THE GIBRALTAR CHAMBER OF COMMERCEwww.gibraltarchamberofcommerce.com

ANNUAL REPORT & ACCOUNTS

2010

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BOARD MEMBERS

PRESIDENT:E J Nicholas Russo

VICE PRESIDENT:John Isola

HON TREASURER:George Olivera

HON SECRETARY:Jeremy Nicholls

DIRECTORS:Bruno Callaghan Marvin Cartwright Franco Cassar George DesoisaErnest FelipesAndrew HaynesChristian HernandezJose Luis Bonavia

The Gibraltar Chamber of Commerce wasfounded in 1882. It was established for the “promotion of measures calculated to benefit and protect the trading interests of itsmembers and the general trade of Gibraltar”.

More than 125 years later the Chamber’s role is as important today as it was then. Our members employ more than 6000 people which is around half of Gibraltar's current private sector workforce. It is thelargest organisation representing the interests of private sector commerce inGibraltar.

The nature of Gibraltar’s economy has been transformed, particularly over the lasttwo decades. Today the Rock is a serviceeconomy revolving around Financial services,the Port & Shipping Services, Tourism, Online Gaming and a very well developedProfessional Services Sector.

The benefits of being a member of the chamber include:

• Network and meet new business contactsand potential clients

• Advice on local legislation and regulations

• Email alert service on matters affectingthe business community in Gibraltar

• Represent your views directly toGovernment

• Reduced rates on export documentation

• Use of Chamber meeting rooms and presentation suite facilities

• Free subscription to the Chamber’s quarterly publication “B2B”

REGISTERED OFFICE:

Watergate House2/6 Casemates,PO Box 29Gibraltar

T: +350 200 78376F: +350 200 78403E: info@gibraltarchamberofcommerce.comW: www.gibraltarchamberofcommerce.com

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ANNUAL REPORT

Annual Report & Accounts 2010 03

Contents

Designed by:Colorworks Design Limited T: +350 200 74349 www.colorworksltd.com

Foreword 07

Politics 08

Economy 11

New Corporation Tax Regime 14

Wholesale & Distribution 17

Retail Sector 19

Banking 21

Insurance Sector 22

Gaming 25

Maritime Sector 26

Tourism Sector 28

Property 31

Report of the Auditors 33

Annual Accounts 34

Gibraltar: Key Information 42

Annual Report & Accounts 2010 05

Grant Thornton Gibraltar is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the memberfirms are not a worldwide partnership. Services are delivered independently by the member firms.

Grant Thornton (Gibraltar) Limited is a registered audit firm under the Financial Services (Auditors) Act 2009, registration number FSC0010AUD. GT Fiduciary ServicesLimited is licensed by Gibraltar’s Financial Services Commission as a Professional Trustee, licence number FSC00603B. Grant Thornton Fund Administration Limited islicensed by Gibraltar’s Financial Services Commission as a Collective Investment Scheme Administrator, license number FSC00926B.

Grant Thornton Gibraltar Chartered Accountants

Professional advisors in a complicated world

• Audit

• Trust & CompanyManagement

• Specialist AdvisoryServices

• Fund Administration

• International Tax

6A Queensway, P.O. Box 64 Gibraltar

Tel: 00 350 200 45502 E-mail: enquiries@gi.gt.com

www.grantthornton.gi

Annual Report & Accounts 2010 07

ForewordLooking back it is probably fair to say

that many members will be quite glad to

have said ‘Good riddance’ to 2010.

It was not one of Gibraltar’s finest

years. Economically, most businesses

managed to hold their own although

some continued to suffer the effects of

company collapses of prior years, most

notably in the construction sector.

Many of these were subcontractors who

were left with unpaid bills when Haymills

and/or Bruesa Gibraltar folded in 2009

or early 2010. The web of local operators,

tradesmen and suppliers struggled

bravely on hoping that the worst of

the downturn would come in 2010.

The good news is that 2010 was

probably the bottom. The not so good

news is that 2011 may be the same

or only slightly better than last year.

It reflects how dependent Gibraltar’s

economy is on our two principal trading

partners, the UK and Spain. When one

of them sees a downturn Gibraltar can

just about get by. When they are both in

the economic doldrums Gibraltar cannot

remain unaffected. Growth in both these

countries has almost ground to a halt.

Gibraltar’s growth has fallen but is still a

quite respectable 4-5% or so.

Some of the more noteworthy events

during the year were as ill-thought out

as they were unwelcome. The Mayor of

La Linea believed that his bankrupt

administration was entitled to help itself

to a share of Gibraltar’s visitor revenue in

the form of a road toll. It played well to

his local support base, albeit briefly.

In four short weeks of last August

he put back cross-border relations

40 years. The Chamber has periodically

commented since the Cordoba

Agreement was signed in 2006 that for

the Tripartite process to work effectively

for the benefit of all parties it would take

time and trust. The Mayor’s intentions

signalled one massive breach of that

much needed trust. As the economic

impact study published by the

Chamber in 2009 clearly showed,

Gibraltar benefits from the Campo and

Campo residents benefit from Gibraltar.

Gibraltar’s impact is today all the greateras our economy has continued to flourish whilst the Campo’s, like the restof Spain’s, continues to wilt. What then isthe sense in trying to damage a sourceof potential help? The Mayor’s actionsdefied any sort of rational logic.

The Chief Minister announced with great relish significant changes to thecorporate tax system just ahead of theJuly budget. The headline rate for companies was set to fall to 10 per cent.The devil, though was hidden in thedetail and the budget announced significant increases in the overall costbase for local businesses. The new taxsystem is assessed in more detail later inthis year’s report. Nevertheless, it is thefruition of several years of planning, consultation and hard work by manylocal professionals, politicians and civilservants. At the very least it gives certainty to all companies operating inGibraltar and importantly for any newentity wishing to set up on the Rock andit should be welcomed for that.

Members in virtually all sectors com-mented to the Chamber on the impactthat last year’s budget will have on theiroperations going forward. The headlineof lower tax rates only benefits thosewho make profits. Private enterprisecannot sustain losses forever, but it isworth noting that as fixed costs continueto increase there is a very real risk that anumber of local firms will cease tradingas it is simply not worth the cost andeffort in carrying on. These companiesare the small traders often employing nomore than a handful of people. They onlyserve the local market and have noopportunity to expand outside Gibraltar.Multi-nationals have a choice of wherethey operate. These local companies do not. They also represent the singlelargest segment of the Chamber’s membership. They are not at the forefrontof their sector worldwide; they may notbe in the most dynamic or exciting ofbusinesses. But that does not make themany less worthy. They employ people, paytaxes and social insurance and in their

own small way, they offer a service and

create wealth. These dozens of small

companies are an important part of the

community and they are locally owned

and locally run. This is not a plea for

special treatment. It is a call to recognise

the important role they play, but they

cannot continue to fulfil this role if they

are hit year after year by increases in

fixed costs which ignore the underlying

level of economic activity.

2011 is likely to remain challenging

even without these additional difficulties

and there will also be an election in the

year. Whatever the electorate may

decide, Gibraltar needs to ensure that

stability prevails to ensure the full

benefits to changing circumstances are

derived. The progress which Gibraltar

has made during 2010 has nonetheless,

again been impressive when set against

a backdrop of cuts, redundancies and

bankruptcies found elsewhere in

Europe. 2011 is likely to be just as tough

and so long as the Rock’s principal

trading partners experience anaemic

growth, Gibraltar is unlikely to be able

to defy economic gravity. That does not

mean no growth. It just means slower

growth.

08 Annual Report & Accounts 2010

Politics2010 may be significant for two reasons

neither of which have perhaps attracted

the attention they deserved. First the six

swimmers, three from Gibraltar and

three from Spain for remaining true to

the cause of cross border friendship.

Their example deserves to be followed.

The second concerns the Mayor of

Beni-Enzar the lyrically named M. Yahya

Yahya. The relevance to Gibraltar of the

actions of the Mayor of Beni-Enzar may

not be immediately obvious but they

serve as a cautionary tale for some

of our less friendly neighbours who

perhaps should be careful what they

wish for. The story of M. Yahya Yahya

also carries lessons for the Spanish

media.

The headlines of 2010 have been

dominated by the stunts and posturing

of two of the leading politicians in the

‘Campo de Gibraltar’: Sr. Landaluce of

Algeciras and Sr. Sanchez of La Linea.

These gentlemen have vied with each

other to produce ever more damning

condemnation of Gibraltar, and, in the

case of Sr. Sanchez, threats with dire

consequences for the Rock. The antics

of Sr. Landaluce are not new, however,

Gibraltar has been lambasted by

Sr. Landaluce for some years now.

The position with Sr. Sanchez, however,

is as novel as it is unwelcome. 2010 saw

Sr. Sanchez newly appointed as mayor of

La Linea facing seemingly impossible

demands on the Town Halls’ Treasury.

His first statements were to promise

an end to the hostility provoked by his

predecessor to Gibraltar and to usher-

in an era of renewed friendship. The

statements were followed by a number

of visits to Gibraltar, attendances at

functions and meetings with political

leaders and the private sector, including

the Chamber of Commerce. Sr. Sanchez

made clear his ambition to cement

better relations and promote joint

venture projects of a cross border nature.

