A budget-friendly haven for banks and robbers

PERHAPS I should have done my homework first but I wanted to be surprised. I'd learnt about Andorra at school - a tiny, independent principality in the Pyrenees on the French-Spanish border. A scenic, 700-year-old mediaeval village in a time warp, or so I thought. I was planning a holiday in Spain and I expected three nights in Andorra, hiking and exploring the old parts, would be icing on my holiday cake.

The bus from Barcelona chugs its way through the stupendously steep limestone peaks of the Pyrenees and descends into the capital, Andorra la Vella, where suddenly I am in the construction capital of Europe. Bulldozers, new apartments, roads, bridges, tunnels, more apartments, cranes, trucks and even more apartments are everywhere. How can this be?

The penny drops: Andorra is a tax haven. Businesses pay little or no tax. But to operate from here, you need to be a resident, which means you have to own a house or apartment. Everywhere the mostly empty apartments stare over the valleys through dust and construction noise.

My hostel is out of town and I settle in, then go for a hike through a conifer forest and around the spectacular slopes - this is what I came for - but my curiosity is aroused. I ask my Catalan hostess, "Who runs Andorra?" She glowers at me, mutters "ze banks" and changes the subject to soccer and Barcelona's coming game against Manchester United.

A trip into town is in order. The shops are tax-free and I note the Nikon camera I bought via the internet in Australia is even cheaper here. The centre of town, a gigantic retail precinct, is buzzing with shoppers. Andorra has more than 10 million visitors each year, accounting for 80 per cent of its gross domestic product.

I peek into a shop window and my jaw drops as I see replica pistols, radar detectors, police deterrent spray, police batons and handcuffs among other suspicious-looking cheap paraphernalia on open display.

There are few border checks in Europe, so what would stop criminals buying up these products and taking them home?

My sense of right and wrong goes into overdrive. Surely all this tax-free economic activity is at the expense of countries such as Portugal, Spain, Greece and Italy, which desperately need the tax revenues? And surely those products that are illegal elsewhere in Europe could be used by criminals to rob, steal, and assault people in other parts of the Continent?

Back at the hostel, I tell the glowering hostess of my concerns. "But zer are lots of ozzer tax havens," she protests. "Like Monaco and Liechtenstein, even Switzerland." She points out that, if your profession is "armed robber", replica pistols would be work-related tax-deductions. With a wink, she asks if I would like to go shopping with her tomorrow. After a moment, I say yes. After all, why should I pay GST and import duty in Australia when I don't have to?