Ivan Camilleri, Brussels
Report on Malta as tax haven dismissed as sensational
Malta has denied "sensational" reports in a German publication suggesting the island was being used as a tax haven by German multinationals.
While admitting there was a recent surge in German investment in Malta, Finance Minister Tonio Fenech said "this is all above board and according to EU laws".
"German investment in Malta has been present for a long time and the double taxation agreement with Germany is there to facilitate taxation between the two countries and promote investment. We have never had any negative reaction by the German government on this front... This is just sensationalism," Mr Fenech said.
Describing Malta as "a new tax haven Mecca" for large German multinationals, Germany's most popular news magazine Der Spiegel gave details of how large German companies were avoiding tax through the island.
The magazine, which sells more than a million copies around Europe every week, accused Germany's Finance Minister Peer Steinbruck of turning a blind eye to what had become a known "tax loophole" used by Germany's top companies to "optimise their tax structure" through Malta.
According to an investigation carried out by the magazine, renowned companies like Lufthansa, Puma, BASF, K+S and Fraport were all allegedly using Malta's taxation system to avoid paying all their dues to the German tax authorities.
They were doing this by forming subsidiary companies in Malta to take advantage of loopholes in the EU taxation system and the double taxation agreement between the two countries to reduce their taxable incomes, the magazine claimed.
The report said this had been going on since Malta joined the EU and despite the German authorities knowing what was happening they did not seem to have the power to do anything to stop it. At the same time the magazine admitted there was nothing illegal in the system being adopted.
"In the global game of financial Monopoly, the small Mediterranean country has become one of German industry's preferred locations in the time since it joined the EU in 2004," Der Spiegel wrote.
"German companies have their offices in the town of St Julians, near the Stiletto Gentleman's Club, and the pubs where foreign language students drink themselves into oblivion. The offices of the BMW Malta Group are near the casino in the upscale Portomaso waterfront development," the magazine commented sarcastically.
Other German big names, such as Deutsche Bank would also be investing in the island, the magazine reported.
Quoting a partner in an accounting firm in Malta, the report said the number of German companies in Malta was growing rapidly and gave details of how the "tax avoidance system" worked.
Der Spiegel said that, although companies in Malta paid 35 per cent tax on their profits, a rate higher than Germany's, shareholders could then apply for a refund of the bulk of these taxes. On balance, profit distribution in the form of dividends was taxed at only five per cent. The magazine affirmed that, after taxation, the net dividends were returned to the coffers of the German parent companies, 95 per cent tax-exempt.
Directly criticising the German government for allowing such a system to go on, the magazine charged that "No one (in Germany) seems to be troubled by the fact that this loophole deprives the German Treasury of massive amounts of revenue".
The magazine also pointed a finger at the German Embassy in Malta saying it was encouraging other German companies to use this system and invest in Malta.
A spokesman for the Foreign Office in Berlin said, when contacted, that the ministry was aware of the article but had no comment to make.
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JF.Bartolo snr
Sep 5th 2009, 18:43
@C.Cassar did you say keep on crying Germany.. my Maltese brother GERMANY OR THE FATHERLAND have been crying since the1940's and will remain so. Good!
C Cassar
Sep 5th 2009, 13:58
This certainly is 'sour grapes' from Germany and many other countries such as the UK where obscene levels on icome tax (and particularly indirect taxation in the UK) funds the expensive lifestyles of government workers with their huge guaranteed pensions, MPs with over inflated salries and huge expense claims (as reported in the UK overthe last months) and corrupt local councils.
Good on Malta for taking the initiative to attract investmenttothe islands. Why should the laws in Malta be the same as in the UK and Germany? Why should Malta penalise hard work and persuade investment to go to other countries?
What countries such as Germany and the UK should be doing is drastically cutting all forms of taxation including income tax. Additionally, if the hugely overmanned governments and local councils got rid of at least 70% of their employees, the systems would run much more efficiciently. Also, guaranteed pensions should be removed from all government employees in these countries putting them on the same level playing field as the rest ofthe population in the private sector. Huge taxation destroys innovation and investment.
Keep on crying Germany :-)
Charles Taliana
Sep 5th 2009, 13:45
If it is not illegal for this sort of investment, why does Der Spiegel waits its time to investigage unfounded malpractice. Up the EU and their taxes.
Dominic Chircop
Sep 5th 2009, 13:32
As the Minister said, it is all legit and above board. Unfair on Maltese shareholders, but legitimate nevertheless.
The 6/7 refund operates through the application for a refund on tax at source on dividends to the proper authorities. But, although the tax legislation purports to be non-discriminatory, it in fact discriminates against Maltese shareholders when compared to non-resident shareholders. The law stipulates that recipients of the 6/7 refund have to report it in their tax return, whethet corporate or individual. Thus, although Maltese shareholders can apply for the refund, they rarely do.
This could also be distorting competitioin between certain businesses run by non-residents and comparable businesses run by Maltese.
But it is all legitimate, and other EU members do it. This new regime was agreed with the EU and started operating from 1 January 2007.
I would welcome some comments from people in the know; not from correspondents with a political axe to grind.
Henry Coeyman
Sep 5th 2009, 12:35
Yes i remember watching a programe on our Dutch tv that malta was a tax haven, it was about 1/2 hr. long and showed many places, shops, the price of food(before the big Hype when joining the euro-ofcourse) now well lets say its nearly as high as ours and in some cases even dearer due to luck of sales techniques and such things as buy 1* get one free*, and so on, these things do not exist in Malta or Gozo, except maybe at an Italian owned Supermarket in Malta, with i think 3 outlets to prove it, however Malta's Tax Haven is a thing of the PAST -Finito. no more, unless as people say Miracles do happen but for the life of me i am still waiting, although saying this i won 25€ once on the local super five so i can't really complain, i am not greedy...(LOL) did i say greedy? when in Rome do as the Romans do, work it out! Tot Ziens.
Randolph Peresso
Sep 5th 2009, 12:03
Sour grapes????!!!!!!
Francis Buhagiar
Sep 5th 2009, 11:29
Maybe this is why Gunter Van Hoigen wanted at all cost that Malta joins the EU., even by threatening Dr. George Vella. Who knows??????
Frans Buhagiar