The sole purpose of the ingenious, criminal and wily creations and schemes invented by the consultants and financial services authorities, blessed and condoned by the governments of the five taxation sinks in Europe, was the avoidance of tax. In fact, the recipient countries did not even tax these capital flows themselves but only served as conduits.

Subterfuges take a multitude of forms, such as intellectual property licences, brand names and goodwill licences, intra-company loans and marketing or sourcing contracts which would transfer costs to the  subsidiaries of large companies in Germany, France, Italy, Sweden, Spain and other large economies  from letter-box or pseudo-active company subsidiaries in Malta, Ireland or Luxembourg.

The payments thus made were then either transferred onwards, to another subsidiary of the same company through a double sandwich system or other funnily called, but very seriously planned systems, transferring the profits finally to zero tax jurisdictions like the Cayman Islands through the Netherlands or to the British Virgin Islands via English banks.

What was in it for the thieving countries? Well, apart from the fees charged by the creators of these schemes - the consultants mentioned before - there were the company registration fees, the local directorships and nominees representing the foreign owners in those countries as well as the need, at times, of a handful of employees resident in the country itself.

Locally, these earned salaries, paid tax and created jobs for the locals. An example is Apple in Ireland, which employed 1,000 staff in Ireland at a cost of about a couple of hundred million euros per year, leaving around €30 million a year in income taxes and a couple of millions in rents for property.

For this cost, Apple managed in just five years to avoid paying €13 billion in taxes in Ireland or elsewhere. Both Ireland and Apple are now being sued for this amount by the EU competition authorities. €13 billion over five years would have employed 100,000 Irishmen for five years, each earning €130,000, and not just 1,000 people as today. €13 billion would also have covered the Irish social security and healthcare budgets each year and for several years in the future.

Why do countries make such mistakes? Why do countries decide to pinch a small profit for themselves while causing great damage to their neighbouring and generous fellow Europeans for so many years?

I do not know the answer to these questions and I really do not care whether we consider these countries to be tax havens, tax sinks, or just clever in a criminal way. The effect is the same.

Capital and wealth gets sucked out the major economies of Europe where the great volume of sales, and hence of profits, of these companies takes place. Sales of goods and services, sales to the State, like power stations, road works, trains and airplanes, computing services and sales to individuals like phones and deliveries of packages, television programmes, films and entertainment, perfumes, food and agricultural machines are all purchased with taxed incomes. When I buy a phone or when the Maltese government buys a power station it is my taxed income that goes to Apple or to Socar and Siemens.

Apple, for example, would make a profit on the phone they sold to me. But Apple does manage to reduce the profit of its Maltese subsidiary to zero by having to buy the licence of that phone from Apple Ireland. There, artificially, the IP or brand value is located in an Irish subsidiary, having been sold to that subsidiary from its Silicon Valley research and development centre. This set-up allows the Irish subsidiary to invoice each and every European sales subsidiary with enough fees to retain only a minimal nominal profit to be taxed in France, Italy and Germany, for example.

The profits all amassed in Ireland are then transferred, legally under Irish law, tax-free to other subsidiaries in zero tax islands and havens like the Cayman or Cook Islands or the British Virgin Islands.

It is not fair that my taxed money or Malta’s revenue from taxation are diverted to tax-free zones by the likes of Apple and Siemens.

Finance Minister Edward Scicluna’s statement that the suggestion from the European Commission to invoke Article 116 of the EU treaties crossed Malta’s red line has once more tickled my imagination.

The last time he used the veto was when he vetoed the adoption by the EU of the European Convention on Unlawful Gaming, thus allowing our iGaming industry to sell gambling and gaming products considered illegal in certain countries to the citizens of those countries. When Malta does not consider such gaming to be illegal, even though social laws of other countries do, then he thinks we should continue to harbour and protect Swedish companies coming here to break Swedish laws, or German companies coming here to break German laws.

Not only do these companies use our land, our offices and our Maltese youth in their activities, thus destroying any remaining moral fibre in this country, but several of the expat staff, working side by side with Maltese staff, are given special treatment, allowing them to only pay tax on a limited part of their salary and allowing them to earn a good part thereof tax free. The Maltese working on the next desk has to pay full tax on all his or her salary. That too is not fair. It creates a two-tier society.

These foreign workers, when employed in their own countries, would have had to pay tax on all their income and benefits in kind at rates of around 55 per cent or more. The company would have to pay social security for them at around another 30 per cent of their salary and benefits. Thus, for example, a Swede earning €150,000 per year in Sweden would cost the company €200,000. The employee would receive a net income after tax of €67,500. The normal ‘high’ salary for a Maltese would be around €45,000 and a very high one at circa €80,000. Maltese social costs at 10 per cent would therefore bring a total cost to employer of €49,500 or €88,000, depending on the level.

