22/05/17

Malta surprised by sudden interest in its tax regime

Maltese politicians defended the country's tax regime over the weekend, after an international group of media outlets began publishing stories about the so-called Malta Files, reports EU Observer.

The EU’s smallest nation came under new public scrutiny on Friday (19 May) when a journalists’ network called the European Investigative Collaborations (EIC) published the Malta Files.

The EIC said the articles “show how the Mediterranean state works as a pirate base for tax avoidance inside the EU”.

The consortium of media included German weekly Der Spiegel, Belgian daily Le Soir, and Spain's El Mundo, as well as online-only media such as Mediapart in France and The Black Sea.

The latter, an online platform for investigative journalists from central Europe, said Malta's tax regime in combination with its EU membership “has made Malta a target for firms liked to the Italian mafia, Russian loan sharks, and the highest echelons of the Turkish elite”.

The reports said that while Malta demands a 35 percent level of corporate tax, companies whose shareholders are not based in Malta can get a refund of 85 percent, leading to a de facto corporate tax of 5 percent.

The average EU corporate tax rate is around 22 percent.

However, the reports were met with surprise by a government member in Malta on Sunday (21 May).

Roderick Galdes, the parliamentary secretary for agriculture, spoke to EU journalists who took part in a press trip organised by Malta, which currently holds the Council of the EU’s six-month, rotating presidency.

Galdes told EUobserver that Malta has been transparent about its tax system.

“We have a current legislation and taxation system that was in place before Malta joined the European Union,” said Galdes.

“There were negotiations before Malta joined [in 2004] to keep that system. It's been in place throughout these years for 12 to 13 years since Malta joined,” he said.

“I don't see how this has become an issue now, especially when you can find all the information online, about companies that are registered in Malta,” Galdes added, saying that the country has a “due diligence system which is really, really tough”.

The sudden flood of articles was linked to the fact that journalists had, for the first time, gained access to some 150,000 leaked documents about Malta's tax regime.

While the general picture of Malta’s attractive tax regime was well-known, the leaked files offered the media an opportunity to write more in-depth stories on the subject.

The same thing happened with Luxembourg in 2014, when the so-called LuxLeaks disclosures enabled journalists to shed light on details of Luxembourg’s tax rulings.

Malta's tax rules are indeed no secret.

They were, for instance, publicised in a recent advertisement about real estate purchases in Air Malta's in-flight magazine.

“With its advantageous tax regime, mild climate and convenient proximity to the rest of Europe, the island is primed for investment, whether you're planning to move here permanently or simply want to buy-to-let,” the advertisement said.

Malta's prime minister has also dismissed the “Malta Files” reports.

“They tried to say that there is something illegal in our financial services, when the truth is that our financial systems are the same as when we joined the European Union,” Joseph Muscat said on Saturday.

His finance minister, Edward Scicluna, was more aggressive.

Scicluna said the reports were “fake news” that were planted by other European countries that “want to taste our success, especially in the iGaming sector”.

The opposition leader, Simon Busuttil, sided with the government, arguing that the conclusions of the Malta Files – saying that Malta was a tax haven – were “incorrect”.

The cross-party agreement is notable given the aggressive political scene in the country and that Malta is preparing for elections next month.

Busuttil's party had previously attacked the government for selling EU passports, and organised street protests over the Muscat's alleged involvement in shady offshore funds.

The election campaign is visible on the large billboards, sitting next to the roadside on the country’s two main islands, several of which used negative campaigning methods.

One said that if people elected Busuttil's centre-right National Party, they would “guarantee … instability” in Malta.

Another one made fun of Muscat’s bald patch by highlighting the back of his head.

It remains to be seen if the Malta Files will have any impact on voters' behaviour on 3 June.

Some may feel that Malta has no other choice but to persuade businesses to come to the island due to attractive tax rules.

After all, it is not the only EU country whose tax regime helps companies pay as little as possible.

The Netherlands, Ireland, and Luxembourg are also notorious in that regard.

At least on one front, it would be difficult for Malta to compete, said Ricardo Zammit, who runs a restaurant on the Maltese island of Gozo.

Zammit spoke to journalists on Sunday about his locally-produced cheese as part of the EU presidency press trip.

“We are very small. We cannot compete,” Zammit said, noting that fresh produce comes in from the Italian island of Sicily on a daily basis.

Galdes, the agriculture secretary, added: “We are committed towards defending our main financial sector, which is one of the backbones of the Maltese economy”.