Prosecution of defaulting taxpayers was “an exceptional circumstance”, the Inland Revenue Commissioner said when asked about allegations involving two close aides of the Prime Minister.
Refusing to give any details on the allegations concerning both Dr Mizzi, the Health and Energy Minister, and the Prime Minister’s chief of staff Keith Schembri, about overseas financial structures, citing confidentiality, Marvin Gaerty said cases about breaching income tax laws rarely ended up in court if an amicable solution was found and the matter was settled.
When asked whether he was aware of the public declaration made by Dr Mizzi that he had breached the law by not declaring his New Zealand trust and Panama company, Mr Gaerty said that, although the failure to declare a trust was a criminal offence, “it has never been the department’s policy to resort to such measures”.
It was only “in exceptional circumstances as a measure of last resort where, after the department has exhausted all possible means, the taxpayer fails to regularise his position” that the Police Commissioner was brought in, he said.
Mr Gaerty said that, even where criminal offences were committed, the Inland Revenue Department still preferred to settle the issue administratively.
He said it was only in the case of failure by employers to submit their final settlement system forms and payments that taxpayers were prosecuted. Yet, even in such instances, when a settlement was reached, the Inland Revenue Commissioner opted not to proceed with criminal action against employers.
“Where employers rectify the default during proceedings – before final judgment – such cases are withdrawn”, Mr Gaerty noted.
According to income tax laws, the settlor of an overseas trust has to declare his new financial instrument to the Inland Revenue Commissioner within 30 days from its registration.
But, Dr Mizzi admitted he did not observe the law. He said it was his financial advisers – Nexia BT – who did not inform him about his obligations and said he would rectify his position.
Mr Schembri, who has also admitted owning a financial instrument in New Zealand and Panama similar to Dr Mizzi’s, has not replied to questions on whether he had abided by the law.
Dr Mizzi had said it was Mr Schembri who told him about the offshore set-up and advised him to use Nexia BT.
Prime Minister Joseph Muscat had at first said Dr Mizzi had already paid the fine connected to the Income Tax Act breach. However, when it was pointed out it was impossible for the minister to have done so when he had only admitted his blunder less than 24 hours earlier, Dr Muscat corrected his original statement stating that Dr Mizzi would be taking measures to come in line with the law.
As Inland Revenue Commissioner, Mr Gaerty has been entrusted by the government to perform a tax audit on Dr Mizzi.