Monaco might lose its' Offshore Tax Haven status

That Monaco is crowded with celebrities is no piece of news. Since 1869,
when the personal income tax haven 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 laws 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 labor. 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
withholding 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 Organized 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.

Ramona Irinescu writes for www.ilovemontecarlo.com where you can find
more information about Monte Carlo.

Article Source: EzineArticles.com