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Morning Call: the best from Gibraltar

A selection of the best articles about politics, business and life on the Rock from the last seven days.

  1. Gibraltar 1-0 Malta: Kyle Casciaro the goal hero as UEFA newcomers claim first win (Daily Mail)

Gibraltar’s victory over Malta on Wednesday 4th June was widely reported. The Daily Mail writes: “Newcomers Gibraltar claimed their first win in only their fifth international match after Kyle Casciaro scored the winner on Wednesday. Casciaro, who plays for Lincoln in the Gibraltar Premier Division, fired home in the 66th minute in the friendly played in Portugal. Gibraltar had to hold their nerve during five minutes of injury time before they could celebrate the memorable victory.” Read our interview with the Gibraltar Football Association’s chief exec Dennis Beiso here.
 

  1. Change in  marriage laws will boost tourism income (Gibraltar Chronicle)

Gibraltar’s parliament have unanimously approved new legislation which means non-resident couples wishing to marry in Gibraltar will have to spend at least one night on the Rock either before or after the ceremony. This night could be spent in a hotel or with a resident of the Rock. Tourism minister Neil Costa, who initiated the policy change, has said the change will bring financial benefits to local business.

 

  1. Draft legislation promises tougher tobacco regulation (Gibraltar Chronicle)

Disputes over the movement of cheap tobacco from Gibraltar to neighbouring Spain have caused significant border tension. Attempts to smuggle tobacco from Gibraltar across the frontier are frequent, and Spain has accused Gibraltar of a lack of cooperation in curbing smuggling. New draft legislation put to Gibraltar’s parliament would mean tobacco venders must slash the maximum purchase allowance from 1,000 to 200 cigarettes, alongside further amendments to the 1997 Tobacco Act.

 

  1. Chief Minister reflects on long overdue improvements to Gibraltar’s social fabric (Vox)

In a statement released by the government, Chief Minister Fabian Picardo reflected on social changes to Gibraltarian society, including the Gibraltarian Status Act. The act, amended last week, “extended the right to be registered and identify as Gibraltarian to those British citizen who had lived in Gibraltar for 10 year, rather than for 25 years as was previously the case.”

 

  1. EU Commissioner in Madrid to discuss Gibraltar (Panorama)

Swedish politician and European Commissioner for Home Affairs Cecilia Malmstrom arrived in Madrid on 3rd June for a series of meetings with Spanish Ministers and officials, reports Panorama. They report her agenda is a “closely guarded secret”, though it is known that issues on the Gibraltar Frontier will also feature high on her discussion list.

 

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Gibraltar - impact of Brexit

Last week our editor took a general overview of some of the scenarios for Gibraltar if Britain were to leave the Euro. This week, as the atmosphere in the British Conservative Party becomes ever more toxic, Michael Castiel, partner at Hassans lawyers on the Rock, goes into more detail (this piece written before the Iain Duncan Smith resignation and subsequent arguments happened).

However unlikely it may prove, the prospect of Britain's withdrawal from the EU sends shivers through Gibraltar's financial services, gaming and tourism industries, which are at the core of Gibraltar’s economy. For, if Britain leaves the EU, Gibraltar goes too, and, should Brexit occur, it is Gibraltar’s relationship with the UK that as in the past, largely will shape Gibraltar's future.

Gibraltar joined the European Union in 1973 as part of the UK. While rights to freedom of services across borders of EU member states apply between Gibraltar and the rest of the EU, because Gibraltar is not a separate member state (and is in fact part of the UK Member State) those rights do not apply between Gibraltar and the UK. Instead a bilateral agreement, formalised almost two decades ago, gives Gibraltar's financial service companies the equivalent EU passporting rights into the UK. Accordingly and pursuant to such agreement, where EU rights in banking, insurance and other financial services are concerned, the UK treats Gibraltar as if it is a separate member state.

