Insurance and gaming companies consider setting up La Linea branches of the Gibraltarian operations
With the probable departure of Britain from the EU without a deal galloping towards the deadline of October 31, is it perhaps appropriate that this should be the day – celebrated as Halloween – marking the start of a three-day spell in the liturgical year dedicated to remembering the dead.
For it will mark the death of a decades-long relationship… as well as what initially will be a damaging time for Britain’s financial service industries and a potential threat to Gibraltar’s economy.
The worst-case scenario outlined in the leaked – and now notorious – “Yellow-Hammer” report left by the Theresa May government is speculative rather than factual, and its prediction of four-hour queues (both coming and going at the border), can be dismissed as fanciful fears. In fact, the Campo’s economy would be harder hit by such disincentives than would be Gibraltar’s.
Nevertheless, fears of a ‘hard’ Brexit have been heightened by tough-talking Boris Johnson’s occupation of No10 Downing Street.
However, such fears also must strengthen La Linea’s attraction as bolt-hole for Gibraltar-based finance-related firms seeking to retain a foothold within the EU or already handling EU business. The concept is not new… and is certainly more appealing than an earlier suggestion that Malta could provide an ‘escape route’ or stepping-stone.
The past six months have seen Gibraltar insurers explore the possibilities of setting up Spanish subsidiaries to conduct EU-linked business in neighbouring La Linea, while making use of the ‘back-room’ technical facilities and expertise in Gibraltar. Such companies would pay Spanish tax on operations outside the British/Gibraltar orbit – something made simpler by the historic dual taxation agreement reached earlier this year between the Rock and Madrid.
And the recent accord between the Mayor of La Linea, Juan Franco, and the Andalusian arm of the governing PSOE – in which PSOE-Andalucía undertakes to ‘mediate, to obtain a special tax status for La Línea to cover…activities in the insurance, financial and online gaming sectors’ has given renewed impetus to the ‘hard Brexit’ strategy to establish Spanish subsidiaries mooted by Hassans partner and recently appointed QC Nigel Feetham almost two years ago.
His concept was that the ‘new’ companies would have an official presence in La Linea – regulated by Madrid, creating jobs and paying Spanish taxes – but the main ‘backroom’ work would continue to be done in Gibraltar.
The proposal was welcomed, among others, by authorities in San Roque who offered to make cheap office space available; and was listened to sympathetically by regulators in Madrid, Feetham said at the time. And he suggested that significantly higher Spanish corporate taxes – which were seen as a major obstacle – could be overcome by a special tax status for La Linea for EU business in Gibraltar affected by Brexit.
And this concept does not apply only to insurance, but also to gaming where a precedent for ‘favourable’ treatment in this sector was set last year when the Spanish Government granted a special tax regime to Ceuta and Melilla for gaming companies.
It is strengthened by a legal opinion, published by Madrid University and given by a Spanish constitutional lawyer from the university. It was requested by the Mayor of La Linea and looks at ‘the legal-constitutional possibility that the municipality of La Línea de la Concepcion becomes an Autonomous City to enjoy a regime of self-government similar, although with its specificities, to the rest of the Autonomous Communities and, especially, to the framework regulation of the cities of Ceuta and Melilla.”
The opinion argues that there is ‘no impediment or constitutional, statutory, legal or European law prohibition for the conversion of the municipality of the Línea de la Concepción into autonomy, under the formula of autonomous city, regardless of whether such process is more or less complex, expensive, convenient or timely.’
And it seems to support Feetham’s long-time argument that the autonomous regions Ceuta/Melilla can have a separate tax regime from the Spanish mainland without infringing EU state aid rules because they are autonomous and the problem is that La Linea is not and therefore the room for manoeuvre less under EU law. If La Linea also had autonomous status this impediment would therefore disappear.
‘Gaming companies are already looking at establishing in Ceuta given the special tax regime there – so why not La Linea for both gaming and insurance if La Linea was an autonomous city with its separate tax regime?’ Feetham argues.
Elements of China’s relationship with Hong Kong are worth exploring in the La Linea context, argues Charles Gomez the Gibraltarian barrister and associate professor of International Law at the University of Cadiz. After Britain’s departure in 1997 China implemented an “autonomous administrative and economic status” in Hong Kong and the New Territories, Gomez points out.
“This shows how even in a highly centralised command economy based on Marxist principles such as is China; the National People’s Congress had the intelligence and flexibility to act to the benefit of both Hong Kong and China. Though there are obvious legal difficulties in doing the same in the Campo de Gibraltar, China has shown that with flexibility, courage and imagination it can be done”.
‘We should at least have similar ambition and aim to make Gibraltar and La Linea and other parts of the Campo de Gibraltar an “alpha+ global conurbation” like Hong Kong and not settle for less” says Gomez.