Malta is earning a reputation as a tax paradise, as a pirates’ nest and as a gamblers’ paradise.
A recent issue of Der Spiegel carried an eight-page leading article on Malta’s hefty profit from financial wheeling and dealing. The subject was also recently aired on the German ZDF television. Malta’s financial scandals have hit the headlines in many other countries.
The views expressed in a leading German journal are of particular interest in the light of the recent publication of the ‘Malta files’, 150,000 documents that demonstrate how international companies are using Malta as a pirate base for tax avoidance in the EU.
The Spiegel article and ZDF concentrated on two main issues: tax avoidance/evasion schemes based in Malta and the Panama/Egrant affair.
A system whereby companies can avoid paying tax at the corporate tax rate in their home country has been in operation in Malta for years with the backing of both our main political parties. The European Union was seemingly also aware of this financial set-up at the time of Malta’s accession to EU membership. So the matter is technically legal and above board.
But there are aspects of our so-called ‘economic boom’ which should be worrying to the Maltese public. Malta’s current system of economy mostly revolves around amassing money by various secretive means, the name of this game being the generation of wealth out of other peoples’ profit and/or depriving other countries of tax due to them.
Though tax avoidance schemes which verge on tax evasion are profitable in the short term, they may ultimately bring us into disrepute by deterring future bona fide enterprises from investing in Malta. It also excludes any element of long-term investment in our local resources, local talent and industry.
We are on our way to creating a parasitic yuppie fast-buck society of elite financial dealers with high-paying jobs and affluent lifestyles.
Such financial trickery generates money for a few, who enrich themselves enormously, while the remainder cannot get a foot on the ladder because of the inequitable distribution of wealth.
The public is mostly unaware of the huge extent of our tax avoidance network or how it operates and there should be more awareness about this.
Tax avoidance schemes mostly work something like this: a large number of companies have established joint stock companies, so-called subsidiaries or similar subterfuges in Malta.
The sole aim of these is to enable these companies to avoid paying a high rate of corporate tax in their own country. Let us say that a German company makes an annual profit of €100 million. By virtue of a plausible (and probably legal) manipulation the company makes itself liable to corporate taxation in Malta at 35 per cent.
€35 million is duly paid to Malta but, on the basis of our local fiscal law, Malta gives back a rebate of 6/7 of the tax paid by such companies.
Malta therefore refunds €30 million back to the company. In effect the company saves €30 million in tax payable to the country in which it operates.
The company now declares €95 million as after-tax profit in its country. This is theoretically non-taxable.
In the case of Germany a mere five per cent of the company’s declared after-tax profit is considered taxable.
The company therefore now pays just under €2 million on a profit of €95 million in the country where it operates instead of €30 to €35 million.
The practice of such schemes means that many countries are being deprived of billions in taxes due to them from companies that operate in them.
The attitude to such tax robbery in the victim countries is described as ‘resigned’. So far, so good, but will this go on in the long term?
Is it not conceivable that the foundations on which our economic boom is largely built may collapse like a house of cards if these countries find a way to prohibit this practice?
As reported in Spiegel, Malta is claiming that tax rates are entirely a local matter and that Malta merely provides an ‘attractive tax environment’ for commercial companies. But it is almost inevitable that, sooner or later, war will be declared.
Questions are already being asked: do these fictitious company subsidiaries in Malta have ‘substance’? Are their addresses fake addresses? If the companies are only represented in Malta by an address or an empty office, then might there be grounds for these companies to be imputed for fiscal losses in the country in which they operate and asked to return the money?
Making a handsome profit at the expense of other countries is a ticking time bomb.
George Debono is a retired doctor with a research background and a special interest in health and environment matters.