"If Spain wants to take the dispute to court, that's music to our ears"

Fabian Picardo has been in office a month less than his Spanish counterpart, Prime Minister Mariano Rajoy. The 41-year-old head of the government of Gibraltar has cut short his vacation due to the latest crisis with Madrid, over the territory's plans to create an artificial reef using concrete blocks. Outside his office, Gibraltar is a hive of activity, its streets thronged with visitors and its hotels full to the rafters, despite the efforts of Spanish customs officers at the border to delay visitors entering from the neighboring Spanish town of La Línea de la Concepción. A better illustration of how diplomacy has little to do with the real world could hardly be found.

Question. Do you smoke?

Answer. Never have done.

Q. That's funny, because according to the Spanish authorities, you should smoke at least 10 packets a day. Aren't you bothered that Gibraltar and its tax authorities are making money out of its neighbor's bad habits?

We passed an anti-tobacco law and increased the price of cigarettes"

A. Spain's figures are wrong. There are 30,000 people living here, but visitor numbers are between seven and 10 million a year. And one of the things that they buy is tobacco. Aside from this, it is true that the crisis in Spain has prompted many people to come here to buy their cigarettes, or to buy and then sell on to others. Gibraltar is the only state in the world that has a law preventing somebody from being in possession of more than 10 cartons of cigarettes. And we do more than that: we have approved an anti-tobacco law, and we have increased the price of cigarettes three times. But we aren't going to have the same prices as Spain, in just the same way that there are things in Spain that are cheaper than in Gibraltar, but we don't go there and line up to buy them.

Q. You stood for office on an environmental ticket, but one of your first measures has been to restrict fishing rights for a few Spanish boats: a bit of an over-reaction, wouldn't you say? Wouldn't you have won more support by going against at-anchor bunkering of shipping fuel, for example?

A. It's not about attacking bunkering or fishing: both can be done sustainably. As regards fishing, there was an agreement that was against Gibraltar's wishes, and when the agreement was dismantled, we had the fishermen on our doorstop demanding a solution. On the matter of bunkering, Spain says that floating tankers are illegal. They are not illegal according to Gibraltar's laws or those of the EU, and neither are they illegal under Spanish law, because in Ferrol [Galicia], what is being criticized here is also going on. My program states that we want to move bunkering onto the land. This is a project that we are carrying out, and I hope that we will make a start on this before the current legislature is out.

My program states that we want to move bunkering onto the land"

Q. It came as a surprise to Spain to learn that you wanted to create an artificial reef.

A. We knew nothing about Spain's plans to create artificial reefs in the bay either, and we knew nothing about the continued extension of the port of Algeciras. That's fine. No problem. There is European legislation that obliges us to carry out consultations when we do something that affects the environment. And an artificial reef does not alter the environment; in fact it makes a positive contribution to the environment. Did we consult Spain? No, and neither are we required to do so. And if we had wanted to, it would have been impossible, because there is no longer any forum within which to do so, because the Popular Party government did away with it.

Q. Your government has bought rapid-response boats for its police force. This might suggest that you were readying for a conflict.

A. The boats are designed to deal with drug trafficking; they are the fastest in the area. Since they have been in operation, we have carried out joint operations with the Civil Guard.

Q. By the way, Spanish authorities are looking underwater for more concrete blocks; it's as though they are still being laid at night.

Did we consult Spain on the reef? No, and neither are we required to"

A. We are surprised to hear this. But our position couldn't be clearer: we can do what we like in our waters, accepted by everyone except Spain. We don't have to create an artificial reef secretly. We have nothing to hide.

Q. So if more blocks were being laid, you'd do it with lights, and take a lie detector test.

A. Naturally.

Q. And what if the United Kingdom asked you to remove them?

A. We enjoy close relations with the United Kingdom, better than ever in fact, and they know about what we are entitled to do. It is not London's responsibility to deal with environmental matters in this area.

