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Last Updated: Wednesday, 6 April, 2005, 11:45 GMT 12:45 UK
Monaco: tax haven and playground
By Jorn Madslien
BBC News business reporter

The lure of Monaco is obvious to anyone with money, offering a refuge on the French Riviera for the soul and a tax haven for the wallet.

Yachts outside the casino in Monaco
Casinos and slot machines bring in 4% of Monaco's wealth

The tiny principality has made a name for itself as one of the most glamorous of the Mediterranean's international jet set destinations.

Its 7,800 citizens, who hold Monaco passports, share their rocky coastal toehold with about 25,000 expatriates, and myriad tourists arriving by yacht or coach.

They all contribute to the economic strength of the second-smallest independent state in the world.

They have powered Monaco's gross domestic product to more than $900m according to US estimates - a figure the principality declines to confirm or deny.

Daytrippers who scour its fashionable boutiques for the latest haute couture fuel Monaco's sales tax receipts, making up for the complete absence of income tax.

Those who stay for an evening at the casinos leave behind enough to make up 4% of the principality's wealth.

Under attack

For tax collectors around the world, this playground for the rich merely forms an arena for their ducking and diving and should therefore be done away with.

Monaco harbour
Monaco's residents enjoy charming lives

France has been vocal in its criticism of Monaco as a haven for money laundering, even though French citizens residing there are still subject to French tax laws.

The principality has also been formally defined as an uncooperative tax haven by the Organisation for Economic Cooperation and Development (OECD).

Just four other territories - Andorra, Liberia, Liechtenstein and the Marshall Islands - share this dubious distinction.

The OECD, along with forces within the European Union (EU), has been urging the principality to make commitments to transparency and the effective exchange of information.

However, there are those who hope this will not happen as it would dilute the basis for their strident insistence that Monaco should be absorbed by France.

Uncertain future

In many ways Monaco is already becoming a part of France.

Monaco's flag is flown at half-mast at the Monaco harbour
The death of Prince Rainier III could mark the end of an era

It has adopted the euro as its currency, and apart from its obscure fiscal system it is a full participant of the 25-nation EU market system.

Monaco's communication system is connected by cable to the French network and it enjoys full customs integration with France, which collects and rebates Monegasque trade duties.

But Monaco's sovereignty, and with it the ability to run the principality as a family firm, has been vigorously defended by the late Prince Rainier III for more than half a century.

Some now predict that his passing might mark the end of an era and the beginning of a targeted campaign to render irrelevant this legendary tax haven.

The Grimaldis after Rainier
06 Apr 05 |  Europe
Country profile: Monaco
06 Apr 05 |  Country profiles

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