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Monaco Might Lose Its Status of Personal Income Tax Haven
by Laura Ciocan
That Monaco is crowded with celebrities is no piece of news. Since 1869, when
the personal income tax policy became favorable, Monaco attracted very many
individuals with high net income, such as movie stars, sporting stars etc. who
became residents of the Principality in order to benefit from personal income
tax exemption.
Take, for instance, Roger Moore, Shirley Bassey, Ringo Starr, Karen Mulder, Eva
Herzigova, the race drivers Jacques Villeneuve, David Coulthard, Jenson Button.
But the number of celebrities is far outnumbered by the number of business
people who enjoy the country's tax facilities: the retail tycoon Philip Green
and the Barclay brothers are Monegasque residents.
Being a resident of Monaco implies proving you have a place to live and are rich
enough to afford a very high standard way of life. And I mean really rich, as a
place to live in the apartment blocks jammed into two square kilometres, either
rented or bought, is extremely high.
Keeping residency implies proving you live in Monaco at least 6 months and a day
per year. If you are rich, the advantage of being a Monaco resident is that,
besides enjoying a sunny, pleasant climate, you can live at the same time in
another country. The Principality is very close to main airports and is also
easily reachable by sea, by car or by train. Thus, being a Monaco resident and
working in another country is not only possible but it's easy especially
speaking of UK citizens: laws in UK permit a maximum stay of 90 days (without
counting the day of departure and that of arrival!) for non-residents. Many UK
business people reside in Monaco and work in the UK without surpassing the 90
days limit so that they are subject to Monaco lawas for taxation.
Having attracted so many rich resulted in a conflict of interests: many
countries disapprove of this taxation policy, looking at it as an evasion from
taxes in their national area. And not entirely wrongly! In fact, Monaco has been
"tax-cheating" a little by attracting capital from the high tax countries.
Looking at the issue from the perspective of the Principality, seems to me only
right to try and succeed to evolve with the few means and resources a state so
small has. Monaco developed from one of the poorest countries in the world (in
the 1860s) into a state with one of the world's highest per capita income
(around
EUR22,000). And it was possible due to a strategic leadership of a resourceless
country. It is after the territory was drastically reduced that this personal
income tax policy came into being. Attracting foreign capital become one of the
main targets for development. That's how the Casino became grand and famous and
emphasis was put on tourism, being raised at luxury levels.
After the individual taxation regulations, in 1963 the Principality came with
another financial artifice: no tax for local company profits or dividends. Thus
the target was to enhance local business flourishing. This stipulation combined
with an almost hermetic data privacy did nothing else than to increase even more
foreign investments in Monaco.
So, from the point of view of big economic powers, Monaco should be punished,
and so deserves any country daring to offer a better taxation alternative,
putting at a disadvantage their high-tax based economy. The OECD has a project
on "harmful tax practices" stipulating a set of punitive measures for the
non-cooperating jurisdictions.
Invoking money laundering and international terrorism tracking, many OECD
governments promote a policy of free information exchange that has as main
purpose limiting the tax competition, beyond the intention to limit tax evasion
and to combat serious crime.
Estimated negative results of OECD policy:
* Eliminating tax competition would result in uniformizing taxes to the amount
dictated by some governments. Without the possibility of choosing a better
alternative, there is no reason for governments to reduce taxes and make the tax
system more efficient.
* This policy would change the present status of emigrants that pay taxes only
to their new country and would promote the premise that the state still has a
right to benefit from its former national labour. This sounds to me like a
violation of fundamental human rights.
Although in 2004 still on the OECD black list of the tax policy non-cooperating
jurisdictions, Monaco has changed its policy regarding the high confidentiality
of financial data in the light of the expected, recent admission to the Council
of Europe (Monaco joined the Europe Council on October 5, 2004 ). Modifications
to legislation:
*
October 2001:
French citizens living in Monaco since 1989 must pay a wealth
tax beginning with 2002. * Information on French nationals are to be
unconditionally provided to the Bank of France when required. Information may be
passed on to the authorities of France or of a third country if necessary.
*
2004:
Under EU's Savings Tax Directive, Monaco will impose a witholding tax on
the returns on savings such as bank interests earned by EU citizens. The tax
quantum will be the same as in Austria, Belgium and Luxembourg (initially 15%).
75% of such revenues will be handed over to the Member State of the respective
EU resident. This will be applied beginning with 2005.
*
December 2000:
Monaco signs the United Nations Convention Against
Transnational Organised Crime. The treaty stipulates that its members do not
permit anonymous accounts requiring identification of customers. Banks must keep
accurate records of accounts and report any suspicious transaction. Moreover,
the domestic law enforcement officials are permitted inspection of accounts.
With all these measures, it seems that Monaco's attraction as a personal income
tax haven will decrease. It remains to be seen how all these measures will affect
Monaco financial and banking system after becoming operative.
About the author:
Laura Ciocan writes for
http://www.ilovemontecarlo.com where you can find more
information about Monte Carlo.
Please feel free to use this article in your Newsletter or
on your website. If you use this article, please include the
resource box and send a brief message to let me know where it
appeared.
Contact: lauracio@gmail.com
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