Death of a Haven

Ever since 1861, tiny Monaco has sheltered its residents from one of life's inevitabilities--taxes. To enjoy this blessing, thousands of foreigners have settled in Monaco, and the principality has prospered since World War II as the headquarters for scores of foreign firms, including Allied Chemical, U.S. Time, and the weapon trader, Interarmco, that do the bulk of their business outside Monaco's 388 acres. A tax haven at his doorstep nettled Charles de Gaulle, who was bothered about Monaco long before he took on his economic competition with Britain. Convinced that Monaco-based businessmen enjoyed an unfair advantage over their taxpaying French competitors, De Gaulle last April abrogated a treaty guaranteeing Monaco's tax-free status and insisted that some changes would have to be made.

After months of acrimonious negotiations, Monaco last week bowed reluctantly to France's demands. From now on, profits of all Monaco-based enterprises with 25% or more of their sales outside Monaco will be subject to a 25% French tax, rising to 35% in 1965. As a concession, those who have been Monaco residents for more than five years will be exempt from the French income tax. This is small consolation to the thousands of foreign businessmen, including many French refugees from Algeria, who have streamed into Monaco in the past few years.

The threat of such taxes has been enough to slow Monaco's building boom, which had become so big that the Mediterranean shore was being filled in to create more land. Real estate agents have not completed a single major deal since the crisis began, and the announcement of the new taxes immediately set off a sharp drop in real estate prices. Though the roulette wheels will continue to turn at Monte Carlo, gambling provides only about 5% of Monaco's income. With the incentive gone for foreign businessmen to set up headquarters in Monaco, Prince Rainier's prosperous little fief faces a grey and grim future.

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