It was not to be, not because of any

hostility from Gibraltar which had hailed

the new Mayor and lauded his

aspirations for closer ties, but because

the money ran out for the Town Hall.

At first Sr. Sanchez made clear that his

plan for a toll was not intended to harm

Gibraltar but to raise awareness for his

plight in Madrid. Gradually Sr. Sanchez’s

position towards Gibraltar has hardened.

Now he is reckless to the risks his

rhetoric may have across the border.

Sr. Sanchez uses Gibraltar to stir up

nationalist sentiments by claiming that

Madrid favours the interests of Gibraltar

over those of La Linea.

Madrid’s decision to prevent Sr. Sanchez

from breaking the law by introducing an

illegal toll at the border is an example of

the ‘favouritism’ shown by Madrid.

Sr. Landaluce’s statements following

the Royal Gibraltar Police standoff with

the Guardia Civil in the Bay served to

heighten tensions rather than defuse

the situation in which two European

law enforcement agencies found

themselves ‘eyeball to eyeball’ in an

overtly hostile confrontation. If it is

the duty of our community leaders

to keep their heads whilst others lose

composure then Sr. Landaluce failed in

his duty. Rather than help Sr. Landaluce

used his position of privilege to make

mischief. This is one of many instances

in which Sr. Landaluce has expressed

extreme views against Gibraltar. It would

seem there is no easier way for a

regional politician to gain national

recognition that by espousing the

rhetoric of the Franco era in condemna-

tion of Gibraltar. These declarations are

avidly reported in Spain’s broadsheet

and tabloid press, seemingly without any

sense of irony and occasionally the

stories make front page cover. The

absence of editorial comment to achieve

a balanced view has further served to

encourage the political strategy adopted

by Sres. Landaluce and Sanchez.

2011 is an election year for Spain’s

municipalities and both men are

expected to run for office: Sr. Landaluce

for Mayor of Algeciras and Sr Sanchez

to be returned in La Linea. The tide has

turned for the governing PSOE party

and polls indicate that the Partido

Popular are now in the ascendant, both

men will certainly benefit from the

changed political climate in Spain but

the question remains whether the senior

ranks of the Partido Popular, who are

all also expected to win the National

elections scheduled no later than May

2012, will exercise restraint and adopt a

more conciliatory attitude to Gibraltar

once they form Government? The

prospect however remains that 2011

will not produce a change of government

and we will witness further jockeying for

position and increased efforts on the

part of Sres. Sanchez and Landaluce to

lambast Gibraltar at every opportunity.

In Gibraltar, both Government and

Opposition have shown commendable

restraint and have avoided rising to

the constant provocation from Sres.

Sanchez and Landaluce. 2011 will

likely test their patience further but

it is worth noting the response to Sr.

Sanchez’s hostility by Gibraltar’s

swimmers, who, with their sporting

counterparts across the border under-

took a swim around the Rock as a

protest against those who seek to turn

neighbours into enemies. The swimmers

have given the lead and actions such as

theirs are the most effective antidote to

prevent cross border relations from

souring.

The Mayor of Beni-Enzar, a municipality

close to the Spanish colony of Melilla,

has been in the news for threatening to

cut off Melilla’s fresh water supply, which

is located in neighbouring Beni-Enzar.

Politics cont.

The wells, located outside the territory of

Melilla are nevertheless claimed by

Spain as sovereign territory. The Mayor

disputes Melilla’s title over the water, and

Spain's title over Melilla.

The vulnerability of Spain’s claim and the

significance of a transfer of control over

the supply of water have been exploited

by Moroccan nationalists. The purpose

of those like M. Yahya Yahya is to

threaten the status quo of Melilla.

The Spanish media were quick to report

that the actions of M. Yahya Yahya

were media stunts unworthy of serious

consideration, but they fail to make the

connection this side of the divide.

Morocco is no longer acquiescent. In the

past Spain could take action against

Gibraltar without the need to look over

its shoulder. This is no longer the case.

Whether or not M. Yahya Yahya’s actions

are inspired or fuelled by those of Sres

Landaluce and Sanchez cannot be

established conclusively but the example

our Spanish neighbours give to

Moroccan Nationalists across the straits

cannot serve Spain’s long-term interests.

It seems that, however discordant

maritime relations with Spain are at the

present, nevertheless our maritime

interests are closely aligned. The geo

strategic significance to the United

States of the Straits of Gibraltar was

recently underlined by Wikileaks. The

Straits feature among the top hundred

locations of critical strategic importance.

This fact should not be lost on those

whose task it will be in the coming

months to find a workable maritime

solution. Being able to cooperate,

despite our differences, will send the

right signal and serve both our interests.

Annual Report & Accounts 2010 09

These gentlemen havevied with each other

to produce ever moredamning condemnation

of Gibraltar

Annual Report & Accounts 2010 11

EconomyAHEAD OF CHOPPY WATERS?

2010 has generally been a year of

economic recovery across most countries,

with the hangover from the events of

2008 and 2009 still very much in

evidence. The recovery has been modest

and uneven but nevertheless positive.

World output increased by 5% in

comparison to 2009, with advanced

economies posting a 3% growth and

being outstripped by emerging and

developing economies, which grew at

7.1%. This latter figure serves to once

again to underlie the shift in world

economic power away from the Western

world. China continued on the economic

rampage, posting a 10.1% growth! India,

Brazil, Singapore and Taiwan all posted a

growth rate of 7% or more, with Singapore

leading the pack with a scarcely believable

14.8%, the highest growth rate in the

world. By contrast, the Euro area as a

whole grew by just 1.8%. The main drivers

among the developed economies were

the US, Japan, Germany and France.

In general, therefore, a positive picture

and steps in the right direction, in a post

recessionary world.

Other countries in the Euro area did not

fare so well. We saw the bailouts of

Greece and Ireland, with intervention from

the IMF and the EU fighting fund. Some

fear that Spain and Portugal might be

next. Threats to the Euro therefore

remain. Spain’s economy continued to

shrink in 2010 by a further 0.2%. Only

Greece, Ireland and Iceland did worse

among developed economies. The UK is

estimated to have grown by 1.6% in 2010.

However, Britain’s recovery is perceived

as brittle as the cutbacks and austerity

measures introduced by the coalition

government start working their way

through. The last quarter of 2010 saw a

reduction, with the economy shrinking by

some 0.6%. Although this shrinkage is not

expected to continue into Q1 2011 (and

therefore constitute another recession),

The Economist magazine’s outlook for the

UK economy was downgraded from 1.9%

in January 2011 to 1.8% in February.

While this is not a huge amount, the

fact that there has been a downgrade is

significant. All in all, the outlook for

Gibraltar’s two biggest trading partners is

not the best, especially Spain’s.

A more recent development that will put

a brake on recovery prospects for all

countries is the prospect of increasing

inflation. This is especially important when

we have seen sustained levels of price

increases globally in foodstuffs and

commodities. More recently, we have seen

oil prices shooting up on an almost daily

basis in the wake of continuing and

developing unrest in the Middle East and

North Africa. Some are concerned that

another fuel crisis may be around the

corner.

Turning now to Gibraltar (and not airing on

this occasion our usual gripe of the lack of

up to date information - 2009 data is of

little use in 2011!), it is apparent that we

have managed to weather the storm of the

recession, although we have not been

totally immune to its effects. Several

major private sector construction projects

are on ice and there is no sign of

movement on the East Side reclamation.

Well documented also have been the

failures of a number of building

contractors engaged in low cost housing

projects, with Government having had to

step in. The ripple effects of these failures

have been felt by local companies connected with the building trade. There isa reported downturn in the retail tradegenerally, likely due in part to the reducedpurchasing power of visitors, particularlyfrom Spain. There is also a softening of the real estate market and a tighteningof the job market. While these events are well short of a recession, there is generally reckoned to be a slowdown ineconomic activity and a likely decrease inthe growth rates that Gibraltar had beenenjoying until recently. Overall though, few would argue that Gibraltar continuesto perform well.

However, not is all rosy. The Chambercame out strongly on the July budget. In anutshell, this budget was seen as revenueraising as a government hedge to theunderstandable uncertainties about theincome effects of the new 10%Corporation Tax regime introduced on 1stJanuary 2011. The budget measures ledto a significant increase in business costs

12 Annual Report & Accounts 2010

Economy cont.

in rates, companies’ social insurance

contributions, and electricity and water

charges. For many businesses, these will

negate the theoretical advantage of the

new tax rate. Be this as it may, the budget

was also seen as being highly inconsistent

in that, in the same breadth as govern-

ment announced a record budget surplus

of nearly £30m, it also introduced the

revenue raising measures summarised

above! The impact of the 10% tax on

government coffers remains to be seen.

There are many ways to skin a cat

and if government was concerned at

the equation between income and

expenditure, it could have also looked

at its own costs. The Chamber has been

urging this for years. There are several

issues at play here. One is the overall

level of expenditure. Consolidated Fund

expenditure has risen from £137m in

2000/01 to an estimated £356m for

2010/11, or by some 160%. The overall

index of retail prices rose by 31% over the

same period. So in 10 years, expenditure

has risen by some 130% in real terms.

