses, that were incurred as a result of their disruptive behaviour.

The Guidance on Unruly Passenger Prevention and Management published by IATA in December 2012 provides helpful assistance on both the prevention and handling of incidents. It ‘provides practical steps that an air carrier can take to prevent and manage unruly passenger incidents which could contribute to increased safety and costs reduction’.

IATA’s Guidance On Unruly Passenger Prevention And Management

For more information or advice please contact our Travel Department.

A second runway at Gatwick is just one of the options being considered to increase the UK’s airport capacity. While decisions made in 2013 will affect Sussex’s long term economic prospects, the various options are likely to remain grounded for some years.

Sir Howard Davies is leading a commission to examine the scale and timing of additional capacity for UK aviation. The final report is due in the summer of 2015, shortly after the next general election. Even if ministers were to accept the proposals immediately statutory and planning requirements will take time and any additional runway or airport is unlikely to be completed until the mid 2020s at the absolute earliest.

Nevertheless 2013 will be a key year in the process. By the end of the year the Davies Commission is to make an initial report, dispensing with unfeasible options. Any contender hoping to be considered must be included as a viable option at this stage.

Gatwick Airport is proposing a second runway for which its Chief Executive Stewart Wingate says it has “the space, capability and access to financial resources”. He adds that a new runway would allow the airport to compete and grow, which he says will add to the choice available to passengers. Given the ongoing investments made in the airport one would perhaps not expect anything other than an expansion plan, but what are the implications for Sussex and the region, as a whole?

The Institute of Directors nationally has backed proposals for a second runway at Gatwick as well as a third (and fourth) at Heathrow. It also argues that further infrastructure investment – especially in the rail network – will be vital to take full advantage of any increased aviation capacity. Any such major infrastructure projects will have a significant economic impact during construction. There will also be long-term economic consequences for those regions which are either selected or rejected in the final proposals. In Sussex, for example, the economic landscape, as well as the physical one, will look very different if Gatwick has a second runway compared to all the extra capacity going to Heathrow, or even an entirely new “Boris Island” airport on the Thames Estuary.

There are other issues of course, not least of which will be the environmental impacts of any decision. Any scheme will have winners and losers, and the merits of each proposal will look very different depending on your perspective.

At this consultation stage groups and individuals across the country are being encouraged to look at the options, consider their views and make them known. Various groups are already in communication with the interested airports and can pass on opinions, but anyone can make their own submissions to the Davies Commission at Whatever your thoughts it is time to make them heard.

Dean Orgill, Chairman at Mayo Wynne Baxter, is a non Executive Director of Gatwick Diamond Initiative, a member of the Brighton & Hove Economic Partnership and speaks on policy matters for Institute of Directors, Sussex.

Travel LawIn a recent ruling, the European Court of Justice has provided clarity in respect of the time period in which claims can be brought by consumers for fixed compensation under the “Denied Boarding Regulations”.

In the case of Morë v Koninklijke, the Court was asked to consider the Defendant’s arguments that the Montreal Convention applied to such claims.  The Convention imposes a 2 year limitation period in which to bring claims.  The Court determined that the Denied Boarding Regulations fell outside the scope of the Convention.  Consequently, the time limit for commencing such claims will be determined in accordance with the rules of each individual member state on the limitation of actions.

In the case of Morë v Koninklijke Spanish law applied, which provides for a 10 year limitation period.

In English law, the Limitation Act 1980 states that a claim should be not brought after the expiration of 6 years from the date at which the cause of action arose.  As a consequence, it would seem that passengers in England and Wales bringing claims for fixed compensation under the Denied Boarding Regulations are now provided with a much more generous period in which to do so than other types of aviation claims.

By Lee Hills


On 1 October 2012 the European Aviation Safety Agency (EASA) published proposals (known as an Opinion at this stage)  to amend the current EU wide rules on flight and duty time limitations and rest requirements for commercial air transport.  These changes are aimed at harmonising standards across Europe.  The next step in the process is for the Opinion to enter the EU legislative process.  It is anticipated that the new rules will be adopted after mid-2013 and fully implemented by the end of 2016.

The Opinion addresses the issues of fatigue and does not look to increase overall pilot flight hours.  Across the EU night duty hours will be reduced and the rest times for flights with time zone crossings will be increased.  There will also be new rules for limiting standby time.

The Opinion has drawn upon more than 50 scientific studies and consultations took place with flight and cabin crew organisations, airlines and national governments.  However, the final proposals have not met with universal approval.

The British pilots union, Balpa, says that the proposals, if adopted, will mean more early starts, longer night shifts and cuts to crew numbers as they will replace the UK’s current domestic standards.  Balpa’s concern is that the distribution of hours will make matters less safe even though the total number of hours will be unchanged.  They have cited concerns raised by the House of Commons Transport Select Committee, union members and safety campaigners.  Amongst the latter group are families of the victims of the crash of Continental flight 3407 in Buffalo, New York.  That crash was partly the result of fatigue.  They have called for the UK government to reject the harmonising changes.

However, the Civil Aviation Authority, the UK’s safety regulator, is unmoved and says that overall the changes will keep passengers as safe as before.

