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Spanish closure or disruption of the border affecting some 12,000 people – half the jurisdiction’s workforce – commuting from Spain each day. Some of those people may instead relocate to The Rock, rather than face hours-long frontier queues as in 2014 when Spain decided to make life ‘difficult’ for Gibraltar. But outside of the EU, Britain would be less well able to protect Gibraltar’s interests, British Foreign Secretary, Phillip Hammond – who visited Gibraltar in May – emphasised.
“If the price of continued access to the EU or the Single Market or the price of free movement is Joint Sovereignty with Spain or indeed any other Spanish Sovereignty price, then the people of Gibraltar will not pay it”, Picardo maintained.
According to recent research for GCC, almost £350m of goods and services are imported annually from the Campo [the area from Algeciras to Sotogrande in Spain], securing thousands of additional jobs in the region, and Gibraltar accounted for 25% of the Campo’s GDP, amounting to almost £847m, he added.
Working groups are helping to “chart the way ahead in a new world outside the EU” and would unroll “a series of measures and strategies designed to guide Gibraltar through the new reality before us”.
Michael Castiel, a senior partner at Hassans international law firm, specialising in International corporate tax and cross-border work, told Gibraltar International: “Once the emotional reactions and rhetoric is put to one side, hopefully access to the Single Market will be maintained – after all it is in EU Member States’ and UK interest to maintain strong trading relations”.
Likely continuing political uncertainty in Spain [following second inconclusive elections] whilst having UK/EU negotiations, “would certainly not be unhelpful – in any event, it is clear that Gibraltar needs the UK’s support now more than ever to counter any pressures from Spain especially during the delicate process of the exit negotiations”.
Gibraltar has been able to rely on numer- ous EU Directives, including the Parent and Subsidiary Directive – which facilitates the use of Gibraltar companies in cross border corporate structures involving major multinational groups – but Castiel questioned what would happen to those harmonised tax rules and how would other EU jurisdictions treat Gibraltar companies for tax purposes .
“This is a significant uncertainty and one made worse by the fact that Gibraltar does not
have any bilateral tax treaties with other jurisdictions within or outside the EU, unlike the UK”, he pointed out, “and I think it vital for Gibraltar, with the active support and help of the UK, to negotiate a series of bilateral tax treaties with at least some EU Member States.”
Suggesting this should be one of Gibraltar’s priorities, Castiel warned: “From personal experience in dealing with multinational clients, a lack of bilateral tax treaties with some of the key jurisdictions is likely to make Gibraltar less competitive and attractive to global groups.”
Bilateral tax treaties a priority: Michael Castiel, Hassans lawyer
Yet, Gibraltar’s Financial Services Commission has not experienced a reduced interest or fewer license applications, post referendum – “in fact, quite surprisingly, it has been the reverse.”
In business terms, a saving factor is that 95% of insurance premiums written and most of other financial services involve dealing with Britain, but at present largely by virtue of EU membership. Outside of the EU, Gibraltar needs a raft of new bi-lateral trading agreements.
Gibraltar’s Quest Insurance Management Group is just completing a merger with a smaller local competitor, Artex Risk Management (previously Heritage Insurance), adding five staff to its 20, in a move that reflects confidence in the territory by the parent Bermudian re-insurance firm that is also part of A J Gallagher, a US$7bn corporation with eyes on establishing a central European presence for EU access.
Chief Minister Picardo referred to UK Chancellor George Osborne’s idea to cut company tax below previously planned levels to become 15% or less by 2020 as being “interesting in being so close to our own current economic model [of 10% corporation tax] and we must watch to ensure we remain competitive”.
In the meantime, his “prudent” budget measures aim to “ensure that Gibraltar is now
seen as more efficient than other places, an easy jurisdiction in which to do business” and was working “to attract businesses to Gibraltar that are not dependent on access to the EU”. The GDP forecast for 2015-16 is estimated to be £1.8bn, up 7.5% in real terms. And Picardo expects GDP to reach at least £2.4bn by 2019-20 and is “confident that this rate of growth continues to be entirely achievable”.
Uncertainty over Brexit meant “we must be more cautious in spending, more prudent in saving and more astute in achieving this reduced ratio [of 12.5% GDP to public debt] and are looking to reduce debt servicing costs, and restructuring borrowing, to take advantage of historically low interest rates”.
While spending £99m on capital projects in 2015-16, Picardo reported a budget surplus of nearly £39m – twice that anticipated – through revenue rising £22m above forecast, aided by £5m more income tax than expected and company tax £20m higher at £109m, which was 23% higher than the previous year.
More modest spending
In the current year, he is cutting expenditure by a third “to a more modest £61m”, and Picardo emphasised: “It is not a time to stop all government spending or stop all government investment, as to do so would undoubtedly just halt all growth and plunge us into recession, but we must also be alive to the need to cut spending further if the effects of the Brexit vote become markedly more negative in months to come.”
Nevertheless, Gibraltar has a growing “rainy day” fund “which we can pay our- selves as a dividend should we require it”: reserves of Gibraltar Savings Bank, with a deposit base of over £1bn, are £26m and estimated to reach £30m+ by end-March 2017 and £70m by 2019-20.
In all, what Picardo called “rainy day or sovereign wealth funds” were expected to reach £300m by 2019-20. “We have the liquidity necessary to deal with the issues that do confront us, and we have the liquidity necessary to deal with the issues that could confront us.”
Electricity, water and rates remain unchanged, and a new incentive business start-up scheme for companies and limited partnerships established before 30 June 2017 offers up to £50,000 in tax credit for each of three years, provided at least five people are employed within the first 12 months.
Ray Spencer
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Gibraltar International
www.gibraltarinternational.com