By any measure, this is a significant

rise. For several years now, a common

debate in our Parliament centres around

government and opposition going on,

back and forth, about how their respective

administrations spent ‘x’ million more

on this or ‘x’ million more on that, the

assumption being that spending more

makes it better. This assumption is heroic.

The real question is value for money for

the taxpayer. Have all these increase in

expenditure resulted in better services?

Are these services cost effective?

Can services be improved without

necessarily increasing costs? Are there

alternative ways of funding? (medical

tourism anyone?) Are all services/

departments needed? Could some

functions be better and more efficiently

delivered by merging or consolidating

departments? These are issues that need

to be debated and resolved.

Parity seems to have gone out the

window, if the pay awards achieved by

GHA and Buildings and works are

anything to go by.

The above questions are not an issue for

analysing in detail in this forum but they

are of concern to Chamber members as it

is largely the private sector that funds

government.

On capital projects, government has

also been spending substantially and

continues to do so. There is no doubt

that many of these projects are needed

and many have been implemented

successfully. The new Trafalgar inter-

change has done much to improve traffic

flow in the area, as will the airport tunnel,

new Devil’s Tower Road and the overall

improvement to Gibraltar’s road link to

Spain. Equally, the re-opened Dudley Ward

tunnel, the new prison and the public

market project are generally welcomed.

Doubts remain in some quarters about

the appropriateness of the new airport

terminal and whether it is too big. The jury

is still out on this. Given that it is being

built, and that it has cost a lot, the

Chamber certainly hopes it is successful!

in the same breadthas governmentannounced a recordbudget surplus ofnearly £30m

Economy cont.

The above snapshot on Government

expenditure and taxpayer value now

needs to be put into context. For the

moment all of this expenditure appears to

be sustainable. What cannot be ignored is

future legacy costs of an expanding

public sector. Equally, while current

income streams may well support debt

servicing costs on public sector capital

projects, these costs will carry forward into

the future (and we still have major projects

in the pipeline such as the power station),

when net income streams may differ.

Given the above, logic would say that a

comprehensive and independent review of

government expenditure and how this is

in line with real needs would be both a

welcome and necessary development.

We have all seen the devastating effects

that runaway government spending can

have when there is an economic downturn

kicks in. The problems faced by Greece,

Ireland, Spain, the UK and others need not

be expanded upon here. While there are

no indications that Gibraltar is headed for

any sort of economic meltdown, it would

be prudent to conduct such a review when

times are good. If efficiency and other

savings can be found and implemented,

then we would be better prepared for any

downturn in the future. If the downturn

does not materialise, then taxpayers and

business would be able to benefit from

reduced taxes. This would be welcomed

by not only individuals and businesses

alike but it would act as an added

incentive for companies and investors to

come and set up in Gibraltar.

Annual Report & Accounts 2010 13

14 Annual Report & Accounts 2010

New Corporation Tax RegimeOn the 1st November 2010 the IncomeTax Act 2010 was enacted by theLegislature of Gibraltar. Although noeffective date is stipulated in the Act, the Government has confirmed that itwill come into effect on the 1st January2011.

As outlined by the Government in itspre-legislative Briefing Paper issued inJune 2010, the 1st January 2011 coincides with the coming to an end ofthe Tax Exempt Company regime asrequired by the European Commission.

The new Act has been generally welcomed particularly the move to a lowcorporate tax regime applicable acrossthe board thereby eliminating the‘onshore’ and ‘offshore’ concepts. Whilstthe headline corporate tax rate will be 10% the Act introduces tax at the higher rate of 20% on utilities(telecommunications, electricity, waterand petroleum) and on companies whichare deemed to be abusing a dominantposition.

The move to a low tax regime applicableacross the board is seen by many as conducive, given today’s attitudetowards perceived tax havens, to the further development and expansion ofGibraltar as a financial services centre.However, there are several others whofeel that some of the provisions of thenew Act are somewhat bureaucratic oreven draconian. There can be no doubtthat the previous Act was antiquated andits provisions in regard to enforcementand compliance somewhat benign. As aconsequence of this, the need to updatethe legislation in keeping with the timeswas essential. Whilst the new Act hasachieved this in many ways, one can,however, be forgiven for being of theopinion that the anti-avoidance provisions contained in the new Act go abit too far in as much as they appear tohave been designed in a manner thatattempts to deny the taxpayer his rightto minimise or avoid tax legally. This would seem to be the case withsection 41 of the new Act (Notificationof Arrangements) which imposes anobligation, under threat of penalties, on any promoter (which apparentlymeans everyone) to notify theCommissioner of Income Tax of any taxplanning arrangement. How far one is meant to go in classifying any taxadvice, or indeed one’s own personal taxplanning, as a notifiable arrangement,remains to be seen. Guidelines from the Commissioner of Income Tax in thisrespect have yet to be published andwould be welcomed.

The new Act purports to create fairness

and certainty in taxation and at the same

time create a climate of compliance.

In pursuance of these commendable

objectives radical changes have been

introduced including self assessment

for self employed individuals and

companies, a series of surcharges and

penalties, strict deadlines for submission

of returns etc., and new powers of

enforcement. Such changes are not that

much different to what already exists in

other jurisdictions, in particular in regard

to the United Kingdom. Two notable

exceptions of probable concern to

companies and self employed individu-

als, are, however, that whilst in the UK

interest is payable to tax payers on any

excess tax paid, no such interest will be

payable in Gibraltar. Furthermore the

Act does not provide for any deadlines

by when any excess tax paid is to be

refunded by the Tax Office. It is hoped

the Income Tax Office will be able to

attend to the repayment of any excess

tax paid expeditiously - at least before

the taxpayer is required to make his next

payment on account.

Inevitably, such radical changes to the

Tax legislation will take some time to be

assimilated by those affected by it,

including in particular tax advisors. It is to

be expected that specific issues will

arise that may not have been, or not

been fully, considered at the time of

drafting the legislation. Additionally there

will be, as is already apparent, a need for

the Tax Office to issue guidelines on the

manner in which certain aspects of the

legislation will given effect to or in

respect of which clarification on the

interpretation and application of sections

of the Act is required. If the creation of

certainty is meant to be one of the

objectives of the new Act then it is

imperative that any unclear issues are

addressed as a matter of priority by the

Tax Office. Teething problems tend to be

they appear to have been designed in a manner that attempts to deny the taxpayer his right to minimise or avoid tax legally.

New Corporation Tax Regime cont.

the norm when such radical changes are

introduced and will no doubt take some

time to fully resolve, but nonetheless

every effort needs to be made to avoid

continued uncertainty to taxpayers and

professional advisors alike.

Companies and self employed

individuals will be significantly affected

by the provisions of the new Act and

need to ensure that they do not fall foul

of its provisions particularly in regard to

deadlines, compliance issues and the

many other aspects of the new Act.

Advice from their tax advisers should

be sought if in any doubt, but they in turn

can only advise when they have certainty.

The need for an overhaul of the tax

legislation and the introduction of a new

corporate tax regime cannot be denied.

How effective the new Act will be will,

however, depend to a large extent not

only on the achievement of clarity and

certainty in regard to its provisions, but

just as important on how effectively its

provisions can be managed and applied

by the Income Tax Office in an equitable

and efficient manner. This requires not

only sufficiently robust and suitable IT

systems, but also adequate levels of

personnel, both in terms of numbers and

experience. Without these prerequisites

undue pressures will be placed on the

Income Tax Office staff especially on

the Commissioner and his senior staff.

Such pressures will undoubtedly affect

taxpayers generally and in particular

companies that require clarity, certainty

and expediency in regard to their tax

affairs.

Finally it is hoped that the new climate

of compliance expected from the

introduction of the Income Tax Act 2010

on the 1st January 2011 will lead to a

sufficient rise in Government revenues

to permit reductions in personal income

tax. This has been alluded to publicly

by the Chief Minister and Chamber

members, among others, would welcome

progressive reductions in personal

taxation.

Annual Report & Accounts 2010 15

The need for an overhaul of the tax

legislation and the introduction of

a new corporate tax regime cannot

be denied.

Annual Report & Accounts 2010 17

Wholesale & DistributionThe wholesale and distributive sectors

have once again endured the challenges

of operating in an increasingly congested

and difficult environment during 2010.

The same issues persist and are raised

annually by members but this year in

particular the problems related to traffic

congestion have become particularly

prevalent.

The various road works have compounded

this issue further and until the current

works are completed on Devil’s Tower

Road and the East side vehicular

entrance point to Gibraltar established,

congestion will remain and be an

unwelcome cost burden on the sector.

The principle causes of congestion at

this end of the Rock have been

flight movements and footdragging

procedures adopted by Spanish

Customs at the frontier coupled with

sheer weight of traffic into and out of

Gibraltar.

Delivery trucks taking hours to reach a

particular address sounds ludicrous

given the territory’s size but this is a

regular experience for virtually every

company in the sector. Not only are

vehicles burning unnecessary fuel but

invariably the delayed return of these

vehicles to their stores leads to

increased labour costs at a time when

the sector is suffering the burden of

several other cost increases.

