Despite confiscations at the border, contraband grows./ Image: RTVE.
The Diplomat. Madrid
The Ministry of Finance estimates that of the 1,000 euros it does not receive due to the tax system in Gibraltar, 500 can be tied to the illegal trafficking of tobacco into Spain, according to sources from the Ministry headed by Cristóbal Montoro, in conversations with The Diplomat.
The Minister of Finance appeared before the Spanish Parliament on 2 September and confirmed that at the end of 2013 he had sent a letter to the British Government, complaining that the colony’s tax system is causing Spain losses close to 1,000 million euros a year in the form of decreased income from taxation.
The European Union’s Anti-Fraud Office (OLAF) recognised three months ago that the contraband of tobacco from Gibraltar had caused Spain a loss of income close to 708 million euros “in the 2010-2013 period”, but Spain considered that these figures are below the real loss, and that in 2013 alone it surpassed the cited 500 million, according to sources consulted.
Gibraltar’s Chief Minister, Fabian Picardo, reacted to the OLAF report by committing to modify local law on tobacco. Thus, when the new legislation comes into effect, shops and bars will only be able to sell one carton of tobacco per person, per day, down from the current five carton limit. What was limited was the sale time; from 8 am to 8 pm, and that each establishment can only hold up to 30 boxes in their store, which is equivalent to 50 cartons.
Where does the 500 million that Montoro mentioned come from? The minister underscored, before Congress, that the obscurity of the tax system in Gibraltar makes it an attractive point for “suspect activity” businesses. To begin with, their corporate tax exempts from taxation all offshore entities that, while being established there, carry out all activities outside Gibraltar.
According to data published by the United Kingdom, in 2012, of a total of 21,770 corporations registered in Gibraltar, less than 11% pay taxes, and more than half are mere asset holding companies which are not subject to information obligations, neither accountancy nor any investigation processes. Indeed, a great number of the businesses registered in Gibraltar have no employees, or just one.
Madrid wants businesses in Gibraltar to pay their Spanish workers’ income tax
Then there is the taxation on on-line gaming, which Madrid does not receive from the Spaniards who play over the Internet, due to the fact that the key companies are based in Gibraltar, where the tax is of 1% (compared to 21% in Spain), though new British legislation would force them to raise that to 15%.
The Spanish Government also sees fraud in the Gibraltarian companies that employ Spanish workers resident in Campo (about 7,000 cross the border daily, to go to work) due to the fact that they don’t pay their income tax. Another situation under scrutiny is that of fiscal residents who say they live in Gibraltar but spend most of the year in Spain. Montoro spoke of around 6,700 citizens “that benefit from our public services, but don’t pay towards them in their taxes”.
The Revenue, the Minister added, is already developing verification operations which will allow for the regularisation of a high number of contributors who own high tax-value properties. More specifically, nearly 1,700 properties, which add up to a value of close to 250 million euros.
Finally, Spain also sees economic loss in high cylinder capacity vehicles and in recreational crafts that are used in Spain but registered in Gibraltar, the proprietors of which have not paid VAT when they were purchased, and avoid paying annual registration taxes. This would account for a loss for Madrid of about 36% of the value of the vehicles and crafts.
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