Malta to defend its corporate tax system - parliamentary secretary

Parliamentary Secretary Tonio Fenech yesterday defended Malta's tax system in the area of corporate tax and said that those who were advocating change should first understand how the system worked.

Speaking in parliament, Mr Fenech referred to articles claiming that corporate tax in Malta was high and should be reduced. The reality, he said, was that Malta did not really have corporate tax. What Malta had was a full imputation system where, basically, tax paid by a company was considered provisional. Once a shareholder received a dividend, the provisional tax was refunded and the shareholder paid tax on the gross dividend, at the marginal tax rate.

This was very different to the tax systems in other EU countries. Malta only had one layer of taxation whereas other countries had two layers - companies were charged corporate tax and shareholders were again taxed on their dividends.

"Malta's system is a system we will defend because it is advantageous to the country and those who receive dividends, whether Maltese or international trading companies. Eliminating this system, as some are suggesting, would mean undermining a very important sector for the country."

Comparisons, Mr Fenech said, should be like with like. Reference was often made to Ireland. That country has a corporate tax of 12 per cent, but that was a final tax with no refund to shareholders who then also paid tax on their dividends.

Mr Fenech was speaking about financial services during the second day of debate on a bill to amend the Trusts Act.

Earlier in the debate, Labour MP Jose' Herrera reiterated the opposition's backing for this bill.

He observed that the concept of trusts was being extended to include the commercial sector. What was of concern was that the legislative framework on matters involving financial services was being changed too frequently, something which was not good for such a delicate area. Investors wanted certainty and continuity.

In terms of this bill, nominee companies would have to be phased in two years.

It was not clear, however, what would happen to the companies which had nominee shareholding. Would they become trusts or have to appoint trustees?

Would tax rebates for beneficiary shareholders remain?

Would trusts of a commercial nature have the same obligations as companies? He felt that trusts of a purely commercial nature should have the same obligations as applicable to companies under the Companies Act, with trustees having no option over the matter.

Dr Herrera asked the minister to explain the limits of liability of trustees. He personally felt that in the management of inheritance, indeed in all civil, non-commercial cases, trustees should not be corporate but personal, or, at least, the directors of trust management companies in such cases should be personally responsible. One could not have a situation where most of the funds of a trust went to the managers and not the beneficiaries. In some cases, beneficiaries should be able to request a court to order independent administration of the estate if they deemed it was not administered well.

Opposition justice spokesman Anglu Farrugia said it was unfortunate that this government has set up various foundations, which were similar to trusts, whose activities lacked transparency and accountability. The government, surely, should set an example where transparency and accountability were involved. The people responsible for such foundations should be held to account when abuse was revealed. There should be an exercise to inspire confidence and credibility in institutions such as foundations.

Was it proper, he asked, that while the House was discussing legislation on trusts, NGOs were not regulated by law? Such organisations received funds which were supposed to be used for particular purpose, but abuse was sometimes suspected. There could even be abuse by political parties.

Dr Farrugia spoke on the historic evolution of trusts abroad and in Malta and regretted the absence of caselaw on trusteeship relations in Malta.

He referred to the Hague Convention on Trusts and asked the minister to explain the applicability of Maltese law on trusts already based in Malta.

Parliamentary Secretary Tonio Fenech underlined the importance of this bill as another link in the financial services provided by Malta.

He listed laws enacted by parliament since 1994 when Malta converted from offshore to onshore legislation. Malta, he said, enjoyed a sound reputation in financial services circles.

Financial services now accounted for 12 per cent of GDP and employed in excess of 5,000 persons. The registration of funds had doubled in three years.

This was a very sensitive sector which needed to be well cared for.

This bill was a new window of opportunity to encourage foreigners to move the administration of trusts to Malta. But Malta was being careful it would not be used for purposes of money laundering or tax avoidance.

Mr Fenech referred to Dr Farrugia's remarks. He said trusts could be of particular interest to NGOs and the government was actively considering a law on NGOs.

Other speakers will be reported tomorrow.