The Waterport fountain roundabout and

Regal House junction are two specific

areas that always bring traffic to a halt

sometimes to outright closure when rainis heavy. The new arrangements for the Trafalgar interchange have easedcongestion considerably which is welcome.A similar study should be considered forthese aforementioned chokepoints.

It is hoped that in 2011 most of the necessary works will reach completion.

A welcome development was the longoverdue re-opening of the Dudley Wardtunnel which has, after considerabledelay, provided an alternative artery tothe south side thus avoiding the need touse the often-congested town area.This route that will also be positivelyenjoyed by beach goers this comingsummer who will not need to drivethrough the city on a return trip to thesouth district.

Loading Bays...ARRRGHH!

The perennial problem of illegally parkedvehicles in loading and unloading baysremains a source of daily frustration todelivery vehicles which are prevented fromthe legitimate use of theses bays. TheChamber has written both to governmentand also to the Commissioner of Policebut there remains little actual enforcementalthough it is encouraging that, afterChamber lobbying, government haspledged to amend legislation to levy similar fines on those vehicles parkedillegally as those parked illegally in busstops. It is time that this matter be dealtwith under a comprehensive review following the significant building that hastaken place in Gibraltar in the last 10

years as the number of bays has not

increased. The Chamber on behalf of its

members would welcome consultation

on current and projected needs for the

sector.

The difficulties with deliveries to Main

street however remains fascinating and

a true feat of resourcefulness that every

working day Gibraltar’s retail commercial

hub is supplied despite the limited

access and the now standard daily fines.

An additional 30 minute delivery window

in the morning would facilitate deliveries

without causing an unnecessary

encumbrance to early morning shoppers

on Main Street.

East Gate EPU

Another traffic concern is that of the

chaotic nature of incoming vehicles and

procedures at the goods frontier.

At times it seems like a free for all with

no traffic management and to witness

the mayhem is worthy of a visit although

it is amazing that to date there has not

been any serious accident. This aspect

of traffic flow one assumes will also be

tackled as the various infrastructural

projects are completed to ease flow and

cater for drivers and clearance agents.

Whilst traffic-related issues have had

a considerable adverse effect on

members in the sector it is a cost and

frustration for everyone in Gibraltar.

Nevertheless, other issues have come to

the fore.

congestion will remain

and be an unwelcome

cost burden on the

sector

18 Annual Report & Accounts 2010

Wholesale & Distribution cont.

Credit terms tighten further

The harsh economic climate elsewhere

has led principals to review their credit

terms. This has had a knock-on effect

locally and has been most noticeable

in the bar and restaurant trade where

credit tightening has shown that many of

the businesses were only viable if there

was a sustainable source of easy credit.

The increase in businesses going under

has affected a number of wholesalers

over the past couple of years. If this

continues the level of closures and

subsequent impact on employment and

government revenues and empty

premises will be clear for all to see.

Operators in the wholesale sector have

on occasion supported illiquid retailers

in the hope that they could trade out

of a difficult period and so retain a

trading relationship. Unfortunately the

arguments for taking action sooner

rather than later are now more powerful

than ever.

In the worst cases certain businesses

owing monies have gone into liquidation

and then set up again trading as another

entity, walking away from their creditors.

The Chamber has written to government

urging it to enact legislation prohibiting

such phoenix companies, but unfortunately

we have yet to see any progress on this

issue.

With other costs such as the minimum

wage, social insurance, electricity and

rents all rising, the sector is unlikely to

be in a position to support the level of

credit it has in the past and with it levels

of employment. Remove this credit

facility from the economy as the banks

have done and again one can only

imagine the consequences. This is

further compounded by Government-led

wage initiatives which reward public

sector workers with pay increases way

ahead of both inflation and the private

sector. This puts further pressure on

companies who cannot afford to reward

their own staff with similar increases.

The sector has always faced the double-edged sword of operating in a dual currency. On the one hand the weakpound of recent times raised costs fromthe euro zone, but it also led toGibraltarians buying more locally asshops forwarded this competitive edgespecifically with foodstuffs. Now 2011promises to see a stronger Pound but it is not yet certain if locals will ventureen masse once again to enjoy theadvantages of the hinterland and by contrast Spanish pedestrian trafficinto Gibraltar slows to a trickle. The economic crisis in Spain will continue tohave a significant bearing on Gibraltar inthe year ahead. If ‘traffic’ and ‘exchangerates’ remain the only issues of concernduring the next year, perhaps we shouldcount ourselves lucky.

From apples to zips

The pillars of Gibraltar’s economy areoften described in terms of Finance,Tourism and Shipping. However,an underlying and well-developed infrastructure is needed in order to sustain each of these sectors. The retailand wholesale sectors may at times be

considered by some to be the poor

cousins in Gibraltar’s economic make-up,

but they have been constant pillars inGibraltar’s economic development overthe years.

The majority of the distributive andwholesale traders in Gibraltar are localcompanies, family businesses in themain with strong links to the Rock whosimply get on with everyday challenges.A sector of traders made up in manyinstances by immigrants who arrived onthese shores initially to provide a service

for the military garrison and have

continued unabated ever since. Today

they account for nearly 3,000 jobs

directly or nearly 15% of the Rock’s total

workforce. The sector may not be the

most dynamic of the Rock’s business

groups at the cutting edge of

technology or regulatory change.

But without these firms, who provide the

physical goods from foodstuffs to

building materials, Gibraltar - its

commerce, its families and its

uniqueness - would definitely be the

poorer.

Unfortunately thearguments for

taking action soonerrather than later are

now more powerfulthan ever

Annual Report & Accounts 2010 19

Retail SectorBy and large 2010 has been a lacklustre

year for the retail trade with most

businesses reporting a decline on last

year as the deep recession in Spain and

the rest of Europe has affected tourism.

Whilst large numbers continue to visit our

retail centre it was noticeable that visitors

had less money to spend and traded

down. Also local shoppers turned to the

internet in droves where competitive

pricing and the very wide selection

proved irresistible.

Many of the traditional areas of trade

have become uncompetitive as businesses

in Gibraltar find it more and more difficult

to compete with the huge purchasing

power of the large shopping centres

across the border and the internet.

If this was not enough of a challenge, the

substantial increase in the cost of doing

business in Gibraltar has made matters

even more challenging and possibly

unsustainable. Rents are overinflated, the

pre-payment rates discount has been

reduced, electricity and water charges

have been increased, the minimum wage

has been increased, social insurance

has been increased. To make matters

worse there is little enforcement by the

authorities and there is a considerable

un-level playing field where bona fide

businesses are having to compete with

rogue traders who would not be in

business if they paid all their dues and

registered all their labour. This is not

only unfair but also distorts the market

by giving the impression of a healthy

situation which in turn serves to

encourage new players to enter an

already saturated market.

That some retailers have invested in their

premises and have specialised is not in

doubt. Unfortunately this is not the case

across the board and Gibraltar still has

quite a number of outlets selling a

mismatch of goods. Furthermore there

remains a prevalence of counterfeit and

substandard goods. The Chamber’s call

to the Government that it should

introduce Trading Standards legislation

with a properly resourced Department

has so far gone unheeded.

In its current form, the days of many parts

of Gibraltar’s retail sector are numbered

and things will have to change and adapt

if Gibraltar is to preserve a diverse

shopping experience in the centre of

town with all the jobs that this sector is

responsible for. The signs are there for all

to see with a number of vacant premises

on Main Street.

Annual Report & Accounts 2010 21

BankingFollowing the turmoil of the previousyear, 2010 seemed a relatively calm yearfor banking on the Rock; however alllicensed entities or financial servicesoperators would have been affected bythe fall-out from the Marrache failure,either directly or indirectly. Nonetheless,the industry continued to settle down andthe banks here seemed less affectedthan elsewhere; jobs, if anything,

seemed to increase with a definitesense of upward movement in Q4. Inparticular, but not exclusively, the privatebanks faced the prospect of the new taxregime and the necessity to widen theirarea of operations.

The market has continued to digestvarious rumours around possibleclosures, further headcount reductionsor partial withdrawals. Some players didadjust their numbers, classically movingback office jobs to large processing centres as is the trend elsewhere. Thefeeling towards the end of the year,however, is that many are alreadyrecruiting into their relationship management teams as they start to look ahead at the opportunities that willarise as the global economies slowly but surely pull out of recession. Gibraltarof course is dependent primarily on theUK and Spanish economies. Ironicallywe are well placed to benefit from movement either way, as companies andindividuals seek competitive tax regimesand safety for their hard earned cash.

Some of the issues the industryhas grappled with this year include(perennially it seems!) Small FirmGuarantee Loan Scheme, ConsumerCredit Directive and Land Registry

delays none of which have yet been

resolved or implemented. Additionally

the Payment Services Directive was

also progressed along with progress

on ICAAP/Basel II implementation,

a future eye on Basel III and its

implications as well as MIFID II.

These initiatives bring increased

regulation, and costs (including

increased licence fees implemented

this year), to the industry in its quest to

provide greater safety to clients and

better compliance with the various

Directives and laws that are continually

passed. The Deposit Guarantee Scheme

will also increase to 100,000 euros from

2011.

