Country Capers

By Global Tax Weekly

A bit of a theme this week: how the powerful like to bully the small and the weak. And we start with Spain, which, according to one senior figure in the Spanish Government, is deprived of EUR1bn every year in tax revenue as a result of Gibraltar’s low-tax regime. Gibraltar isn’t exactly a country. In fact its constitutional status confuses many people. Gibraltar is an Overseas Territory of the United Kingdom, but although Britain is responsible for its defense, foreign affairs and internal security, the Rock is self-governing based on a constitution written in the 1960s. It also has a sort of half-in, half-out relationship with the EU which it entered along with the UK while remaining outside of the common external tariff and EU VAT regimes, something which also probably irritates Spain. Essentially though, Gibraltar is a little piece of Britain welded to the Spanish mainland and has been so since the early 18th century when the Treaty of Utrecht ceded the territory to Britain in perpetuity. Superficially, it is understandable why a relic from the colonial age like this should pique Spanish pride so much, and given that the world has changed considerably in the last 300 years, with Gibraltar’s importance as a key military outpost in the British Empire much diminished, I suppose it is not unreasonable for Spain to now ask for it back. However, the way it has asserted its claim has been very unreasonable. Short of actually invading the place, the Spanish Government seems to have done everything in its power to make life uncomfortable for Gibraltarians, like restricting use of Spanish airspace, imposing unnecessarily bureaucratic checks at the border post, levying a border tax (at least, attempting to), and prompting long legal challenges over its tax regime and indeed its right to exist as a separate entity at all. But it is not just the presence of a foreign colony on Spanish soil that so angers Spain. It is the fact that this colony is a tax haven. If you are against tax havens, as most politicians claim to be, including Spanish ones, then you are never going to subscribe to the view that they can actually be a force for good in the world economy. But, just look at the billions of capital poured into London and the wider UK economy through Jersey, Guernsey and the Isle of Man. So instead of spending substantial sums of taxpayers’ money trying to usurp Gibraltar and close its finance industry, perhaps Madrid should be looking at this from an entirely different angle. Maybe Gibraltar could be to Spain what Hong Kong is to China, albeit on a smaller scale. One wonders whether the periodic attacks on the Rock are just an attempt by the Spanish Government to deflect attention away from Spain’s own problems. But I like to look at it this way: if I were a Brit, would I object so strongly if there was some rocky outcrop, on the Cornish coast say, that was forever Spanish? Actually I think it would be quite interesting. At least there’d be somewhere you could go to get some decent tapas. But then the Spanish don’t really have an appetite for fish and chips.

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