In Monaco, between the real economy and the blacklist of tax havens

MONTE CARLO – From this shea butter and “emulsifier” storage room on the sixth floor of a building, we have a view of a veritable princely palace.

We are far from the usual clichés about Monaco. It is here, in this industrial building in Fontvielle – a district built on reclaimed land – that the Aspeta laboratories have decided to establish themselves.

The small company employs 120 people, all of whom work in this six-story building, inventing and creating its moisturizing and anti-aging creams. Inside “la Ruche” as it is called here, white coats and hygienic caps are mandatory for employees – security measures are very strict.

It’s not what you think of when you think of Monaco, its billionaires, its yachts and its casinos. Asepta’s neighbors are equally unglamorous: Fonderie de Monaco and professional coffee machine maker Conti, and others.

It’s a new concept: the principality is proud to show that industrial companies are flourishing on its territory, like the solar company Lancaster and the aerospace subcontractor Atoms. “One hundred and one in total,” says François-Xavier Le Clerc, deputy director of the Monaco Business Office. Most of these businesses are old family businesses.

Monaco, a two square kilometer jewel of the Côte d’Azur, suffering from a lack of space to accommodate new manufacturing companies, its objective is to attract “smart” companies: research and development centers, offices of studies.

Much has been done during the “normalization process” of Monaco. Until 2010, the principality was on the OECD’s list of “non-cooperative” tax havens, and it is struggling to get rid of this image, despite its efforts to earn the respect of major international institutions.

But the new image of Monaco, which has long been considered a black sheep due to its lack of transparency, is still clouded by its very attractive financial legislation. It is a refuge for its inhabitants, who pay neither income tax nor inheritance tax. That is to say, with the notable exception of American and also French nationals, in accordance with an agreement signed 50 years ago by General de Gaulle.

However, Monaco lives off its taxes. “Our budget is financed by VAT (sales tax), corporation tax and property transfer duties,” explains Michel Roger, Monegasque Minister of State, equivalent to a Prime Minister. Today, the principality is neither on the OECD list nor on the list of the Financial Action Task Force (FATF) – an intergovernmental body that fights against money laundering and the financing of terrorism. However, it is still listed as a tax haven by organizations like the Tax Justice Network (TJN), a coalition of researchers and activists fighting against the negative impact of tax evasion and tax havens.

[rebelmouse-image 27087043 alt=”””” original_size=”638×167″ expand=1]

A panoramic view of Monte Carlo – Photo: Scott Anderson

In 2009, in the aftermath of the financial crisis, when world powers launched their global fight against tax havens, Monaco sought to adapt to international standards. To get out of the “black list” of tax havens, it has multiplied agreements for the exchange of information for tax purposes. It quickly signed the 12 tax information exchange agreements (TIEAs) required by the OECD, and today that number has risen to 27. But Monaco still faces a lot of criticism. His first TIEAS were signed with countries that share an equally dubious image – such as Andorra, the Bahamas, Liechtenstein, San Marino and Samoa. “Until 2010, the principality did not behave properly. But since then, it has made a lot of progress,” explains Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration. “It takes time to sign agreements with the big countries,” explains Roger, who adds that Monaco has agreements with the United States, Germany, Argentina and India.

A golden ghetto for the rich and famous

The principality is also trying to erase its image of a golden ghetto for wealthy tax evaders by promoting its real industries. In Monaco, there are no “letterbox” companies. Every new business must go through a rigorous process to be licensed. Most businesses belong to the service sector, with financial services occupying the largest share. They represent 16% of GDP, although this proportion has decreased over the years. Thirty-nine international banks and 51 fiduciary companies manage around 100 million euros in deposits and investments.

Even if it is pampered and protected, the industrial sector represents only 6.2% of the GDP. The state is trying here and there to help the sector a little, for example to compensate for the high real estate prices. “The government is renting this building to us at a preferential rate,” explains Anne-Marie Noir, daughter of one of Asepta’s co-founders and current CEO.

A total of 301 companies were created in Monaco last year, 15% more than in 2011. Attractive tax rates also play a central role here. Companies do not pay business or property tax. Those who earn more than 75% of their income in Monaco do not pay corporation tax. A boon for hoteliers, restaurateurs and traders.

Working in Monaco also has its advantages for employees. The minimum wage is 5% higher than in France. Add to that a 5% “Prince’s Bonus”. For Monaco, it is essential to remain attractive for employees in order to maintain employment growth.

If the principality aspires to become more transparent, it still hides certain things in the shadows. For example, he still hasn’t signed TIEAs with the UK or Italy. As there are approximately 6,500 Italians residing in Monaco, this represents a loss of tax revenue of up to one billion euros per year for Italy.

The principality has also negotiated derogations allowing foreign nationals with accounts in Monaco to remain anonymous if they wish.

But today the pressure is mounting on Monaco. World powers have launched a new war on tax evasion. At their recent meeting in Northern Ireland, the G8 members agreed on an automatic exchange of information for tax purposes. The exact terms of this will have to be defined by the powers that be, warn NGOs like Transparency International. Monaco will be forced to respect these new rules. “Of course, we are not opposed to these decisions if they represent the new international standard for the exchange of information”, declared Jean Castelleni, Minister of Finance of Monaco.

The situation of the principality has become a little more delicate. In May, Austria and Luxembourg announced that they would abandon banking secrecy if Switzerland, San Marino, Liechtenstein, Andorra… and Monaco did the same. “For the moment, nothing indicates that Monaco will respect the automatic exchange of information”, specifies Saint-Amans.

But in the long term, if it wants its name to be permanently removed from the “black list”, the tiny nation will have to adapt to the new standards.