Monaco and Taxes: Method or Madness?

Recently I had lunch with a woman who calls a most unusual place “home”:  Monaco.

Monaco’s most famous hotel ranks high on the tourist route... (photo: Steve Muntz)
Monaco’s most famous hotel ranks high on the tourist route… (photo: Steve Muntz)

Most people only visit Monaco.  They’re daytrippers who sweep through this tiny principality known for luxury and bling.  They tick their sightseeing boxes of the Monte Carlo casino, the five-star Hôtel de Paris, and Port Hercule, the megayacht-studded harbor that visitors usually glimpse from above given Monaco’s vertical geography.  If there’s time, these same people head into Monaco’s old town to photograph the palace where the Grimaldi dynasty has ruled since the 13th century, and then they stroll through the narrow and supremely clean streets, with the aura of Princess Grace still hovering around certain corners.

That’s what most people do.  I know a few others who understand Monaco a bit more intimately.  They keep apartments in this two square-kilometer patch of land for tax purposes.  Staying in Monaco, no matter the duration, invokes no income taxes.

Not that Monaco is a bad place, deserving only of tax exiles.  Situated between the Italian Alps and the Mediterranean Sea, it has a breathtaking landscape that boasts sunny, mild weather practically all year round.  It showcases a month-long sporting extravaganza, and festivals that draw international stars and artists.  It offers the delights of a philharmonic orchestra, an internationally acclaimed ballet, a modern art museum and an ornate opera house – things normally allocated only to the world’s top cities.

Monaco has all these things crammed into a gleaming jewelry box that’s smaller than New York’s Central Park.  The problem with the place is that it hardly seems real.  The same tax-savvy folks who own Monégasque apartments also tend to own sprawling residences just over the border in France, where they live more normal lives for the maximum time possible – while studiously counting their days in France in order to avoid its crucifying taxes on residents. does a stroll through the principality’s pristine old town.
…as does a stroll through the principality’s pristine old town.

Other people, of course, set themselves up this way as a sham.  They buy a pied-a-terre in Monaco and stay in France fairly full-time hoping not to get caught.  It probably works better if you’re not a known entity like the Formula One champ Michael Schumacher, who several years ago was caught on cameras and, long story short, decided to sell out of France and Monaco all together for quieter (tax-wise and otherwise) Switzerland.

Philippe and I ourselves once entertained Monaco as a way to elongate our time in the Côte d’Azur in completely legal fashion.  But the idea lasted a fleeting few seconds on our radar, which was the moment I likened the place to a glorified battery chicken coup.  Anyway, these days we have a seven-year old who attends school in Toronto.  She will keep us honest.

But Pauline, the name I’ll give this woman with whom I was sharing lunch one Saturday afternoon in France’s rosé winemaking region, actually called the gold-leafed poultry pens her home.

I found it fascinating.  This was where she had lived for a couple of decades.  The fact that she’d originally grown up outside Monaco – of all places near Cardiff in the lush, agricultural surroundings of Wales, where everyone talks to everyone – made the fact even more staggering.

Sailing is a memorable way to approach the few square-kilometers that make up the Principality of Monaco.  Photo: Steve Muntz
Sailing is a memorable way to approach the few square-kilometers that make up the Principality of Monaco. Photo: Steve Muntz

What’s more, Pauline brought up her children, a girl and a boy, in Monaco.  The schools are good, she said, efficient and clean.  Her kids get to mix with a huge variety of cultures, and that was mostly a good thing because they had chances she never did.

Surely, I thought, these cross-cultural experiences must’ve populated an impossibly narrow band on the economic rainbow, but she had something of a point.

Actually, on second thought, maybe she had childrearing all worked out.  The elevators that link Monaco’s cliff edges would’ve been much easier to navigate with baby prams than the flights of stairs that carve up most of the world’s sidewalks.  And there are more police officers per capita in Monaco than in any other country on the planet, and what with all the surveillance cameras, no street is unwatched.  Little Johnny would be safe there.  What’s more, the queues of traffic that jam Monaco’s streets – some 30,000 people come to work in the principality every day – mean that cars won’t move fast enough to knock Johnny over when he chases his ball from one narrow sidewalk to the other.

Even the taxis are Mercedes. Photo: Steve Muntz
Even the taxis are Mercedes. Photo: Steve Muntz

On the other hand, birthdays were sometimes an issue, Pauline admitted.  For his 14th birthday, her son wanted a cake in the shape of a guitar.  Pauline made it herself; she’s not a chef, but she worked hard on the project and felt proud of her work.  One invitee, a Russian boy who was son of some Vladimir Warbucks, looked at the cake and said, “Oh, what’s so special about that?”  And then when the other boys continued overnight for the scheduled sleepover, the Russian punk wasn’t allowed to stay because his bodyguard had to take him home.