Q. The Spanish foreign minister, José Manuel García-Margallo, has asked you to remove them.

It is not London's responsibility to deal with environmental matters in this area"

A. He has no say in the matter either.

Q. He's asking for a goodwill gesture.

A. No he's not. Gema Araujo [the mayor of La Línea] asked me to do so as a gesture of goodwill, and without threatening us, without creating delays on the border and without insulting us. That is a gesture of goodwill. The minister tends to lie about Gibraltar; he says that we must remove the blocks before any talks can take place. Gibraltar will never back down in the face of threats, because if we did so today, then they would create longer queues on our doorstep, and they would ask us to hand over our sovereignty, and that's not going to happen.

Q. Are there 7,000 people registered as living in Gibraltar to avoid paying their taxes, but who really live in Spain?

A. I think that figure is an exaggeration. There are many people living here with houses in Spain; I couldn't tell you whether they are luxury villas. But I will tell you this: if there are people who work here and live in Spain for more than 183 days a year, then they must pay their taxes in Spain. We wouldn't have it any other way. That is why we have offered Spain a double tax treaty.

Q. For so much fraud to be going on, there must be many Spaniards with bank accounts in Gibraltar.

Sovereignty is a unilateral issue for Gibraltar and our queen to decide"

A. The government of Gibraltar doesn't want a cent from anybody who is avoiding paying their taxes, Spanish or otherwise. But, given the negative things that Spain has said about Gibraltar over recent years, to the effect that this place is little more than a den of pirates, I wouldn't have thought that any right-minded Spaniard would want to invest or do business here.

Q. Margallo seems to be taking his inspiration in getting back at Gibraltar from Franco's foreign minister in the 1960s, Fernando María Castiella. But it was the Socialist Party government, not the current Popular Party administration, that dismantled the tripartite body consisting of representatives of the UK, Spain, and Gibraltar.

A. I don't accept the version of events that blames Trinidad Jiménez [the Socialist Party foreign minister under the Zapatero government] for doing away with the tripartite forum. No meeting was held while she was minister because the big issue then was a dispute over territorial waters. Spain had made it clear that it was not prepared to discuss sovereignty issues. This happened when Peter Caruana was chief minister. We accept the principle of not discussing sovereignty questions within the forum, and we would never bring them up; Gibraltar has never believed that it is an equal partner in this. Sovereignty is a unilateral issue for Gibraltar and our queen to decide. Or the United Kingdom. I am prepared to put it in writing: Gibraltar does not want to discuss sovereignty questions within the tripartite commission.

Q. Have Gibraltar and the United Kingdom accepted the formula of a bilateral or four-way dialogue?

A. Absolutely not. We have proposed that in parallel with the trilateral commission, ad hoc meetings be held. These could, in some cases, be trilateral. The United Kingdom has said again and again, as I have, that the most appropriate forum for talks is the tripartite commission. Our position has not changed in this regard. We suggested to the United Kingdom the idea of ad hoc meetings in a letter from April 2012. Spain has yet to reply, other than the comments made recently by Mr Margallo.

Q. Don't you think that it is a bit over the top to request EU observers?

Gibraltar is one of the few territories that has applied all EU directives"

A. The EU observers were requested by the British prime minister, David Cameron, to observe what the Civil Guard was doing at the behest of the Spanish government. Cameron called on a Friday, and Rajoy on Monday, to ask that when they come, as they are going to observe the border controls and because those controls are related to tax evasion and money laundering, that they should look into that as well. The reality is that they are here to look into Spanish abuses of authority. They are here for that reason, and nothing else, but Gibraltar is prepared to cooperate and we will show the EU that everything is done according to the rules. Gibraltar is one of the few European territories that has applied all EU directives.

Q. Spain says that it is prepared to take Gibraltar to an international court.

A. That is music to our ears. There are two international courts that apply in this case: the Hague, which would establish the right to self-rule, something that the United Kingdom challenged Spain to do in the 1960s. Then there is the International Tribunal of the Law of the Sea, in Berlin, which settles disputes related to the United Nations in connection with maritime legislation. There we could establish whether Spain has any authority over these waters. Let's settle these disputes in civilized forums, and let's see Spain stop trying to strangle Gibraltar with these ridiculous border controls.

