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Following Brexit, MEPs could demand restrictions on access to the single market by Gibraltar and the Channel Islands if they fail to reform their tax systems, an MEP has said.

The suggestion was raised during, at times, heated exchanges between the Committee on Money Laundering, Tax Avoidance and Tax Evasion, and officials from Gibraltar, the Channel Islands and Madeira when the representative from Gibraltar told MEPs the territory was preparing for a hard Brexit.

Ernest Urtasun (Verts/ALE, SP) accused Gibraltar and the Channel Islands of having aggressive tax regimes which threatened to the EU. “In light of Brexit, many members will ask for restrictions on [your] free access to the single market.  Are you ready to change?”

Colin Powell, Adviser on International Affairs to the Chief Minister, Jersey said the territory was expecting the EU to act in its own best interests and reminded the Committee that the Channel Islands attracted capital from all over the world, which then flowed into Europe.

“We look forward to a relationship with an EU which is fair and makes evidence-based decisions,” he said.

Worst-case, hard Brexit

James Tipping, Finance Director for Gibraltar said the territory was planning for a “worst case” hard Brexit. “We are resigned to the fact.  Why?  Because we contemplate no concessions,” he added.

The Gibraltarian Finance Director was also visibly irritated when one MEP alluded to the ongoing contested claims of Spain and the UK over Gibraltar. Mr Tipping snapped “Gibraltar is English not Spanish.  Anyone who things Gibraltar is a colony is delusional.”

“Gibraltar is a fully self-governing and fully self-financing British Overseas Territory. UK authority is restricted. This is not the 1960s, sir."

“Insulting” comparison between Madeira and Panama

There was also intense debate earlier during the hearing, when MEPs, including within the same political grouping, expressed sharply contrasting views on the status of the Portuguese territory of Madeira which has been accused of being a tax haven for its low tax regime.

Nuno Melo (EPP, PT) described the comparison between Madeira with Panama as “insulting.” But his view contrasted sharply with Marcus Ferber (EPP, DE) who waved a sheath of papers which he said he had printed from the internet which explained how firms could pay lower taxes by registering in Madeira. 

“Of course we want to attract more economic activity to Madeira, but we want to do that within the rules” he said. Addressing Rui Gonçalves, Regional Secretary for Finance for the region, he added “I don’t think you are telling the truth, you’re lying to us and you’re lying to yourself,” said Mr Ferber.

Firms move from Madeira to mainland Europe

In response to a question from Jeppe Kofod, (S&D, DK), Minister Gonçalves told MEPs that after tax breaks ended in 2011 in Madeira, many financial companies had moved to other countries in Europe including Luxembourg, the Netherlands and Austria.

The minister told the Committee that Madeira’s own tax regime was fully transparent and compliant with EU and international standards on taxation. Its special status was justified under EU regulation as it was an underdeveloped region, on the edges of Europe.  “If you want to crack down on low tax regions, don’t start with the outermost regions,” he said.