Booming Gibraltar fights ‘blue-collar tax haven’ tag

Booming Gibraltar fights 'blue-collar tax haven' tag
Gibraltar saw its gross domestic product (GDP) expand by 7.8 percent in 2012 to £1.2 billion pounds (€1.4 billion), Photo: Scott Wylie
With robust growth and nearly no unemployment, the tiny British outpost of Gibraltar on Spain's southern tip is a bubble of prosperity that contrasts with the economic malaise engulfing its neighbour.

"The UK and Spain both face sluggish growth for many years to come and it feels at times that Gibraltar is stuck in an economic time warp," the Gibraltar chamber of commerce said in its annual report.

Gibraltar — whose British sovereignty Spain disputes — saw its gross domestic product (GDP) expand by 7.8 percent last year to 1.2 billion pounds (1.4 billion euros).

By contrast Britain posted sluggish growth of 0.2 percent while Spain's economy shrank by 1.4 percent as it continued to reel from the collapse of a property bubble in 2008.

Check out The Local's list of ten things you didn't know about Gibraltar.

"The international economic crisis seems hardly to have affected Gibraltar," said Gibraltar government spokesman Stuart Green.

The internally self-governing British overseas territory, measuring just 6.8 square kilometres (2.6 square miles) and home to about 30,000 people, has one of the highest GDP per capita ratios in the world.

Its unemployment rate stands at just 2.5 percent while in Spain it is more than ten times higher at 26.3 percent — and in the region of Andalucia adjacent to the British outpost it is 35.8 percent.

Roughly 10,000 Spaniards cross the border into Gibraltar to work everyday and they now find themselves caught up in a diplomatic row over the disputed waters around the territory.

Spain at the end of July tightened its vehicle checks at its border with Gibraltar — causing tailbacks of several hours — after Gibraltar dropped 70 concrete blocks into the waters off its coast with the aim of creating an artificial reef.

The row over the reef follows long-standing tensions over the fiscal policies that have fuelled Gibraltar's economic success, with Madrid accusing the territory of being a tax haven that allows Spanish firms to avoid paying taxes.

'We are clearly not a tax haven'

Gibraltar has no sales tax and in January 2011 it abolished its "exempt status tax regime" under which some companies avoided taxes and replaced it with a single 10 percent levy, far lower than Spain's rate of 30 percent.

The territory's favourable tax policies have helped build up its banking and financial services sector, which along with tourism and its port accounts for 25–30 percent of its GDP. The online gambling sector accounts for about 15 percent of GDP.

"I have studied the Gibraltar economy for the past 35 years and I have seen it grow from an economy that provided support to Britain's Ministry of Defence and was very much a blue collar economy into an economy with a high proportion of well qualified professionals," said John Fletcher, a professor at Britain's Bournemouth University.

Britain has sharply reduced its military presence in Gibraltar and it now accounts for just 6.0 percent of the local economy, down from 60 percent in the early 1980s.

"Gibraltar's taxes on the financial system attract money, so even it is not a tax haven it looks like one," said Pedro Aznar, a professor at Spain's ESADE business school.

There are about 18,000 companies officially registered in Gibraltar, known as "the Rock", which enjoy its low tax rates.

Gibraltar's tax advantages are unfair competition for Spain, said Jesus Lizcano, the head of the Spanish branch of anti-corruption watchdog Transparency International.

"It is not very favourable since it is close to Spain and can channel certain business and investments," he said.

"Britain has many tax havens under its jurisdiction, like the Isle of Jersey, the Isle of Man, the islands of Bermudas and Gibraltar," he added.

Gibraltar roundly rejects the claim that it is a tax haven.

"We are clearly not a tax haven, we conform to all EU rules and regulations," said Green, the Gibraltar government spokesman, adding income and corporate taxes are "slightly lower" in the territory than in many other EU nations.

Gibraltar points out that it has signed 26 information exchange agreements with 26 countries, including France, Germany and the United States and is on the OECD's "white list" of jurisdictions that comply with global tax rules.

"I can tell you people do pay taxes here, they pay income tax, they pay social insurance and companies pay corporation tax so its completely misleading to say we don't pay any tax," said Gibraltar Chamber of Commerce head Edward Macquisten.

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