A word about regulation; Gibraltar is

considered, by international bodies,

to be well regulated. This does not

mean a 100% guarantee. However it is

worth noting that many of the banks

represented here are branches of EU

banks which have all survived, some

better than others, the trials of the last

few years. They continue to ply their

trade along with the various subsidiaries

of well known banks and support the

local community and the Finance Centre.

Compliance with anti-money laundering

and terrorism legislation is a necessary

burden if we are to continue to have

a safe and thriving Finance Centre.

All operators as well as clients must be

ready to share in that responsibility and

accept the increasing costs in effort,

time and money required for compliance.

2011 brings fresh new challenges and

maybe we shall also see some additions

to the banks already operating here in

2010 we saw one new bank open its

doors. We look forward to the Finance

Centre Council-inspired marketing plan

as well as early announcements on

funds growth and pensions issue

resolution all of which go towards a

more prosperous environment for all our

operators.

Some players did adjust their numbers, classicallymoving back officejobs to large processing centres as is thetrend elsewhere

22 Annual Report & Accounts 2010

Insurance SectorInternational Potential

Gibraltar stands on the brink of

significant change within the world

finance sector as a result of the

adoption from January of the territory’s

new tax regime and this opens up

the opportunity to woo major Spanish

multinationals for their insurance

business.

It is not the new low headline rate of

10 per cent corporation tax as such

that is attracting attention; most

interest stems from the acceptance of

Gibraltar’s transformation as a

mainstream, onshore finance centre -

fully compliant with EU and other

international regulations.

With the advent of Gibraltar’s new tax

legislation positioning the jurisdiction as

a low tax and not a no-tax domicile,

Gibraltar is better placed than ever

before to attract new types of insurance

business.

Over the last ten years the jurisdiction’s

insurance sector has grown from a mere

handful to approximately 65 insurance

companies and 30 cells. The new tax

regime makes Gibraltar well-placed to

launch the next phase of growth for its

well-developed insurance sector.

As a European onshore Finance Centre,

Gibraltar’s value has been its rigorous

and efficient regulation coupled with a

‘can do’ attitude, its size giving it far

greater agility and flexibility than larger

jurisdictions, yet always retaining the

safe and secure modus operandi

expected from a jurisdiction that prides

itself on reputation by virtue of looking

at business for long, and not short,

term gain.

The Rock as a Lat-Am Link

When comparing Gibraltar to the other

two main European Union insurance

domiciles, Dublin and Malta, it is quite

unique.

Gibraltar’s attraction is as a British

overseas territory with full autonomy in

all matters relating to financial services yetunderpinned by a sovereign guarantee. Toanyone wishing to establish a captiveinsurance company or a third party writerto take advantage of pan-Europeanunderwriting, it offers a combination ofquick decision making and an AngloSaxon working environment, coupled witha Latin lifestyle.

What makes Gibraltar stand out from therest is its potential in the Spanish market, presently a virtual ‘no-go’ areagiven that country’s continued insistenceon erroneously declaring the Rock a tax haven!

But that is all set to change. With present negotiations between Spain, the UK and Gibraltar, there is the strongpossibility of a Tax Information ExchangeAgreement (TIEA) being signed to add to the 18 or so Gibraltar has already concluded. That should result inGibraltar’s automatic removal fromSpain’s tax black list and gives us thechance of setting out to be the de factoFinance Centre of choice for theSpanish market!

Gibraltar is an integral of Europe, geographically as well as politically so itis only right that we have a level playingfield. There might even be the possibilityof a reaching double tax treaty withSpain. The benefits for both parties are clear and there would be possiblepolitical advantages for both sides too.

In the same way that Luxembourg,

because of tax treaties, has for many

years served as a reinsurance centre for

the Nordic countries, Benelux and

France, Gibraltar could readily serve as

the Iberian Peninsula’s finance centre.

Traditionally, Latin America looked to the

US and New York. But now when there

is a problem it’s only natural Latin

America turns to Madrid, because of the

huge migration of people to Spain with

historical and cultural links, and the

enormous growth in Latin America of

huge Spanish trading companies such

as Santander, BBVA and Telefonica that

today are bigger outside of Spain than

within it.

Their natural first port of call is not

London - even though it is the global

international insurance centre, bigger

As a Europeanonshore Finance

Centre, Gibraltar’svalue has been its

rigorous and efficient regulationcoupled with a ‘can

do’ attitude

Insurance Sector cont.

than anything else - because of

language difficulties. Instead they use

big multinational brokers, such as Willis,

with a large presence in Madrid as well

as Latin America.

But Madrid is geographically very close

to Gibraltar and has a natural advantage

in insurance over London in that

Gibraltarians, whilst having an Anglo

Saxon working mentality, also embrace

Latin concepts, making it much easier

for us to do business with Latin

American interests, because we

understand the temperament, the

thought process and we are a hybrid.

Gibraltar could be a good base for

Spanish insurance captives instead of

being in Luxembourg or Dublin. Why

shouldn’t Telefonica and Iberia Airlines

for example, have their insurance

captives here? There is no corporation

tax advantage if the parent company is

domiciled where there are higher rates

in France, Spain or Germany - they are

going to be paying the difference from

here in their own countries.

But having the Spanish or Latin

American insurance facility on the

Iberian Peninsula, as opposed to going

to Ireland or Malta, simply makes it all

much easier. Gibraltar professionals

speak Spanish - not that necessarily,

professionals in Madrid cannot speak

English - but it’s quite good to be able to

speak in their own language. And there

is no VAT charged in Gibraltar, which

does provide an advantage in Europe.

The Telefonica insurance captive is in

Luxembourg, but if it were here, it would

be far easier and speedier to talk to

the Regulator. A of captive clients like

Gibraltar because they everything is

convenient with easy access to lawyers

and accountants and other professionals

with industry experience.

The advantage for Gibraltar is that,

because of its size, it doesn’t need a

great deal of business to prosper.

We have been very successful within the

e-gaming sector and finance centre.

If we get half a dozen or more new

insurance operations with some coming

from Spain, we can measure that as a

success; we don’t need hundreds more.

Insurance and re-insurance companies

are starting to come here. French,

Austrian and UK companies use

Gibraltar to establish an insurance

operation, but so far there’s not been a

Spanish one.

Once Spain’s DGSFP, the equivalent ofthe Financial Services Commission iscomfortable that Gibraltar is not anything other than a European financecentre, paying its EU tax as agreed,much more marketing could be done bythe insurance industry into Spain.

If the political climate is right thenGibraltar’s insurance sector should beworking hard to make Madrid moreaware of Gibraltar, in the same way aswe do at Gibraltar Day in London. Theclimate has got to be right, but it’s wherewe want to get to.

As the Impact Study commissioned by theChamber clearly demonstrated, the Campode Gibraltar is heavily reliant on this jurisdiction and to a lesser extent we arereliant on the Campo. Working togetherthe achievements and benefits would befar greater than by working in isolation.

Domestic Market

Gibraltar’s home or internal insurancemarket remains over-broked with around30 local brokers fighting for market share.It is a sector ripe for consolidation and toan extent this has been happening withthe advent of new entrants in recent yearswho have had the expertise and the necessary capital to invest in new systems. The additional pressure on localoperators to invest in ongoing training and technology is likely to spur this consolidation process further.

For the last five years or so Gibraltar’shome market has been largely immunefrom any increases in premiums. This isno longer sustainable as underwriters inthe UK have had to pay out on anincreasing number of significant riskssuch as Katrina, the Haiti earthquakeand the oil disaster in the Gulf of Mexico.Premiums on ordinary lines of home,motor and general are set for more regular year on year increases. Theseincreases will accelerate if the localclaims history worsens. Undercuttingothers to get the business will not besustainable if the risk insured has agreater likelihood of making a claim.

Annual Report & Accounts 2010 23

GamingToday Gibraltar’s online gambling

industry has cemented itself as one of

the pillars of the local economy. The

timely introduction of the UK Gambling

Act which led to Gibraltar based

providers being able to advertise in the

UK also proved a significantly positive

development for Gibraltar.

Gibraltar’s e-gaming industry has

come a long way since the body blow

of the US ban in 2006, but the

sector internationally remains ripe for

consolidation. One notable development

during the year was confirmation that

the on-off, on-off discussions between

PartyGaming and BWIN had at last

come to fruition in an agreement to

merge. The enlarged entity will create

one of the largest and most diverse

online gaming groups in the world.

Although the product sets and country

offerings do not have much overlap

there will inevitably be some cost-

savings when the merger completes at

the end of Q1 2011. It is unlikely to be

the last tie up and should, other things

being equal, spur further waves of

consolidation. Nevertheless, the fall in

value of the combined firms reflects the

general fall in consumer spending on

Bingo and Poker generally and future

growth is likely to be at another’s

expense rather than from growth in the

overall size of the market.

Gaming companies now employ

approximately 10 per cent of the

workforce in Gibraltar and although

churn rates in some firms are quite high,

overall headcount levels have been

broadly maintained. There are currently

around 20 licensed e-gaming operators

in Gibraltar and with one arrival and one

departure the number remains the same

as last year.

