Small Country, Big Challenges
Global Warming Taxes Tiny Andorra
An ailing ski industry is prompting some off-piste solutions in Andorra. The principality, which has been traditionally tax-free, could soon see a new corporate tax in a desperate measure to boost revenues.
Climate change is forcing the tiny principality of Andorra, famous for its tax haven status, to make changes where it really hurts -- its pocketbook.
Enduring snow shortages in the Pyrenees are endangering the ski tourism industry, which currently provides more than 80 percent of the country's gross domestic product (GDP). Now head of government Albert Pintat Santolària wants to attract more foreign companies to the miniscule country -- and to take the radical measure of introducing a corporate tax.
"Our future doesn't look good," says Andorra's ambassador to Belgium Carme Sala Sansa, who is also ambassador to the Netherlands, Luxembourg, Slovenia, Germany and Poland, as well as the European Union. "We're going to have less snow, and our companies aren't competitive," she adds.
Under Pintat Santolària's proposal for a 13 percent corporate tax, businesses will in future contribute to Andorra's coffers, instead of to those of its neighbors France and Spain, as was the case in the past. His goal is to "to double economic performance by 2020," he says.
These are difficult steps for the tiny country, which has until now not levied any taxes on its citizens and which has so far managed to get by without any tax offices. The new tax may also prove tricky for Pintat Santolària himself -- the majority of Andorra's around 71,000 citizens voted for Pintat Santolària two years ago because he promised to uphold the country's tax-free status.
Hopes for greater economic competetiveness also hinge on the pending abolishment of a rule whereby foreign investors are only allowed to own a maximum of one third of an Andorran company. The decision is expected to be approved by Andorra's parliament before the summer. Afterwards the county will be "totally open," Sala Sansa says.
Pintat Santolària hopes this will encourage foreign companies, preferably from the high-tech and service industries, to take root in Andorra. For others, "We just don't have room," he says. After all, the principality, which has an area of 468 square kilometers (181 square miles), is roughly half the size of greater Berlin.