Andorra Outwits G20

Working and living in an income tax free country is something a lot of people imagine could only be a dream - it would need an efficient government with politicians who didn't see every business and every citizen as a taxable opportunity.

Even in the 1960's the Beatles were singing 'Taxman' about how everything was taxed - even the ultimate event of dying when government would tax someone's estate. And forty years later not much has changed, every year it seems governments find something new to tax, and to increase tax on things they already tax.

But surprisingly perhaps there are countries which don't have income tax for their citizens, or for those who qualify for residency in those countries and go to live there, with a result of a much reduced tax bill.

One such country is Andorra. With a population of 70,000 people it's one of the world's smallest countries and welcomes new residents who qualify for living in the country - that means applying for a certificate of good conduct from your local police and paying a returnable deposit of around 20,000 Euros to the Andorra government.

Andorra is located between France and Spain in the Pyrenees, and is well known in Europe as a ski holidays destination - in recent years Andorra has spent a lot of money on the tourist infrastructure with around ten million people visiting each year - and some buy ski holiday homes helping the Andorra real estate market to be an active one.

And while getting to Andorra might pose a problem for some - the nearest airports in Barcelona and Toulouse are three hours away - the country is hardly behind the times when it comes to technology...every house and apartment has access to high speed internet, one of the first countries in the world to offer everyone broadband, allowing new residents to run businesses from Andorra at the same speed they would in their home country.

Hotel in Andorra

So what is their to dislike about what would seem a fantastic place to live and work? What threat could a country with no standing army and a population of 70,000 people pose to the outside world?

According to the OECD (an international government organisation run by bureaucrats who haven't run a business between them), the Organisation For Economic Co-operation And Development) Andorra has been offering new residents banking secrecy, so not only is Andorra offering a tax free environment for business people but they're not informing their home governments what they're up to either - and what a government doesn't know, a government can't control of course.

To the OECD and governments it's not the Andorra ski holidays they're interested in, but what the Andorran residents are up to behind closed doors. And their failure to regulate their own banks and to notice what was going wrong with their own economy means little Andorra is an easy target for someone to blame, shifting the cause of their economic ills away from their own decisions to tax havens, which were up and running during the boom years without incurring the wrath of other governments.

Led by calls from Germany, Britain and the US to stop tax havens being so effective, the OECD has called for Andorra to be less secretive - and to their surprise Andorra has agreed. Andorra will maintain bank confidentiality for residents, and only pass on information if there is thought to be fraud or criminal activity involved in the proceeds deposited in Andorra bank accounts.

But the move by Andorra to agree to some opening up if an overseas country can show fraud might be involved in the funds deposited in Andorra banks has wrong footed the OECD, and taken the sting out of their attack on countries that quite happily have low taxes for their people as a priority compared to many of the bigger countries, and governments will now need to find another scapegoat for the world's economic troubles - the message from Andorra is that people staying in hotels in Andorra are far more likely to be on a ski holiday than salting away misappropriated funds.

Andorra might be small, but maybe it's the mountain air that keeps her people alert and a step ahead of the bigger nations.