New developments in the sector appearto be less about products but ratherabout delivery across different platforms,particularly mobile applications. TheChamber welcomes new operators toGibraltar such as Probability as they willhelp to propel the sector forward andalso reinforce the Rock’s reputation, not only as one of the world’s leadinggaming jurisdictions but also one which is at the centre of industry’s innovation.

As we noted in last year’s report, an increasing number of EU states continue actively to explore the merits ofhaving their own national regulatoryframework for online gaming and thisremains a threat to Gibraltar’s well-developed and highly regarded reputation.

In Spain developments are afoot whichmay impact how Gibraltar licenseesoperate and are treated by the locallicensing/regulatory bodies. Spain hasrecently announced that it will no longertax gaming operators on their turnoverbut rather on profit. The new Spanishlegislation will include language specifically outlining how the taxrevenues generated from both land-based and online casinos will be used bythe Spanish Government.

Looking towards the future, there is likely to be continued growth in the sector locally but always subject to the

ability of our jurisdiction (not least interms of infrastructure, telecomsresilience and office space, etc) toaccommodate new licence holders without prejudicing established operators in Gibraltar.

Annual Report & Accounts 2010 25

on-off, on-off discussions between

PartyGaming andBWIN had at last

come to fruition inan agreement to

merge

26 Annual Report & Accounts 2010

Maritime SectorThe maritime sector played a key role in

enabling Gibraltar to maintain economic

growth at a time when other countries

were reporting rising deficits. Gibraltar’s

Chief Minister, Peter Caruana said last

year that the port represents the ‘major

engine of our growing economy’.

In recent years, the Gibraltar government

has targeted significant investment

in the maritime sector, reflecting its

growing importance to the Rock’s

economy alongside financial services

and tourism.

The shift from a cumbersome

government department to a leaner,

more flexible and commercially-focused

Gibraltar Port Authority has largely

been completed and, while there are

still wrinkles to be ironed out, in broad

terms the shift has opened the way

for important organisational changes

to improve staff prospects and, by

extension, the efficient running of the

port. Critical among these new changes

is the port’s new £700,000 vessel traffic

monitoring system, which is manned by

specially-trained personnel and will allow

for close monitoring and coordination

of all ship movements in Gibraltar

waters. The Chamber has commented

on the imminent introduction of this in

previous annual reports and the Board

congratulates the government and the

Port Authority on its implementation.

The system’s main aim is to improve

navigational safety by enabling the

GPA to monitor and control all vessel

movements on both sides of the Rock in

real time.

It will also boost the port’s ability make

the best commercial use of finite

capacity and will bolster its search and

rescue capability. In the longer term, an

integrated web-based system will also

enable the electronic transfer of vessel

data from ships and agents to the port

authority itself, further reducing the

administrative workload.

By blending radar imagery and the

industry-standard automatic identification

system [AIS], operators in the port can

obtain a detailed and comprehensive

picture of anything moving in Gibraltar

waters and beyond, up to a distance

of 60 nautical miles. The system

automatically collects ship details via

onboard transponders, cutting down on

administrative tasks, and also provides

constant weather updates.

It is further enhanced by the use of

CCTV cameras fitted with thermal

imagers capable of tracking a one-metre

object moving at speeds of up to 90

knots.

The launch of the new VTS will also

bring about important benefits for

bunkering operations.

By increasing awareness of vessel

arrival times and movements, the port is

able to make the best use of the limited

anchorage space available for bunkering

operations in the bay.

In the medium term, the VTS will enable

the Port Authority to permit bunkering

on east side of the Rock in calm

weather conditions, a step that will

dramatically increase Gibraltar’s capacity

to refuel merchant ships.

The decision to open up the East Side is

currently the subject of an environmental

impact assessment study. Despite

opposition from local environmental

groups, the wide expectation in the

maritime sector is that the move will go

ahead, albeit under tight restrictions.

Re-fuelling operations will only be

permitted under strict criteria that hinge

mainly on weather conditions.

Limited capacity is currently the only

stumbling block to further expansion of

Gibraltar’s bunkering sector at a time

when neighbouring ports in the region -

namely Tangier Mediterranean and

Algeciras - are jealously eyeing a larger

slice of the business and investingaccordingly.

Total bunker volumes dropped from4.7m tonnes in 2009 to 4.3m last yearbut the result must be viewed againstthe turmoil in the global economy andthe freight markets. To put it into context,bunkers suppliers here delivered 4.2mtonnes in 2008 when the impact of the downturn was starting to kick in.That the port has managed to remain at similar levels is a noteworthy achievement.

The difficult trading climate has broughtsome benefits to Gibraltar, which hasseen the number of ship arrestsincrease over the past two years after a quiet period during the boom cycle. As credit conditions continue to tightenloan payments are missed and the lending institution repossesses the vessel. The Rock has a good reputationworldwide as an efficient jurisdiction in

Maritime Sector cont.

which to resolve admiralty disputes

under British law.

Gibraltar’s legal community is tightly knit

and has a close working relationship

with court staff, who are well-versed in

the intricacies of admiralty law and try to

give priority to shipping cases wherever

possible. That, coupled with an unrivaled

geographic location overlooking the

busy Strait of Gibraltar, means it is a

jurisdiction of choice in troubled times.

For troubled lenders it provides certainty

in ensuring that they can retake control

of a valuable asset. It also makes the

Rock a barometer for any wider malaise

in the industry.

Cruise Sector

In other areas of business, the cruise

sector remains buoyant, with bigger

ships helping to keep passenger

numbers stable as the number of cruise

calls fell compared with 2009.

Gibraltar’s shipyard is also doing brisk

business under its Gibdocks brand,

reporting similar levels of business in

2010 to 2009 despite the bleak

panorama in the shipping world.

The yard has carried out repairs on a

broad range of vessel types, including

cruise ships, ferries, container feeder

ships and offshore support vessels

working off the west coast of Africa.

On shore, the Gibraltar Ship Register,which is administered by the GibraltarMaritime Administration, improved itsposition on the Paris MoU White List ofquality registers. The flag, a CategoryOne member of the Red Ensign Group,has over 300 vessels on its books, representing well over 2m gross tonnes,and boasts a regular inflow of new

registrations. The number of new registrations continues to show ahealthy 10 per cent growth year on yearfor the last five years

Among the newcomers last year was theAtlantic Conveyor, the replacement tothe vessel of the same name lost in theFalklands campaign. The AtlanticConveyor was a British merchant navyship, registered in Liverpool, which wasrequisitioned during the Falklands Warand sank after being hit by twoArgentine Exocet missiles. The vesselnow registered in Gibraltar was one ofthe last vessels built on the River Tyneand was a replacement for the originalvessel.

Having taken over the running of the Gibraltar yacht register, theAdministration is now keen to tap themarket for super yacht registrations.The size of yachts that can be registeredin Gibraltar has been extended toinclude commercial charter vessels over

24 metres in length. The GMA is also

working with its Red Ensign partners on

new initiatives for these type of vessels.

Annual Report & Accounts 2010 27

The difficult tradingclimate has brought

some benefits toGibraltar, which hasseen the number of

ship arrestsincrease over the

past two years after a quiet period

during the boomcycle

28 Annual Report & Accounts 2010

Tourism SectorLast year we noted that very little had

changed from the previous year. In 2010

however, there have been some positive

developments and we hope that these

provide a platform for continued focus

and innovation in this sector.

Tourism and its related activities appear

in some quarters to have been the

least-loved pillar of the economy despite

being a significant generator of direct

and indirect employment and hence

source of revenue. In recent years there

has been little meaningful investment by

Government to improve or upgrade the

tourist infrastructure.

2010 indicated that there should

be some grounds for optimism. At

the celebration of MH Bland’s 200th

anniversary held at the top of the Rock

in July, the Chief Minister made

reference to a new impetus for the

tourist sector and the establishment of a

special committee of industry members

to review and make recommendations

for the way forward. We are aware that

the committee has met but so far the

impetus alluded to has yet to produce

any tangible results. The Chamber is

aware that outside interests with the

capital, expertise and vision are also

keen to contribute to developing

Gibraltar’s tourist infrastructure.

New routes, new hotels

easyJet announced in November that

they would be introducing a new route

from Liverpool to Gibraltar three times a

week from March 2011. This opens up

an additional market in the north west of

England, which is commendable. Otherlow cost carriers from further afieldshould also be courted to come and useGibraltar’s new airport facilities. This newroute comes after easyJet scrapped oneof its daily flights from the busy summerschedule. The impact this had on touroperators, hotels and other sectorsdependent on the tourist trade was feltby all.

The announcement made by LesterHotels that they will be building a new160 bed Hotel on Devils Tower Road, is welcome indeed. It is also a reflectionof how investment in areas such as theair terminal stimulates additional privatesector investment. Targeted investmentin this part of the economy has the potential to produce significant additional benefits. Hilton Group is alsounderstood to be setting up an operationhere and this would add to the qualityand choice of hotels available. Businesstravellers are a discerning group and it would be beneficial for Gibraltar tohave an internationally-recognised hotel brand in addition to the existingoperators.

