In contrast to its battered eurozone neighbour, Gibraltar is in rude economic health but there are political threats to this popular port of call
With a budget surplus of £37m, GDP growth of 7.8 per cent, one of the highest GDP per capita rates in the world and an unemployment rate of just 2.5 per cent there is much to covet on the rocky outcrop of Gibraltar.
In contrast, the government of neighbouring Spain is facing corruption scandals, a shrinking economy, unemployment of more than 26 per cent and a €943bn (£793bn) debt equal to 92.2 per cent of the country’s economic output.
And so it was that, reacting to damage to fishing grounds allegedly caused by the Gibraltarian authorities dropping concrete blocks into disputed waters off the territory, Spain’s foreign minister José García-Margallo stated “the party’s over”.
Suggesting that a €50 fee could be imposed on vehicles entering or leaving Gibraltar, he also indicated that tax investigations could be launched into property owned by around 6,000 Gibraltarians in Spain as part of its EU obligation to control “fiscal irregularities”.
The most immediate action taken was the institution of rigorous border checks, resulting in six-hour long queues into and out of Gibraltar.
Complaints were filed, diplomatic rows were had and an EU team was sent to “assess the border controls, free movement of people and goods, including fraud and smuggling”, and to check Spanish complaints over fishing grounds.
“Par for the course,” comments Isolas partner Selwyn Figueras, also the shadow minister for financial services, justice, planning and traffic. He says the actions were the result of “nothing but the chronic delusions of the Spanish government”.
Hassans partner Michael Castiel agrees. “This has all been manipulated to get Gibraltar back into the international press and to try to leave corruption scandals in the background,” he says. “If we had North Korea as our neighbour instead of Spain, which, after all, is an EU partner, it would certainly affect business as there would be questions over security. But the fact is that it’s just an inconvenience in the short term that people live with. No one uses [the Spanish dispute] as a factor in determining whether Gibraltar is or is not used in business transactions.”
Gibraltarians are more concerned about Spanish threats to target ‘bunkering’.
Triay & Triay partner Charles Simpson labels such threats “bully-boy tactics”. He notes that, rather than harming business, these and other threats have resulted in a surge in the Gibraltarian property market as expats look to move there.
Rock and hard place
Rejecting allegations that Gibraltar is acting as a tax haven, lawyers point out that it has signed 26 tax information exchange agreements with other jurisdictions, but that Spain has refused its offer to sign.
“We’re between a rock and a hard place,” counters Figueras. “Spain complains we’re sort of money laundering smugglers and don’t co-operate or collaborate with anyone while at the same time we’re offering to exchange information, but it won’t sign it because of a political point of sovereignty that has been outstanding for more than 300 years.”
Gibraltar’s emergence from a British military outpost is mainly founded on the growth in financial services and its move from being a classic offshore jurisdiction to an onshore specialist financial centre.
In June the latest development in this transformation was European endorsement of its tax framework.
Lawyers also highlight the now-complete implementation of EU directives including the alternative investment fund managers directive and plans to challenge Ireland and Luxembourg as the European destination of choice for funds.
Other points that demonstrate growing sophistication include the appointment of SRA executive director Samantha Barrass to lead the Financial Services Commission and recent moves towards new companies and insolvency acts.
While the diplomatic row with Spain continued over the summer the British Government introduced its own threat to Gibraltar’s other economic mainstay, online gaming, with plans for a proposed ‘point-of-consumption’ tax. This would tax gambling according to where customers are based rather than where the online operator is registered, meaning Gibraltar online gaming operators will pay the same 15 per cent tax rate as domestic remote-betting companies.
“We are the jurisdiction all others look to when trying to understand what it is to do things properly. This is purely a protectionist measure to raise revenue,” complains Figueras.
“Gaming companies run operations all around the world – not just in the UK but also in emerging markets and in the Far East and Latin America,” adds Castiel. “I don’t think any legislation of this sort would be serious enough to unsettle the gaming companies.”
Lawyers, too, are refusing to be unsettled by threats from the UK and Spain. They are confident their clients and the legal market will continue to thrive, despite political interference.