This reliance on the special relationship with the UK is recognised by both the Government and the Opposition in Gibraltar, and when the territory (which in this instance as part of the UK electorate) goes to the polls on 23 June, the vote to remain in the EU is likely to be overwhelming. This may have symbolic significance but realistically seems unlikely to influence the outcome. In actual terms, although some non-EU jurisdictions use Gibraltar and its EU passporting rights as a stepping stone into Europe, almost 80% of Gibraltar’s business dealings are with the UK.

But whether or not Britain maintains the 'special relationship' with Gibraltar, if Brexit becomes a reality, other factors will come into play, with the ever-present Spanish Government’s historic sovereignty claim over Gibraltar topping the list.

Recently Spain's caretaker Foreign Minister Jose Maria Margallo went on record that if the UK voted to leave the EU he would immediately 'raise with the UK the question of Gibraltar.' If this was to come about it could take one or more of several different forms, ranging from a complete closure of the border between Spain and Gibraltar, demanding that Gibraltar passport-holders obtain costly visas to visit or transit Spain, imposing more stringent border controls, or a frontier toll on motorists driving into or out of Gibraltar. The latter idea was in fact floated by the Spanish Government three years ago, but dropped when the EU Commission indicated that any such toll would contravene EU law.

Here, again, imponderables come into play, for much will depend on which political parties will form the next Spanish government. A Spanish government headed by the right wing PP party is likely to take a less accommodating attitude towards Gibraltar (the Foreign Minister having recently indicated that in case of Brexit the Spanish Government may opportunistically push once again for a joint sovereignty deal with the UK over Gibraltar) whereas a left of centre coalition will likely adopt a more pragmatic and cooperative relationship with Gibraltar in the event of EU exit.

The most significant changes to Gibraltar's post-Brexit operation as an international finance centre are likely to be in the sphere of tax, and while Gibraltar has always met its obligations in relation to the relevant EU rules and Directives, it has also been slightly uncomfortable with aspects of the EU's moves towards harmonisation of corporate taxes across member states.

Although it was formed as a free market alliance, since its inception fiscal matters have been at the root of the EU, but Gibraltar's 'special relationship' with Britain has allowed considerable latitude in relation to what taxes it imposes or those it doesn't. However, as is the case with other member states, Gibraltar has increasingly found in recent years its fiscal sovereignty eroded and its latitude on tax matters severely curtailed.

As in Britain, Gibraltar has benefitted from several EU Directives introduced to harmonise and support the freedom of establishment, particularly the Parent-Subsidiary Directive which prohibits withholding taxes on cross-border intra-group interest dividend and royalty payments made within the EU.

As a stepping stone for foreign direct investment, should Brexit come about EU subsidiaries could no longer rely on these Directives to allow tax-free dividend or interest payments to their holding companies based in Gibraltar. In the case of the UK, bilateral double tax treaties will no doubt mitigate the impact of the non-application of any tax related Directives. Gibraltar, however, is not currently a party to any bilateral double tax treaties. Accordingly, Gibraltar would either have to seek from the UK the extension of all or some of the UK’s bilateral tax treaties to Gibraltar (subject of course to the agreement by the relevant counterparties) or it would need to negotiate its own network of bilateral double tax treaties with a whole series of EU and non EU Member States. To say the least, neither of these options would be straightforward to implement at short notice and would need the wholehearted support of the British Government

Whilst Gibraltar’s economy is likely to be adversely affected should Brexit occur, there may be some potential benefits. An EU exit would result in fewer regulations and possibly may provide Gibraltar with greater exposure to emerging economies.

From a tax perspective, an EU exit would probably enable Gibraltar to introduce tax rules and incentives that are contrary to EU tax laws and would provide the Gibraltar Government more freedom to adopt competitive tax regimes that may be considered contrary to EU state aid rules. How possible or effective any such strategy would be is doubtful given the OECD driven anti-tax avoidance climate affecting all reputable jurisdictions whether within or outside the EU.

In this as well as other possible change much will hinge on any post-Brexit relationship with the UK - an issue which the Gibraltar Government addressed recently in a paper sent to Westminster's Foreign Affairs Committee. It stressed not only that 'EU membership has been an important factor in the development of Gibraltar’s economy' but also the importance of 'clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations.'