Cruise Calls

2010 saw a marked downturn in cruisecalls. The cruise business has been acornerstone of the government’s tourismstrategy for the last 10 years. The reduction in calls was partially offset bylarger vessels calling so passenger numbers did not fall on a pro rata basis.Gibraltar had 178 calls during 2010,down from 238 the previous year. Theforecast for 2011 is 197 calls which isan improvement, but does not detractfrom the fact that other ports in theIberian peninsular are making biginroads into the cruise liner market.

An example is the nearby port of Cadiz.

Calls to Cadiz in 2010 were up some

42% during the year with nearly 300

calls and 336,000 passengers visiting

the port. What does Cadiz have that

Gibraltar does not? What are they doing

right that we are not? We need to raise

our game.

We understand blue chip cruise line

companies are questioning Gibraltar’s

ability to deliver the right product given

transportation constraints and capacity

on the Upper Rock thereby forcing them

to look elsewhere. Extending the cruise

terminal to handle a greater number of

larger ships is all very well but if the

cruise operators are taking the view that

Gibraltar cannot handle any increases in

traffic then one has to ask what is the

point. It is not the terminal facilities that

are found wanting. It is what tourists

are coming to see: the Upper Rock

attractions that need attention.

Our product

At the risk of sounding like a scratched

record, the Upper Rock, the No.1 tourist

attraction for decades, continues to

deteriorate in front of our eyes with

several sites now being in a very

dilapidated state. They are an

embarrassment at best and a potential

public liability at worst. It must also be

galling for those operators who have

invested significant sums in refurbishing

their own facilities to be situated so

close to what amount to little more than

rubble and ruins. It is not the Chamber’s

role to be prescriptive as to the layout

and detail of the individual sites but

much of what is there no longer cuts the

mustard.

of individual sites but much of what is

there no longer cuts the mustard.

Year Number of Estimated Cruise Calls Passengers

2008 224 319,021

2009 238 363,291

2010 178 309,041

2011 197 358,426

Tourism Sector cont.

The Chamber has argued for years that

the Government should use taxpayer’s

money to make the necessary

infrastructure investment in these sites

and then put the management and

operations of these various sites out to

tender. This would ensure that no single

operator had dominance on the Upper

Rock and that the forces of competition

lead to a greatly improved and

sustainable product offering with a

significantly enhanced customer

experience.

Gibraltar has more heritage, history

and uniqueness in its 6 1/2 square

kilometres than many cities twenty times

its size. Some private sector operators

can see this and have, through their

best efforts, benefitted from offering

visitors an experience they could not

find elsewhere. But there does not

appear to be any joined-up thinking.

Many attractions are open between

Monday to Friday and one is by

appointment only. Local operators scrap

between themselves for every last

tourist pound. Yes they have to make a

profit but somewhere in all of this the

visitor, the tourist gets forgotten. This

has to start from the top.

The transport system is no longer viable

and needs to be rethought if we want to

be able to handle increased visitors

numbers on the Upper Rock without

the chaotic congestion that exists when

two or more cruise liners bring their

passengers ashore. A ‘hop on, hop off’

experience common in other successful

tourist destinations like London,

Granada or Barcelona might be worthy

of consideration.

As we said last year, even in government

hands, the fees to the Upper Rock could

be significantly increased to pay for

major investment in infrastructure and

services. But visitors need to be given

value for money. The tariff system needs

re-vamping so visitors can choose what

experience they want rather than being

rushed through one site or another by

their respective tour provider. The

current system is all rather piecemeal.

Tourist Sites

A welcome addition in 2011 will be the

long awaited refurbishment of Europa

Point. The improved facilities will also

provide the local population with

additional services at what has been one

of the most neglected sites on the Rock

for too long. Nevertheless, as with the

Kings Bastion, it shows the real potential

of what can be achieved with a bit of

vision and some well-targeted public

capital investment. The refurbishment of

Annual Report & Accounts 2010 29

The Rooftop Conference and Banqueting area with it’s breathtakingpanoramic views of the ocean gateway guarantees the event organiser

a dramatic back drop steeped in history.

2 Governor’s Parade, Gibraltar.Tel: +350 200 70500 Fax: +350 200 70243www.eliotthotel.com

O’Hara’s Battery is another example of

what is possible although accessibility is

still limited. There remain however,

several sites, particularly on the Upper

Rock that are in various states of

dereliction.

The relocation of the prison releases

another historic site which could provide

a great opportunity to enhance the

Moorish Castle area and open up the

northern defences into an accessible

and well frequented tourist attraction.

We are also delighted to see the

announcement to refurbish Eastern

Beach. The Chamber has never

understood how, given our size and

geographical surroundings, that we

have not identified our beaches as a

truly prized social and tourism asset

which should be flag bearers for the

surrounding area and costa.

Specialist Sectors

We repeat the point that we made in our

last annual report in that our real growth

potential lies in satisfying specialist

sectors.

The opening of additional air routes

should be married to a structured

marketing programme. We have

commented in previous reports that

Gibraltar should take advantage of

the niche markets it has available -

ornithology, weddings, diving, sailing,

fishing, heritage and military history to

name a few.

This year has seen the Chess Festival

continue to grow and Brian Callaghan

and his team at the Caleta Hotel should

be commended for their efforts in

developing this niche. The momentum of

this January event has led to additional

chess tournaments being planned later

in the year.

Several other notable events which play

to Gibraltar’s strengths include the

International Open Darts Tournament in

March, the International Dog Show in

September and for the first time last

year the very successful Ultra Marathon

in October. How great it would be to

have at least one big internationally-

recognised sporting event every month.

This would raise Gibraltar’s profile and

also fill hotel rooms and restaurant seats

as well as benefit many of the local

shops.

Conclusion

The Chamber will continue to lobby

Government to make meaningful

investments in the local tourist

infrastructure. At a time when retail

businesses are feeling the pinch of a

tougher economic climate it is more

important than ever that Government

provides the vision to allow businesses

to consider new opportunities and

alternative business revenues.

We believe that, in working with the

private sector, Gibraltar can provide a

unique visitor experience rivaled by

nowhere in Southern Spain and hope

that during the forthcoming election

campaign all parties can come forth with

innovative ideas of substance for this

sector.

30 Annual Report & Accounts 2010

Tourism Sector cont.

There remain however,

several sites,particularly on

the Upper Rockthat are in

various states of dereliction

PropertyThe Chamber became increasingly con-

cerned during the year about the number

of vacant shop premises on Main Street.

Some retail members decided finally and

reluctantly that they could not afford to

pay ever-increasing rents demanded by

landlords when all the other cost factors

were taken into account.

It would appear that the laws of demand

and supply are being applied with

increasing harshness, even in Gibraltar.

That could spell bad news for landlords

who have become used to ever increasing

rents. Even key money was being waived

in some cases as some owners tried

almost anything to entice potential

tenants to rent a retail premises.

A prolonged downturn could mean even

more vacant shops in the next few years.

Empty shops do not instill a sense of

confidence. Landlords are faced with a

choice if they want to retain good quality,

reliable tenants. Charge a fair rent if they

want to keep their premises occupied.

Otherwise the retailer will walk.

The malaise affecting tracts of British

and Spanish retailing has had some

effect on Gibraltar but with high rents

traders have been forced to decide

whether to raise their game or simply

throw in the towel. By contrast it is

heartening that some retailers have had

the confidence, cash and vision to

upgrade or refurbish their premises and

this is welcome as it adds to the retail

fabric of the town.

Office & Commercial

Demand for office property remained

strong during the year although several

Chamber members reacted with alarm at

the announcement in June’s budget that

the government was considering using

taxpayer’s money to fund a favoured

development. There is no doubt that

Gibraltar will continue to need additional

good quality office space in the years to

come. What is not needed is for the

government to become a de facto

developer in its own right. The distortions

this would create in the market place

would lead to years of uncertainty for any

private sector developer. The government’s

announcement has already caused

ripples of uncertainty among some

developers who fear that their own

schemes may be compromised by a

state-backed development. The decision

about whether a scheme is viable should

be market-based. If the banks refuse to

lend or the developers do not have the

cash to fund a viable development

then that is for the market to determine.

The record of state-backed champions

has not always been a happy one.

Annual Report & Accounts 2010 31

WATERGATE HOUSE2-6 CASEMATES

P.O. BOX 1418GIBRALTAR.

TEL: (350) 200 46579FAX: (350) 200 50539

Email: nick@nicholasgale.comwww.nicholasgale.com

Independent Property Consultant

and Valuer

To the members of the Gibraltar Chamber Of Commerce.

We have audited the financial statements on pages 34 to 41, which have been prepared under the historical cost conventionand on the basis of the accounting policies set out on page 37.

Respective responsibilities of the Honorary treasurer,directors and auditors

It is the responsibility of the honorary treasurer to prepare financial statements for each financial year which give a trueand fair view of the state of affairs of the Chamber and of thesurplus or deficit of the Chamber for that year. In preparingthose financial statements the honorary treasurer is requiredto:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

• Prepare the accounts on the going concern basis unless it isappropriate to presume that the Chamber will continue in operation.

