GIBRALTAR - AUGUST 06: A barbary macaque monkey in the 'Upper Rock Nature Reserve' on the Rock of Gibraltar on August 6, 2013 in Gibraltar (Getty)
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Weekly round-up: politics, business and news from Gibraltar

A selection of the key headlines about politics, economics and life on the Rock this week.

  1. Gibraltar banishes troublesome monkeys [Video]

BBC reports: “The Barbary macaques are perhaps some of Gibraltar's most famous residents. However, Gibraltar is planning to banish some of the monkeys, who they say in some cases have been behaving aggressively.”

  1. Frontier queues sustained delays over last 24 hours

GBC News reports: “Gibraltar has suffered one of the most sustained episodes of delays at the border since the PP [Partido Popular] took office in 2011. Car by car checks at the frontier were carried out up until midnight Friday, and even as early as 7.30 this morning there were six lanes of traffic at the frontier loop. The Chief Minister has described Spain’s behaviour as “irrational”.”

  1. Government dismisses Spain’s ‘fanciful’ tax claims

Gibraltar Chronicle reports: “The Spanish Government’s claim that Gibraltar costs Spain one billion euros annually in lost tax revenue has “no basis in reality or fact and represent no more than a financial flight of fancy”, the Gibraltar Government said. No 6 Convent Place was responding to comments made by Spain’s Secretary of state for Europe, Iñigo Méndez de Vigo, in an interview with ABC newspaper.”

  1. Gibraltar’s GCSE pass rate down five percent from last year

GBC News reports: “The overall GCSE pass rate from grades A* to C this year is 63% – a 5% drop from last year. While Westside School maintained its 2013 pass rate of 68%, Bayside School saw a 10% drop in grades A* to C. At the College, the A* to C rate in applied subjects was over 66%.”

  1. Gibraltar Government hits out at ‘sensationalist’ reporting of EU tobacco smuggling report

The Olive Press reports: “Fake TV scenes depicting tobacco smuggling in Gibraltar have been slammed by the Gibraltar Government, following the uproar over an EU report. According to the anti-fraud office OLAF’s report, tobacco smuggling on the Rock cost the EU €700 million in tax revenue between 2010 and 2013.”

  1. Gibraltar challenges internet gambling tax

Economia reports: “The Gibraltar Betting and Gaming Association (GBGA) is preparing to legally challenge a UK gambling law, due to be introduced this December. The GBGA has filed a judicial review over the “unlawful and disproportionate” point-of-consumption tax, a 15% charge imposed on companies based on the geographical location of the gambler, rather than that of the company.”

  1. Gibraltar's First Green MEP Visits the Rock

Your Gibraltar TV reports: “Newly elected Green Party MEP for the South West and Gibraltar Molly Scott Cato today took in Gibraltar, as a constituency, for the first time, with much of her visit involving briefings on environmental issues surrounding Gibraltar, including, areas of marine conservation.”

 

 

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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.'