Mandatory reporting of accounts by Malta’s financial institutions, as outlined by EU directives, is just 10 per cent of that in other member states with financial centres of similar sizes, the European Greens said.
The issue was highlighted in a study published by the Greens/EFA Group in the European Parliament flagging some 20 loopholes in procedures for the automatic exchange of tax information.
Listing reasons why publishing statistics on this information could curb abuse of the directives, the Greens point to Malta as an example where the low volume of reporting could be exposed through the use of such data.
“Statistics could show that Malta’s financial institutions are reporting only 10 per cent as many accounts as other EU countries even though all those EU countries have financial centres of similar sizes, with a similar number of banks and managed assets. This could indicate that some of Malta’s financial institutions are failing to comply with the Common Reporting Standard (CRS) and the Directive on Administrative Cooperation (DAC 2),” the political group noted.
The Greens argued that in addition to EU individuals and entities exploiting loopholes that hindered the exchange of tax-related information between member states, automatic exchanges under the EU directives may be ineffective because of “deliberate or negligent (such as mistakes) cases of non-compliance with regulations”.
“The publication of statistics should pose no problems: it is already envisaged under DAC, it breaches no confidentiality, it creates no extra costs for authorities or financial institutions and it allows foreign authorities from developing countries as well as the general public (civil society organisations, journalists, legislators, etc.) to know how much information is being exchanged and to hold authorities to account with regard to the use of the received information,” the Greens argued in the report.
The two directives reviewed – DAC 2 and DAC 3 – oblige financial institutions located in the EU to identify accounts held by a resident from another member state and also to exchange information on cross-border tax rulings and advance pricing agreements (APAs) with all other EU countries.
Some countries, including the US, not taking part in CRS
Among the loopholes identified, the Greens pointed to the fact that some countries, including the US, are not taking part in CRS. They also noted that individuals can “circumvent the system by ‘buying’ residency or citizenship in another country to trick their banks”.
Some EU member states could create “secrecy risks” in the EU after deciding not to receive financial information from some non-EU citizens, the Greens said in their report, adding that the DAC 2 directive covers only financial account information and not hard assets.
“This excludes information on cash or gold held in safe deposit boxes, vaults or freeports, real estate, yachts and other hard assets. As for crypto-currencies, they are covered if the country decides so, which can also create massive loopholes,” the report reads.
The group added that under DAC 2, many types of financial institutions and accounts are excluded from reporting.
As for the loopholes under DAC 3, the Greens pointed to the fact that basic information from rulings is not public while adding that the directive excludes “natural persons”, which they fear could result in authorities engaging in secret agreements with high net worth individuals. The directive only covers specific cross-border transactions.
“It’s not clear if agreements giving tax advantages to a multinational as a whole (e.g. to set up the headquarters in a jurisdiction) but not related to a specific transaction would be covered by the directive.”
Commenting on the findings, MEP Sven Giegold, who forms part of the political group and who has repeatedly called on the Maltese government to address shortcomings in the financial sector, said that the loopholes highlighted in the report needed to be addressed if Europe truly wanted to bring an end to tax havens.
“The automatic exchange of information is great progress against tax evasion,” he said.
“Now, Europe has to close these loopholes so that the end of tax havens will not become an empty promise. The Greens will pursue this issue vigorously.”