Young Warbucksamov was the outlier, Pauline insisted.  Her kids have attended amazing bar mitzvahs in Monaco.  They’ve enjoyed birthdays on yachts and lunches at the Hôtel de Paris. (“I’ve not had lunch at Hôtel de Paris,” she said.)

And here I’d worried our bar was creeping a smidge too high when we threw Lolo’s last birthday party at her sweaty gymnastics club.

Michael Schumacher was once a Monaco “resident.” Photo: Chris J. Moffat, via Wikimedia Commons
Michael Schumacher was once a Monaco “resident.” Photo: Chris J. Moffat, via Wikimedia Commons

What about gifts?  I asked Pauline.  What on earth do you buy these kids for birthday gifts?

Don’t even talk to me about gifts!  She said.  They had to have the right label.  Which is a frightening idea if you inhabit a city whose streets are lined with Chanel and Valentino.

A redeeming activity for Pauline’s children was the scouts.  In some ways, she said, the scouts were like family to her kids.  The organisations weren’t hugely popular in Monaco, but they offered exceptional opportunities.  The scouts, for example, got to stand in a prominent position at Monaco’s royal weddings, such as the recent one between Prince Albert and Princess Charlene.

Pauline’s daughter spent the last two years of her schooling in Nice, where she suddenly realized that there was more to the world than the bubble of Monaco.  Now she’s 23, attending university in Paris, and in an effort to shun all that’s Monégasque, she has become what Pauline called “semi-grunge”.  Her son, 16, still populates the bubble.  She said he needs to prick it.

The taxing subject of Monaco cropped up a few days later when Philippe, Lolo and I were invited onboard a megayacht in Antibes’ bay for lunch.

Monaco’s Port Hercule could be the backdrop of your child’s next birthday party. Photo: Steve Muntz
Monaco’s Port Hercule could be the backdrop of your child’s next birthday party. Photo: Steve Muntz

(Incidentally, I recognised my own childrearing issues – Monaco or otherwise – shortly after we arrived onboard.  Lolo pointed out a squat table in the yacht’s immaculate lounge and announced with the discerning eye of an interior designer, “Look, Mommy! This is stingray skin!”)

Conversation over the yacht’s long, lunch table shifted – as it does so readily in these circles given France’s new political order – onto French tax laws and how to avoid, at all costs, becoming French tax-resident.  There was Monaco, of course.  And there were gimmicks to avoid being detected in France, such as pay-as-you-go mobile phones, cash rather than credit, and quick jaunts over the border to neighbouring Italy.

But no matter what you do – so went the typical conversation – don’t die in France (particularly as a tax resident).  Roughly speaking, the government allocates most of your estate to your children and takes a good whack for its own coffers.  If you have no direct offspring, the government takes even more.  This division of your estate will occur even if you have other ideas of what you want to do with your wealth, and have executed a will saying so.  Even if you want to donate some of your legacy toward more broadly-minded, philanthropic purposes.

As the yacht’s stewardesses hovered politely as we spoke, topping up the wines and offered seconds.  Philippe and I described the case of Jimmy Goldsmith, the Anglo-French billionaire financier and tycoon.  In his later years he actually represented France as a Member of the European Parliament – but even then, he didn’t want the country to grab his wealth.  As we heard it, in the late 1990s, when pancreatic cancer prompted a heart attack and he reckoned his end was near, Goldsmith jumped on a private plane.  He went to die in Spain.

Antibes’ Bay de la Salis is a yachtman’s paradise.
Antibes’ Bay de la Salis is a yachtman’s paradise.

All the while at the head of the long table, the yacht owner smiled knowingly.  His head nodded as the boat swayed in the bay’s rippling waters.  Yes, he himself knew that issue too well from a good decade ago.

His own father, who had been very wealthy, died in France after a battle with cancer.  The family called the French morgue – and then promptly hung up the phone.  What on earth were they thinking?

Instead, they got the French doctor who’d looked after their father to sign a death certificate saying that he had died in Switzerland.  Then they rolled up the corpse in a carpet and carried it downstairs.  (In the process, the body slid out onto the dead man’s brother, who let out an enormous shriek.  Cue The Three Stooges soundtrack.)

The nurse who’d tended their father for the last year of his life dressed the corpse, and together the group propped him in the back seat of a car, securing him with a seatbelt.  The nurse popped a hat on his head.  (Cut the stooges.  Cue Little Miss Sunshine.)

Around this time the phone rang.  No one dared answer – in case it was the morgue ringing back.

This yachting family had hardly suffered life in Monaco’s gilded chicken coup.  They hadn’t fiddled with pay-as-you-go mobiles or bundles of cash secreted away in a villa safe.  But, as ever, there was a method behind the madness.  France’s tax authorities provided the madness, so the grieving family provided the method.

A lead car drove along France’s motorways toward the Swiss border, so the story went.  One passenger phoned back to confirm there were no guards.  The fully-dressed corpse left France shortly thereafter.  Along with it went another wad of wealth that, only a phone call earlier, had been destined for France’s greedy piggybank.

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