The game's up for the Rock

Ramón Muñoz

The biggest threat facing Gibraltar right now comes not from protests by Spanish fishermen or Prime Minister Mariano Rajoy's bullish diplomacy, and not even from his seemingly shelved threat to impose fees at the border crossing. No, the biggest danger to the growth of the Gibraltarian economy comes from the Palace of Westminster, the seat of the parliament of the United Kingdom, where a proposal is currently being debated to change the way online gambling is taxed, and not just in the UK, but in all British territories, including Gibraltar.

The change to the law would deliver a serious blow to the finances of the Rock, where growing numbers of multinational online gaming companies are based, attracted over the course of the last decade by Gibraltar's extremely low taxes.

But that could all change very soon. A draft bill proposed by Prime Minister David Cameron currently making its way through Westminster aims to impose a 15-percent tax on the net earnings of these companies (turnover from bets, minus prizes), instead of the one percent they currently pay (with a minimum threshold of 85,000 pounds and a maximum of 425,000 pounds). This would involve changing from a system that is currently based on the location of the player, and not the fiscal domicile of the company, and would see the introduction of a license system that operators would be required to have in order to take bets placed from the United Kingdom.

The more than 20 multinationals that operate in Gibraltar, and which rely on the unconditional support of the government of Fabian Picardo, are angry at the proposals. The Gibraltar Betting and Gaming Association (GBGA), which represents online gambling companies based on the Rock, says that if the tax reform goes through, it will take the matter to the courts. They say that although they and their employees are domiciled in Gibraltar, at least half of their betting customers are based in the United Kingdom.

The Gibraltar authorities are no less concerned. The online gaming companies employ roughly 1,800 people, which is around 12 percent of the workforce in a community of 28,000 inhabitants, while taxes from gaming amount to some 15 percent of the government's revenue.

The gaming companies have until September 30 to submit their amendments to the law, but the UK government has made it clear that it is not prepared to introduce any substantial changes. Treasury Secretary Sajid Javid said recently: "It is unacceptable that gaming companies are trying to avoid paying their taxes by moving to tax havens."

In response to recent public anger over online companies and banks avoiding their taxes, the British government has decided to make a stand on fiscal evasion. The problem is not limited to Gibraltar, by any means. Some 85 percent of online gambling in the United Kingdom is carried out by companies based in low-tax locations such as Alderney, in the Channel Islands, the Isle of Man, Gibraltar and Antigua, in the Caribbean. The government also intends to extend the legislation to Northern Ireland, which was exempted from a 2007 law on online gambling. Overall, the UK's gambling sector generates net earnings of around 5.8 billion pounds, of which 717 million pounds relates to online gaming, for which 216 companies currently hold licenses.

The government's aim is to see the bill through Westminster, and for it to come into effect on December 1, 2014. Estimates suggest that the move will generate extra annual revenue of around 300 million pounds (350 million euros).

If, as expected, the bill is passed by parliament, the gaming companies' only recourse will be the courts. The GBGA has already collected 500,000 pounds from among its members to pay for legal fees. Among the big companies based in Gibraltar are Ladbrokes, William Hill, Bwin.party, Digibet, 888.com, Paddy Power, Betfair and Gala Coral.

Gibraltar expects that most of these companies will go elsewhere if they lose their tax breaks. "It is logical for companies to look for jurisdictions with lower tax pressure. But this measure will have other consequences: it will reduce investment in marketing and sponsorship, and it will damage small companies, which will be obliged to close or leave the UK market," says Laura Guillot, an expert on gaming in Spain.

The measures will not benefit Spain, however, which already has some of the highest taxes in the region, according to JDigital, the association that represents the Spanish online gambling industry. Legislation passed in 2011 puts a 25-percent tax on the net earnings of gaming companies that use a .es domain, even if the company is based in Gibraltar or elsewhere.

"We have no real idea of what the impact of this change to the law will be," says Miguel Ferrer of JDigital. "But we must remember that Spanish gamblers must also pay income tax on their winnings from online gambling, while the earnings of users in places such as the UK, Gibraltar, France and Denmark are not subject to tax, even if their own countries require licenses for online gaming companies. This makes Spain an extremely uncompetitive market in which to operate," he adds.