Chief Minister Informs Financial Sector Of Gibraltar's OECD Strategy

by Mandy Robinson, Tax-news.com, London

25 May 2001

Gibraltar's Chief Minister, Peter Caruana, has written an official letter to the Gibraltar Finance Centre detailing the 'up to date state of play' of the government's plans to ensure the removal of Gibraltar from the OECD's blacklist of jurisdictions with so-called "harmful" tax regimes by complying with the terms and conditions stipulated by the Paris-based organisation.

Published by the Panorama news service in Gibraltar this week, the document contains the government's commitment to maintain Gibraltar's "good reputation" by extending the level of its current international anti-money laundering standards to that of its taxation system.

The following is the full text of the Chief Minister's letter to the Finance Centre:

Until recently the concept of 'internationally accepted standards' in financial services was limited to anti-money laundering issues and regulatory issues. Since 1998 the G7, OECD and EU have combined to extend the concept to taxation issues.

In respect of both anti-money laundering and regulatory issues it has been the policy of the Gibraltar government to place Gibraltar at the forefront of compliance and good reputation. Gibraltar should operate to the highest international standards.

It is the Government's view that this policy, which has yielded good results, should be extended to such internationally accepted standards as emerge in taxation issues. Despite its objections to the manner in which some of these standards have been formulated and applied, the Government believes that the alternative course does not offer a viable and durable future to Gibraltar as a prosperous, successful, international finance centre. This is so not least because the proposed 'defensive measures' (sanctions) would undermine both the ability to operate and the reputation of the finance centre.

The OECD has sought a commitment by 31st July 2001 from Gibraltar and 34 other international finance centres.

But the challenges to Gibraltar (and many of our competitor jurisdictions) do not come just from the OECD initiative. There is also the proposed EU Directive on Taxation of Savings Income, the EU Code of Conduct on Business taxation and (uniquely to Gibraltar, rather than the other finance centres listed by the OECD) the application by the EU Commission of existing State Aid Rules to tax incentives.

These initiatives represent a challenge to all reputable international finance centres, however the Government is confident that our finance centre can be repositioned and our tax laws and administrative practices can be reshaped to ensure the continued prosperity of a competitive finance centre in Gibraltar. It is vitally important to achieve this. The finance centre is an essential pillar of our economy. It provides high quality, well paid jobs to thousands of people in Gibraltar, directly and indirectly. Equally importantly, it provides the Government with essential revenue to deliver high quality health, education and public services to the whole community, including those who do not work in the finance centre. The whole community therefore has a very large stake in the fortunes of our finance centre.

This document explains, in some detail, the substantive content of all these international initiatives, their specific implications for Gibraltar’s finance centre, and the things that we would have to do differently in order to comply.

For the Government, the primordial principles are certainty of compliance requirements and the international level playing field, i.e. that we should know exactly what is required of us and that all our competitors should have to do the same and live by the same rules. This is an essential precondition of Government’s approach to these matters (where we have a choice), and is the basis upon which the Government has already indicated publicly that it intends to give the OECD the commitment sought by 31st July 2001.

This document does not deal with the Government's proposals for remedial action. That is unnecessary at this stage (because immediate implementation is not required) and also not appropriate (because some important compliance requirements remain undetermined).

The Government nevertheless wishes to make it clear that it is the Government's intention that the vast majority of the underlying uses to which clients of our finance centre currently put Gibraltar, will continue to be available on the basis of no or nominal taxation, as at present. That is the underlying principle and objective of the Government's plans for remedial action. Needless to say the Government will consult intensely in this respect with the various sectors of the finance centre, both directly and through its representative bodies, especially the Finance Centre Council and joint working groups (to be established).

Already there has been a large measure of such consultation, but this document, which is being sent to every licensed financial services operator in Gibraltar, is an important step in that consultation process. The Government will establish formal and informal mechanisms to enable interested parties to express their views and ideas.

The Government has been engaged, during the last 18 months, in extensive discussions with the OECD in Paris, the EU Commission (on state aids), the UK Government, with political leaders in other finance centres and, locally, with finance industry leaders. This document reflects the up to date state of play, on all the international initiatives, as at 1st March 2001, culminating with our bilateral meeting with the OECD in Paris on 28th February 2001.

I would like to take this opportunity to thank Michael Llamas, the Director of the Gibraltar Government office in Brussels, and Jimmy Tipping, the Director of the Finance Centre for their inestimable work and support to me and to Keith Azopardi, Minister for Trade, Industry and Telecommunications in the production of this Document and in Government’s management to date of these complex and challenging issues.

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