October 16th, 2012
03:54 AM GMT
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Editor's note: The Outlook series spotlights a country to give a deeper understanding of the business, industry and consumer trends that fuel its economy. While exploring the current challenges and opportunities facing a country's economic progress, Outlook also seeks to provide an insight into its future development.

(CNN) Early October and Monaco is still bathed in glorious sunshine. In the harbor large yachts bob contentedly. Outside the casino on the central square the mood in the cafes is convivial and the conversation is carefree. Ferraris fill the parking spaces and their owners are dressed by haute couture designers.

With such obvious attractions on offer it is easy to see why this tiny principality has been a magnet for millionaires around the globe for years. But there is another, far less visible, side to Monaco that may be an even more serious lure to the super rich. Monaco's complicated and controversial tax system - whereby residents are not required to pay income tax - has, for many years, attracted the world's wealthiest people. But it has also attracted some very unwelcome headlines.

The country's current Finance Minister is Marco Piccinini. CNN met him in the Government offices that overlook the harbor. He is all too aware of the accusations that Monaco is a haven for tax exiles and rejects them forcefully.

"It's a legend that in Monaco that a physical person is tax exempt," he said. "If a physical person carries out commercial activity which is significantly across border - more than 25% - then that physical person is liable for payment of commercial profit taxes as well as the company.

"The thing that people must understand is that Monaco is the opposite of an offshore jurisdiction. We are an onshore jurisdiction where the tax system is structured to encourage people to invest, work and be active, essentially, in the country."

Piccinini explained that in 2013 Monaco's national budget will be around $1.1B, 72% of which will come from tax (VAT, stamp duty and corporation). He believes those facts alone prove that the "tax haven" label is both outdated and unfair. He claims the tax haven accusations are prompted by people who are envious of Monaco's stable financial situation – saying others might learn from his simple financial philosophy.

"The secret is to spend less money than you make," he said.

Piccinini compares Monaco to a business in which he is the CFO and Prince Albert II is the CEO. When CNN met Prince Albert, the country's current ruler, it quickly became clear that he was also very aware of the image problem the tax system has created.

"I think we have also been very active in trying to adhere to the standards - the international standards - on income tax agreements,” he said. “We have signed with 26 different countries. The U.S. and Germany are among those signatories, a myriad of other countries as well, and we have been labeled in last year's assessment as a tax compliant country so I think that issue is not relevant anymore."

While those in power in this prosperous principality must wish that the tax issue would simply disappear, it's a wish that may not soon be granted.

Last month, the British Business Secretary Vincent Cable promised more aggressive targeting of citizens who held their assets in places like Monaco or the Cayman Islands, describing them as 'sunny places for shady people.'

And in August a British property developer was jailed for a million-dollar tax fraud that had funded a lavish lifestyle in Monaco.

CNN’s Outlook series often carries sponsorship originating from the countries we feature. However CNN retains full editorial control over all of its reporting. Read more about CNN's sponsorship policies

Filed under: Outlook Monaco


soundoff (13 Responses)
  1. ashleynieuws

    Reblogged this on ASHLEY▪NIEUWS.

    October 16, 2012 at 5:16 pm |
  2. Fitty Stim

    I'm completely missing the part about "Prince Albert" and the "taxing issue".

    This is a basic article about misconceptions around Monaco and the deflection of charges by the "country's" finance minister.

    A more interesting question is how does Monaco, with a population comprised entirely of millionaires and tax dodgers, field a soccer team in the World Cup?

    October 18, 2012 at 9:26 am |
  3. ninjaguy

    This article has nothing to do with albert.no one could ever hate albert he does nothing but good and charity work.long live the prince! His mom grace Kelly was the only American to become a princess ever.just a little fact for everyone.to bad the principality of sealand isn't as big or rich is love to hear about prince Roy more often lol

    October 19, 2012 at 4:55 pm |
  4. grandpa

    Every time I hear the name Monaco, I always remember and admire a charming beautiful lady Miss Grace Kelly,the former Princess of Monaco. Better enough for prince Roy and prince Albert to have a very good mother like her.

    October 21, 2012 at 1:18 am |
  5. Edward

    Not the only American woman to become a princess. Here is one you missed.

    Her Royal Highness
    Princesse De Braganza
    Duchesse D'Oporto
    born Nevada Stoody

    Upon her marriage to The DUKE OF OPORTO, she became the Princess de Braganza.

    October 21, 2012 at 3:17 pm |
  6. Frank Megginson

    I am constantly astonished at the ignorance and stupidity displayed in comments about Monaco made by people who have never been to Monaco. The population of Monaco is about 37,000. There are, in total, maybe, about 1.000 millionaires. There are quite a few expatriates from over 100 countries who are attracted by the favourable tax regime, the quality of life, and the cultural, sporting, and artistic events. Many of these do work, as do the majority of Monaco residents who are people who live and work in normal everyday commercial, office and light manufacturing jobs. There are no tax dodgers in Monaco since there are taxes in Monaco (as this article rightly points out). Check the facts before making ignorant remarks and above all do NOT believe 99.9% of what you read in newspapers about Monaco. Although this article seems to be quite fair about Monaco.

    October 23, 2012 at 10:26 am |
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