October 16th, 2012
03:54 AM GMT
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.
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 He believes those facts alone prove that the "tax haven" label is both outdated and unfair.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.
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