By Martin Williams

Travel TradersMany in the travel sector will be aware that the Office of Fair Trading has spent the last year or so investigating the use of disproportionally high credit and debit card charges by certain elements in the travel industry and particularly those charges historically imposed by some budget airlines at the end of the booking process.

This was all in response to a “super-complaint” lodged by “Which?” with the OFT.  Many of the budget airlines have already altered their systems to include such charges or “administration fees” in their headline price but it now looks as though the government is going to legislate as well.

BBC News recently reported the Consumer Affairs Minister, Norman Lamb, as having said, “Traders will no longer be able to make a profit by charging the consumer for credit or debit card use above the amount it costs them to process that payment”

Consultations are currently being undertaken with a view to regulations being brought in, possibly as early as January next year, to stop traders, not just in the travel sector, from imposing excessive charges or “hiding” such charges at the end of the purchasing process.

Whilst the exact terms of any legislation are not at this stage available, we can be fairly certain, given what the Minister has said, that any charges for card payments will, going forward, have to be no greater than the reasonable costs incurred by the relevant trader for processing the payment.  Presumably the sort of costs we are looking at are the actual charges payable by the trader to the relevant card issuer plus, possibly, a small notional amount to take account of the fact that the trader has to “administer” the payment of such costs to the card issuer.  Given that this is a straightforward and usually automated process, it may well be difficult for traders to establish that there really is any additional administrative cost over and above the card issuer’s percentage.

In addition to address the concern about “transparency”, it looks as though it will no longer be possible to hide these charges at the end of the transaction.  Consumers will, in future, have to be given a clear and transparent breakdown, almost certainly at the start of each transaction, of exactly what additional charges will be applied for card payments.

In essence, it looks like this is one gravy train for traders that is about to be stopped in its tracks.

By David Gordon

Travel LawThe last decade has seen the emergence of low cost airlines throughout Europe and the seemingly irresistible fares they offer.

With the expansion of the “global market” made possible through the worldwide web, a host of destinations have been opened up to the independent traveller, who has been content to assemble his own holiday, whether last minute weekend breaks or the annual fortnight in the sun.

There is no doubt that up until the last two years this has eroded the business of traditional tour operators whose package holidays were previously the mainstay of many families.

Recent times have, however, seen a return by travellers to the traditional package holiday influenced by, amongst other things, a number of high profile failures of holiday companies selling deconstructed packages which have not enjoyed the benefit of bonding and the financial security which a package would otherwise provide.  This has led to many thousands of travellers being stranded overseas and struggling to make their own arrangements to return to the UK.

Despite this, the market for low cost travel has consolidated and lately expanded as evidenced by the recent attempt by Ryan Air to acquire its main competitor in the Irish market, Aer Lingus.

Following Ryan Air’s third attempt to take over Aer Lingus, the European Commission, acting as Anti Trust Regulator, has announced an investigation into the proposed bid following the conclusion by an initial enquiry that the transaction could harm competition.  Since Ryan Air’s first bid in 2007 the number of routes operated by both carriers has increased so potentially reducing the opportunity of competition in the low cost carrier market with corresponding consequences for the consumer.

Despite the June 2012 offer lapsing, if Ryan Air secure EC clearance, it is likely that an enhanced offer will be made on what was previously regarded by the board of Aer Lingus as an undervalued one.

Although Ryan Air may attempt to disassemble some of the routes operated by Aer Lingus by offering these to other carriers, there would appear to be little appetite amongst these airlines to take them on so presenting an even greater hurdle for Ryan Air to overcome.

Tour operators offering the reinvigorated traditional package holiday may take comfort from this, as may consumers, in the knowledge that competition in the market place remains live whilst the opportunities for good value low cost travel will be offered by airlines hungry to expand.

By Lee Hills

Why does it always seem to be that British Airways ends up in the Employment Tribunal in a ground breaking case?  One hopes, for their sake, that it is just the odds are against them, bearing in mind the number of employees they have.  In the case of Fox v BA it was the fact that they granted particular benefits that caught them out.

Mr Fox was dismissed and days later died.  His estate brought a claim against BA arguing that the dismissal was unfair and discriminatory.  As awards for unfair dismissal are based largely on losses it would seem that this was a claim without value.  Losses would stop being accrued once someone died.  However, this case was not so simple.  The value of the claim lay in the fact that there was a death in service benefit at stake.  If Mr Fox had still been employed when he died, his estate argued, then that benefit would have been due to be paid.

The Employment Tribunal, while finding the dismissal unfair, agreed with BA that as the loss of the benefit was a loss to the estate and not a loss to Mr Fox, then it was not recoverable in the tribunal.

The estate appealed and the Employment Appeal Tribunal took a different view.  They held that the death in service benefit was a contractual right lost as a result of dismissal.  Even though Mr Fox would not benefit directly it presented an opportunity to use the funds for his dependents or to benefit others that he may choose to support.

In light of the timing of the death the Employment Appeal Tribunal found that the value of the claim was the full value of the death in service payout.  In other less immediate circumstances the compensation would ordinarily be the value of the premiums paid by the unfortunate employee.