Football tax row threatens to muddy Monaco's racy image

On Sunday, the streets of Monaco will reverberate to the roar of high-powered racing cars as the principality stages its 71st Grand Prix, bringing together the worlds of Formula 1 and cinema.

On Sunday, the streets of Monaco will reverberate to the roar of high-powered racing cars as the principality stages its 71st grand prix, bringing together the worlds of Formula One and cinema.

The race coincides with the closing weekend of the Cannes Film Festival 37km to the west along the Cote d'Azur and invariably draws some of those attending it to watch the action from prime locations in the harbour or onshore.

The grand prix is the outstanding event of Monaco's calendar, so central to the country's identity that a sprinkling of Formula One drivers have chosen to live there. Jenson Button and Felipe Massa are among those rubbing shoulders with well-to-do businessmen and stars from entertainment as fellow-residents.

The presence of the rich and famous is well documented. Gleaming Rolls-Royces and Lamborghinis line up outside the world-renowned Casino and the trappings of style and luxury are evident almost wherever the visitor strays.

Unusually for such a small state, there is a royal family whose lives and activities are chronicled more prominently - and more pruriently - than those of most other European monarchs.

The legacy of the celebrated romance of Prince Rainier and Princess Grace remains strong, making its own contribution to the economy as witnessed by the crowds that gather for state occasions or daily besiege the area around the royal palace.

Beyond the grand prix and interest in the royal family, Monaco is known for its lush botanical gardens, the spectacular Oceanographic Museum and the cobbled streets around the palace. Sunshine is plentiful and both the French and Italian Rivieras are short drives away.

A variety of data sources reveal Monégasques - as citizens are called - live longer than the people of any other country, with an average life expectancy of 89 years and six months, enjoy the world's lowest employment rate, lowest poverty levels and highest ratio of millionaires and billionaires.

For many with money to invest or protect, from the racing drivers to fortune-making investors, Monaco is also regarded as a fiscal paradise. Residents pay no income tax, unless they have the misfortune to be French, in which case they are legally obliged to make declarations to their own country.

And while the House of Grimaldi, Monaco's ruling dynasty, has worked hard to eradicate a reputation for money laundering, most of the world still regards the country as a tax haven.

Taxation controversies are never far away and the latest has its origins in sport, not Formula One but football.

Among facilities in the Fontvielle area, on land reclaimed from the sea, is the Stade Louis II, home of the principality's football team, AS Monaco.

From next season, the team is due to be playing back in the top flight of its big neighbour France after two years in the Ligue 2 doldrums. Previously a force in French football, winning seven championships and reaching two European finals, AS Monaco have recovered from that lean spell and, under the ownership of a billionaire Russian business tycoon, Dmitry Rybolovlev, have just won promotion back to Ligue 1.

The club's Italian manager, Claudio Ranieri, has been given the green light to spend what is necessary to restore the club to the European elite. Manchester City's Carlos Tevez and arch rivals Manchester United's Wayne Rooney are among names mentioned in media speculation.

But the promotion is now threatened in an unseemly row with the top French football clubs over a tax advantage they regard as unjust.

Monaco is not an intended victim of the higher taxes the socialist French president François Hollande has imposed as part of his efforts to overcome the country's financial crisis. But Ligue 1 clubs facing higher tax bills - in part to cover their star players and managers' higher income-tax liability - see no reason why an outsider should enjoy privileged status.

"We welcome the good news of Monaco's promotion," says Frédéric Thiriez, the president of the French football league, "and we look forward to their conforming to French regulations."

In other words, advantages that were a source of annoyance are now a serious issue. The French stance translated as a demand that the AS Monaco head office should be relocated to France by the start of June next year. This would mean players paying French taxes.

The French Football Federation has suggested a compromise in which Monaco would pay €200 million (Dh948.7m) as an alternative to having to move.

The club denounced this proposition as "outrageous" and threatened legal action.

It is entirely possible further talks, due this week, will find a compromise.

And if that leads to AS Monaco playing in Ligue 1 next season after all, an intriguing prospect arises: can the combination of a super-rich Russian's wealth and an indulgent Monégasque tax regime produce a realistic challenge to Paris Saint-Germain, whose 2013 championship was fuelled by the super-rich indulgence of Qatar?