The Honorary treasurer is responsible for keeping proper accounting records, which disclose with reasonable accuracyat any time the financial position of the Chamber. The directorsare also responsible for controlling the funds of the Chamberand hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.

Basis of opinion

We conducted our audit in accordance with International AuditStandards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in thefinancial statements. It also includes an assessment of the significant estimates and judgements made by the directors inthe preparation of the financial statements and of whether theaccounting policies are appropriate to the Chamber’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessaryin order to provide us with sufficient evidence to give reasonable assurance that the financial statements are freefrom material misstatements, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in thefinancial statements.

Opinion

In our opinion the financial statements give a true and fair viewof the state of affairs of the Chamber at 31 December 2010and of its surplus for the year then ended, according to thebest of our information and the explanations given to us and asshown by the books of the Chamber.

Ian CollinsonStatutory auditor for and on behalf of

BAKER TILLY (GIBRALTAR) LIMITEDChartered AccountantsHonorary Auditors

Date: 28th March 2011.

Annual turnover £86,685(2009: £87,038)

Cash balance at year end £54,698(2009: £51,568)

Report Of The Auditors

Annual Report & Accounts 2010 33

34 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerceINCOME & EXPENDITURE ACCOUNTfor the year ended 31 December 2010

2010 2009

INCOME Notes £ £

Subscriptions 49,735 48,455

Deposit interest 96 107

Other income 1 36,854 38,476

Total income 86,685 87,038

EXPENDITURE

Staff remuneration and social insurance 39,753 39,537

Office rent 7,056 6,408

Electricity and water 1,181 1,309

General administration 2 31,732 45,159

Amounts written back/(bad debt written off) (1,066) 4,616

Depreciation 3 2,155 5,565

Total expenditure 80,811 102,594

SURPLUS/(DEFICIT) FOR THE YEAR 8 5,874 (15,556)

There are no recognised gains or losses other than those shown above.

Annual Report & Accounts 2010 35

Th e Gibr a lta r Ch a mber o f Co mmerceBALANCE SHEETas at 31 December 2010

2010 2009

Notes £ £

TANGIBLE FIXED ASSETS 3 8,998 10,573

CURRENT ASSETS

Stocks 4 552 552

Debtors 5 16,969 13,640

Cash at bank and in hand 6 54,698 51,568

72,219 65,760

CREDITORS: amounts falling due within one year 7 (10,484) (11,474)

NET CURRENT ASSETS 61,735 54,286

TOTAL ASSETS LESS CURRENT LIABILITIES 70,733 64,859

ACCUMULATED FUND 8 70,733 64,859

Approved by the board on 28th March 2011.

G A Olivera

Honorary Treasurer

36 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerceCASH FLOW STATEMENTfor the year ended 31 December 2010

2010 2009

Notes £ £

NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 9 3,614 (7,977)

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE

Interest on deposit account 96 107

CAPITAL EXPENDITURE

Payment to acquire tangible fixed assets 3 (580) (5,778)

INCREASE/(DECREASE) IN CASH 6 3,130 (13,648)

Annual Report & Accounts 2010 37

Th e Gibr a lta r Ch a mber o f Co mmercePRINCIPAL ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The financial statements have been prepared under the historical cost convention and in accordance with Gibraltar Accounting Standards.

DEPRECIATION

Fixed assets are depreciated over their expected useful lives as follows:

Furniture and fittings 15% on cost

Office equipment 15% on reducing balance

Computer equipment 25% on reducing balance

Air conditioning units 20% on cost

Leasehold improvements Over 9 years

STOCKS

Stocks are valued at the lower of cost or net realisable value.

FOREIGN CURRENCIES

Transactions denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions.

38 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerceNOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010

2010 2009

1. OTHER INCOME £ £

ATA Carnets 1,650 1,318

Fees for certificates of origin and invoices 23,923 16,252

Surplus on:

- Business centre 4,325 7,210

- Chamber dinners 65 4,885

- Publications 6,891 7,624

- Other sales and services - 1,187

36,854 38,476

2010 2009

2. GENERAL ADMINISTRATION EXPENSES £ £

Advertising 3,810 5,699

Telephone 3,184 3,503

Printing, postage and stationery 4,484 4,533

Miscellaneous expenses 1,416 234

Insurance 388 381

Entertaining 5,610 5,611

Office cleaning 2,123 2,068

Repairs and maintenance 1,837 2,094

Training 1,575 3,454

Subscriptions 605 974

Accountancy fees 1,200 1,000

Professional fees 5,500 15,608

31,732 45,159

Annual Report & Accounts 2010 39

Th e Gibr a lta r Ch a mber o f Co mmerceNOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010

3. FIXED ASSETS

Leasehold Furniture Office Air Computer Totalimprovements and fittings equipment conditioning equipment

£ £ £ £ £ £

Cost

As at 1 January 2010 35,755 11,772 23,708 8,647 9,516 89,398

Additions during the year - - - - 580 580

As at 31st December 2010 35,755 11,772 23,708 8,647 10,096 89,978

Depreciation

As at 1 January 2010 35,541 9,224 19,439 6,951 7,670 78,825

Charge for the year 27 458 640 424 606 2,155

As at 31st December 2010 35,568 9,682 20,079 7,375 8,276 80,980

Net book value

As at 31st December 2010 187 2,090 3,629 1,272 1,820 8,998

Net book value

As at 31st December 2009 214 2,548 4,269 1,696 1,846 10,573

Th e Gibr a lta r Ch a mber o f Co mmerceNOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010

4. STOCKS 2010 2009

Stocks at the year end comprised of the following: £ £

Commemorative books, booklets and First Day Covers 252 252

Ties and shields 300 300

552 552

5. DEBTORS 2010 2009

£ £

Subscriptions 4,595 3,865

Other debtors 12,116 8,837

Prepayments and accrued income 258 938

16,969 13,640

6. CASH AT BANK AND IN HAND 2010 2009

£ £

At 1 January 51,568 65,216

Net cash inflow/(outflow) 3,130 (13,648)

At 31 December 54,698 51,568

7. CREDITORS: amounts falling due within on year 2010 2009

£ £

Creditors and accruals 10,080 10,574

PAYE and Social Security 404 900

10,484 11,474

40 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerceNOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010

8. ACCUMULATED FUND 2010 2009

£ £

Balance at 1 January 64,859 80,415

Surplus/(Deficit) for the year 5,874 (15,556)

Balance at 31 December 70,733 64,859

9. NOTES TO THE STATEMENT OF CASH FLOWS

Reconciliation of results for the year to net cash flow from operating activities

2010 2009

£ £

Surplus/(Deficit) for the year 5,874 (15,556)

Interest on deposit account (96) (107)

5,778 (15,663)

Depreciation 2,155 5,565

(Increase)/decrease in debtors (3,329) 7,443

Decrease in creditors (990) (5,322)

Net cash inflow/(outflow) from operating activities 3,614 (7,977)

10. OTHER FINANCIAL COMMITMENTS

At 31 December 2010 the Chamber had annual commitments under non-cancellable operating leases as set out below:

Operating leases on land and buildings which expire: 31 December 2010 31 December 2009

£ £

Over five years 6,927 6,408

Annual Report & Accounts 2010 41

42 Annual Report & Accounts 2010

Gibraltar: Key Information(All figures relate to 2009 unless otherwise stated)

Population:

Total land area:

Natural resources:

Head of State:

Chief Minister:

Legislature:

Languages:

Business hours:

28,779

6.5 sq km

None

Her Majesty Queen Elizabeth II

Hon Peter Caruana QC, MP

Parliament (no upper house)

English & Spanish

9am - 5pm Monday to Friday

Inflation rate:

Minimum wage:

Average earnings:

Registered employed:

Registered unemployed:

Imports:

3.4% per annum

£5.40 per hour (£210.60 per week)

£22,928 (2009)

20,450

3.0%

UK: 60%, Spain: 30%, Other EU: 10%

AIRLINES & HOTELS:www.ba.comwww.flymonarch.comwww.easyjet.comwww.caletahotel.comwww.rockhotelgibraltar.comwww.ocallaghanhotels.com/eliott

Corporation Tax (from 1st January 2011) Tax PayableResident Companies 10%Utilities Companies 20%

Personal Income Tax Tax Payable£0 - £4000 Annual gross income 17%£4001 - £16,000 Annual gross income 30%Over £16,000 Annual gross income 40%

No capital gains taxes No tax on dividendsNo Inheritance tax/death duties or estate duty No wealth, gift or capital taxes

Special Status personal tax rates Tax PayableQualifying individuals who are non-resident and derive no Minimum tax payable of £22,000 per annumincome from Gibraltar can apply for Category II resident up to a maximum tax payable of £30,000status. per annum.

Applications should be made to the Finance Centre Director,info@financecentre.gov.gi

0

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18000

20000

1998 1999 2000 2002 2002 2003 2004 2005 2006 2007

Employment Growth 1998 - 2009

2008 2009

Females Males

0

100

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500

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900

1998/9 1999/002000/01 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

GDP Growth 1998 - 2010 (£m)

2008/9 2009/10

£m

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