The Income Tax Office has very recently released Guidance Notes in the following areas:Companies- Self-employed
- Business Entertainment Expenditure
- Classes of Expenditure Allowed as Deductions
- Notifiable Arrangements
From an initial review of these we offer the following comments:
Guidance Notes for CompaniesOn the third page of text, second last paragraph, the Guidance Note gives an example of how a payment on account will work. In the example, the August 2012 payment is based on the accounts for year ended 30 June 2012.
In our opinion this is incorrect; it should be based on the year ended 30 June 2011 (Section 39(4) of the ITA 2010).
Business Entertainment ExpenditureThis Guidance Note should be read carefully by any business with entertainment expenditure.
The implied default position is that entertainment expenses are not deductible, with some exceptions. It states:
“Any claim for exception that is accompanied by insufficient evidence will be refused. Sufficient and appropriate evidence referred to above means any documents, which clearly demonstrate that the party or parties being entertained are clients of the claimant.”
This seems to indicate that if a business wishes to claim any entertainment expense as deductible, it will have to submit some details for each item together with its accounts and tax return.
The Note then states:
“For the purposes of the Act, our interpretation of the term client in the context of business entertainment expenses is an individual or group of persons, either acting of their own accord or on behalf of an entity, corporate or otherwise, that purchases or supplies goods and or/professional services.”
We have requested clarification of this statement from the Income Tax Office. Classes of Expenditure Allowed as Deductions
This includes guidance on when otherwise deductible expenses should be apportioned between chargeable and non-chargeable activities (Section 2(2)(a) of Schedule 3 of ITA 2010). Those expenses apportioned to non-chargeable activities would not be deductible.
According to the Guidance Note, the proportion of chargeable income to total income is determined. This proportion is then applied to the total deductible expenses. Trading income means turnover, or (presumably) gross written premiums for an insurance company, as opposed to profit. Non-chargeable income includes passive investment income. This means that the apportionment of costs relating to income from outside Gibraltar and to passive investment income will not be deductible.
We have requested clarification of the treatment of expenses that can be 100% attributed to either chargeable or non-chargeable activities, for example, direct investment costs, or direct overseas branch costs.
The above comments reflect our views at the time of writing. These are subject to further communication with, and by, the Income Tax Office.
Further bulletins will be issued.
Should you have any queries in the meantime please contact either your main contact partner at Baker Tilly, or myself.
The full texts, as published in the Gibraltar Government website:
Gibraltar Government Income Tax Act 2010 - Guidance Notes  Guidance notes on Self-Employed
Guidance notes Companies
Guidance notes - Qualifying Individuals
Guidance on Business Entertainment Expenditure
Guidance on classes of Expenditure allowed as deductions
Guidance on notifiable arrangements
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