Once A Tax Haven, Gibraltar Now Says It's Low-Tax

Enlarge this image toggle caption Lauren Frayer for NPR Lauren Frayer for NPR

Gibraltar, a tiny British territory at Europe's southern tip, is famous for its geography — a huge limestone rock — that appears on the Prudential logo.

It's a global center for offshore banking, with the trappings of wealth to prove it: Luxury high-rises tower over super yachts in Gibraltar's marina. The 2.6-square-mile territory boasts a standard of living several times higher than surrounding areas across the border in Spain.

Gibraltar doesn't appear in the Panama Papers, even though it has its very own branch of Mossack & Fonseca, the law firm whose leaked documents exposed thousands of offshore investments, embarrassing politicians and celebrities worldwide.

Gibraltar's leaders and residents are breathing a sigh of relief that they have not been drawn into the controversy, saying they have reformed their tax structure and are a proper place to conduct business.

"Mossack & Fonseca & Co. Gibraltar Limited maintains the highest professional standards, and has operated in compliance with appropriate Gibraltar laws for many years," the law firm's Gibraltar managing director, Nick Poole, said in a written statement to NPR. The firm refused to allow any of its lawyers to be interviewed.

Gibraltar used to charge no taxes on companies incorporated in the territory but doing business abroad. However, in 2011 Gibraltar imposed a 10 percent corporate tax across the board, whether beneficiaries are residents or not. The territory is now considered a low-tax zone, between the likes of Delaware — with 8.7-percent corporate tax — and Ireland, with 12.5-percent.

"Gibraltar can hold its head high. I invested a lot of taxpayers' money in insuring we produce the laws necessary, and we enforce those laws," Gibraltar's chief minister, Fabian Picardo, told NPR in an interview at his office.

Tax Revenues Rise

Picardo says that while the number of companies incorporated in Gibraltar has dropped from 40,000 to 25,000 since the new tax regime took effect, the territory has not lost tax revenue.

"Our corporate tax take used to be 20 or 30 million pounds ($34 million or $42 million)," he says. "It's now more than 100 million pounds (about $141 million)."

Picardo says he hopes to welcome more companies attracted to a legitimate low-tax environment, rather than a potentially embarrassing tax-free haven.

The new structure is also a boon to local businesses, which used to pay much higher tax rates than absentee foreign ones.

"Twenty-five, 30, 40 years ago, people did come to Gibraltar on planes with suitcases of cash," says retiree Joe Garcia, who used to run a family clothing business just off Gibraltar's Main Street. "I was angry as a businessman that I was paying 38 percent corporation tax, and other people were paying very little or nothing. But that is not the situation today."

The OECD recently commended Gibraltar for closing its tax loopholes. And the Tax Justice Network, a watchdog group, estimates Gibraltar has less financial secrecy than Norway or the Netherlands.

Low Taxes

But Gibraltar still has no sales tax, no capital gains tax — and no inheritance, wealth or estate taxes. It has nearly full employment, compared to nearby areas of Spain, where the jobless rate tops 50 percent — which fuels some animosity.

"Obviously, if you have neighbors who have more money than you, yes — you feel a bit disappointed, angry, of course!" says Juan José Uceda, who runs a club for Spaniards who commute to Gibraltar for higher-paid work, and advocates for them.

That animosity is exacerbated by politics. Spain has long laid claim to Gibraltar, after being forced to cede it to Britain after a battle more than 300 years ago. Many Spaniards want it back.

Last year, the right-wing Spanish newspaper ABC ran a huge front-page illustration, showing the Rock of Gibraltar as the tip of an iceberg of dirty money — and alleged that the territory is still a tax haven. Gibraltar's government sued the newspaper.

Gibraltar says it complies with all European Union regulations for its financial services, and transparency. But this summer, Britain votes on whether to leave the EU. And if it does, those financial regulations might no longer apply here.