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Your territory needs you!

After the General Election in the UK this year there may well be an in/out vote on membership of the EU. Dominique Searle, editor of the Gibraltar Chronicle, is somewhat in favour of “in”

Europe, in or out? This is the stark choice that could face British people within a couple of years if the Conservatives win the next General Election. Of course the Rock knows it is a low priority issue for the average follower in the debate.

Worse still, some of our staunchest supporters in UK are hell-bent on an EU exit.

UKIP, Tory backbenchers are hugely supportive of us as a territory - but not on the single most important issue facing us, and possibly Europe, for 30 years.

Lobbying is our strongest tool.

It’s likely that the 20,000 strong electorate on the Rock will be included in that referendum, if only because we are included in the South West region constituency for EU elections. A right earned by taking Britain to the European Court of Human Rights and winning.

The bigger picture shows that the European project, born of post WWII needs for economic and political cohesion between the old countries, is not something any Europeans should run away from for short-term gains. Gibraltar is a blip in all this but our history illustrates how difficult it is for much of Europe progress socially, democratically and positively especially in times of economic stress.

It’s not just that we hear Spain still raising the 1713 Treaty of Utrecht as if this supersedes the treaties of the EU and modern international rights. For the past 10 years the EU has been unable to address the United Nations Fourth Committee on the issue of decolonisation because it cannot agree wording with UK and Spain.

If they can’t be friends over little Gibraltar what hope for the big issues. History haunts the EU and can make it impotent unless old scores are sets aside for the bigger objective of finding a relationship between the states that is seen by citizens as less destructive.

The Gibraltar Government has commissioned a team of Oxford dons to consider the financial implications of a UK exit and also the implications of a variation of Gibraltar’s status in the EU. That won’t carry much good news.

As part of the EU, Gibraltar is in a radically different position to other British Overseas Territories. And that is not just because of bugbear Spain.

The EU has been good for the Rock. We lead on compliance as a finance centre largely because the EU forced standards to rise and the old tax haven system to go. This is why Gibraltar would be happy to sign up to the cutting edge agreements for financial services asking only that other territories be reigned in.

Why would Gibraltar sign up to standards that have not yet been accepted all EU members or G20 participants?

The Rock seeks only a level playing field so that EU obligations can be balanced with normal commercial and political activity.

As far back as the 1980s when Sir Joshua Hassan led the Rock it was to the EU that we looked for an eventual ‘dissolving’ of the Gibraltar dispute.

Yes, an EU exit will hurt us. But Spain should not relish the thought of losing the UK as a partner. Nor would closing the border or strangling the economy necessarily be wise.

Morocco keenly mirrors Spain’s tactics on Gibraltar in relation to the Spanish enclaves of Ceuta and Melilla. Aside from that, the effect of closing the border would be predictable.

As in 1969 Gibraltarians would regrow their siege shell and tighten their belts, many younger locals would simply move to Britain and UK would be obliged to spend more on defence and diplomacy to keep the Rock ticking. Depressing, but not surrender.

Far from becoming the ripe fruit that Franco once predicted would fall into Spain’s hand, the Rock would become a symbol of Britain’s mistaken decision to abandon the unity the EU strives to be on issues great and small.

As Europeans must work together to defend the social, cultural and economic values that still make us a family. Maybe, just maybe, a new and modern Spain might just accept a place for us in that better Europe. Please vote to stay in.

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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.' 

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