Prime Minister David Cameron meets with Chief Minister of Gibraltar Fabian Picardo in Downing Street for talks on the border dispute with Spain (Photo: Getty)
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General Election: what they’re saying

The UK General Election is days away and although both main parties are committed to the Rock, a number of issues have surfaced in their pronouncements in recent weeks. Guy Clapperton takes the temperature.

First the good news if you’re resident in Gibraltar and want to stay British; neither Labour nor the Conservatives are making noises about being less than committed to you. Whether the new Government is Labour-led minority, Conservative-led coalition as we’ve seen for the last five years or some other hybrid as yet unimagined, Gibraltar’s status should be beyond doubt.

The parties haven’t always been so transparent. Some people will recall the then Home Secretary Jack Straw’s so-called Andorra Solution mooted in 2002, under which the UK and Spain would have had joint sovereignty; this was rejected comprehensively by a Gib referendum, and if anybody’s thinking of suggesting anything like it again, they’re not saying so out loud. Currently Labour’s funders are suggesting Gibraltarians can sleep easy, although there is no mention of it in the party’s manifesto. The Conservatives, by contrast, suggest they will protect the democratic rights of Gibraltar and the Falkland Islands and encourage them to remain British for “as long as they wish”. UKIP’s manifesto is strongly in favour of other countries being urged to respect the Rock’s Britishness,

That said, some issues have emerged that could change the current status, not because of any wish to change but because of what happens outside the Rock. The first might actually strengthen Gibraltar as a British territory: if the SNP wins the expected landslide in Scotland then the moral if not constitutional case for moving trident will become unarguable. According to reports published in  the Daily Express and RT, Gibraltar is among the options under consideration should there be a move. Arguments over whether Trident should be scrapped aside (and no major party is suggesting this), it would be inconceivable to suggest Britain would be any more amenable to Spain’s entreaties to abandon the Rock if its nuclear deterrent were to be based on it.

The SNP also has a walk-on part in the second scenario that could spell change. Although the Conservative assurances of sovereignty are likely to be welcomed in the territory, the promise of an in-out referendum on Europe should the same party get a simple majority is less so (and if UKIP holds any sway then the referendum is increasingly likely).

As our article from Dominique Searle pointed out only weeks ago, Gibraltar joined the EU at the same time as the UK in the same referendum. If the UK decides to pull out in 2017 then Gibraltar comes out. Should that happen it’s almost certain to reapply or do whatever it has to do to stay in; in an article from The Trumpet in mid-April, chief minister Fabian Picardo is quoted as saying “[If] one part of the UK decides that it wants out of the European Union, then the negotiations should involve each of the separate parts being able to remain with a different degree of membership.”

Gibraltar wants to stay in the EU even if the rest of the UK left. This scenario could involve another major change as the SNP would almost certainly claim Scotland wanted to remain involved in Europe, too. There has been a great deal of speculation that if the UK did pull out this would precipitate a second referendum on Scotland’s relationship with the Union in which it might well becom independent. It’s early to be discussing the effect a break-up of the Union would have on outlying territories, but we could be looking at a European Gibraltar regarding itself as British while Britain is no longer European – and no longer the Britain it was because of the absence of Scotland. The only certainty would be uncertainty.

Within a couple of weeks, depending on the length of the horse trading, we’ll have an idea of at least the starting point for the next five years. With a hung Parliament the most likely outcome and a referendum a distinct possibility, the fact that both main parties have stated support for a British Gibraltar doesn’t leave the way as unambiguous as might have been hoped.

Guy Clapperton is the freelance journalist who edits the New Statesman’s Gibraltar hub. You can also find him in the Guardian, Computer Business Review and Professional Outsourcing which he edits.

Photo: Getty
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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.'