The employee would still have  around €36,000 or €56,000 left after tax, depending on the level. Now the expat sitting next to him or her would probably have a salary of around €100,000 (Malta cost of living is lower than Sweden) and cost the employer €110,000, i.e. €90,000 less than the same person cost the employer in Sweden. Moreover the em­ployee has to declare only €50,000 of his salary in Malta, since anything above that is tax free. On €50,000, the tax due is around €10,000, leaving the expat with €90,000 per year to live off. He would probably also have a company car and free housing and schooling.

We are not all tax evaders. We are not all criminally inclined

Thus, an extremely highly paid Maltese would have a net annual income of €56,000 or close to €4,700 per month, and the lower-paid Maltese around €3,000 per month, which is quite good by local standards. But the guy sitting at the desk next door is keeping €7,500 per month and not paying rent or instalments on his car.

If this is what we would like our cosmopolitan Malta to look like at the very best of jobs offered by the businesses we are attracting here, then I am not sure I like what I see.

There are so many examples of these unfair situations. I have heard somewhere that a police inspector has a net take-home pay of €1,500 to live off with his or her family. Yet we expect the police to risk their lives to protect us and to fight the modern, extremely hardened and brutal criminals that seem to abound in these islands.

Pensioners seem to have to survive on €800 a month or even less if they are widows or have not had the chance to accumulate social welfare points. We know of so many categories of Maltese workers who get paid ‘under the table’, as we say in Malta. The grey or black eco­nomy is very widespread. Home cleaners, individual plum­bers, electricians, suppliers of farm produce and water services rarely provide a VAT receipt.

Doctors do not provide VAT receipts and their incomes are completely unknown to the tax authorities since they are allowed to declare a so-called benchmarked level of income. I have a tingling sensation that this benchmark, agreed by the profession and the Commissioner of Inland Revenue, stands today at between €40,000 and €50,000 per year on which tax is due.

I am not sure what the going benchmark rate of lawyers and architects is. Is there a benchmark rate for building contractors, building demolition services, painters and plasterers, and so on and so on?

We Maltese live in a wonderland and I continue to be astonished and surprised at every turn. I have lived abroad in different European countries for over 40 years, in fact, all my active years in employment. I have seen surprising things and even heard of tax evasion schemes.

Barter, where I will paint your façade if you repair my plumbing, was quite common. Yet Malta seems to have institutionalised the system. From the very bottom up, from locals to expats, from the local shopkeeper to the big developer and building contractor, from all liberal professions and self-employed, we live and avoid tax.

No wonder we are being looked at closely by outsiders. No wonder the European Parliament and the European Commission are now working hand in hand to bring about a fairer taxation across Europe and a better distribution of that famous wealth. Today it is 10 per cent owning 90 per cent, maybe tomorrow 50 per cent will own 30 per cent, leaving the next 30 per cent of the population owning 30 per cent and the very wealthy 20 per cent would own the remaining 40 per cent. There would still be a huge difference between the top and the lowest, but less than today.

European Economic Commissioner Pierre Moscovici is planning to propose that the taxation legislation to level the corporate tax rates across Europe and to force country-by-country reporting and a single tax base across Europe, should pass without the use of the veto. He wishes to apply the never-as-yet-utilised Article 116. This will allow taxation legislation to pass by majority voting and, in this way, bypassing and nullifying the veto powers of the five countries that are causing the problem.

It is the European Council, made up of heads of government, that seems not to want to change the system we have today. Many wonder what is the connection between keeping the wealth in the hands of a few political parties running countries.

Can it be party financing? Are bribes being paid to retain the system of today? We have been having debates and discussions in Malta about corrupt politicians in both major parties. We have also had discussions about potential bribes and hidden accounts. We know that two accounts mentioned in the Panama Papers belonged to known politically-exposed persons (PEPs) here in Malta. We also know that a third company called Egrant potentially also has a secret   Maltese owner. What is interesting is that this secret company name is a perfect anagram of the French word for money, argent. Can this be a coincidence?

I wonder who, with interest in the French language would be so clever as to name the secret company with such tongue-in-cheek, giving it the hidden name of what it was intended for. Who knows? We probably will never find out.

Yet with the help of the EU we might just be forced to repair and correct our taxation system. It can be done now, gradually, with both parties involved, taking part in creating a new taxation system that is lower in rates, equal and fair in its application and attractive to ‘real’ and not fictitious businesses.

If both parties stop defending the indefensible and join hands, they could reform Maltese tax in a way conducive to attracting foreigners to live among us sharing the costs of keeping the country going, and clearing the bad name our country has so ably created for itself. That bad name, unfortunately, tars all of us with the same brush. We are not all tax evaders. We are not all criminally inclined.

Please! Politicians from all parties, help us before it is too late. Such a reform would be the perfect reply to those who murdered Daphne.

Concluded

John Vassallo is a former Senior Counsel and Director for EU Affairs at GE, a former Vice President EU Affairs and Associate General Counsel, Microsoft, and a former Ambassador of Malta to the EU.

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