Living within the new guidelines

From Archive 01 July 2009

By PWM Editor

Gibraltar was one of a number of jurisdictions to be placed on the OECD ‘grey’ list following G20, a move that did not surprise Chief Minister Peter Caruana, writes Elliot Smither

Gibraltar was not surprised to find itself placed on the OECD ‘grey’ list of jurisdictions that came out of the G20 summit in April, according to the Chief Minister of the self-governing British overseas territory, Peter Caruana.

Explaining how he believes the world has changed as a result of the financial crisis, he says there is now a global appetite for more transparency and greater levels of regulation, and that the G20 had to be seen to take action against perceived tax havens and the more secretive jurisdictions.

The requirement for Gibraltar and other grey-listers to sign 12 tax co-operation agreements with some key countries was an inevitable development, said Mr Caruana, as politicians had to take some kind of action to deal with the global situation, although he believes that the figure 12 was decided on the spot.

He claims the government had realised that a new financial order would have to emerge from the crisis, and says he is not uncomfortable with the ‘grey’ status. “There was no prior notification from the G20. I think that 12 was a figure pulled from a cloud. But I am confident that we will get them all,” he says.

Mr Caruana claims to see the list as a kind of progress report, and says much of the work to comply with the directives is well underway as Gibraltar, which is a member of the European Union, has been trying to reposition itself as a financial centre over the last 15 years.

“Gibraltar has made a successful transition from a tax haven to an onshore financial European mainstream centre,” he says. Financial services account for approximately 33 per cent of GDP in Gibraltar, which has a population of 30,000.

New tax rate

Mr Caruana’s government is planning to introduce a new 10 per cent flat corporate tax rate next year, having previously had a 30 per cent rate

for corporations located there, although most took advantage of the tax system and paid an effective rate of zero per cent.

Gibraltar is not a major banking jurisdiction but does attract a number of high net worth individuals.

Mr Caruana believes the effects of G20 will be widespread and that all financial centres have to be prepared to work within the new guidelines. “G20 has changed the world forever. Any financial centre that doesn’t get that will come a cropper sooner or later,” he explains.

He states that Gibraltar is not challenged by the list but that those territories who refuse to meet the new standards, “whether they have been rightly or wrongly set”, will suffer.

“Companies with mainstream interests and corporate reputations want to go to places that meet the standards. Those that don’t will have to operate around the fringes.”

Gibraltar is still seeing applications for insurance and funds business, despite the tough economic climate, according to Marcus Killick, CEO of the Financial Services Commission (FSC), the financial regulator in Gibraltar. “I thought we would take a hit as a result of the financial crisis, but Gibraltar’s reputation and the EU status means we are attractive. We are still seeing applications for insurance and funds.”