Why is it that out of the six elected MEPs we voted to represent us in Brussels, only one had the guts to stick her neck out to protect our financial services sector? Gallantly, our Joan of Arc charged fearlessly on her white horse to caution the bureaucrats in Brussels not to extend EU competences on member states taxation policies. This was the voice in the wilderness of PN MEP Roberta Metsola. She warned that the furore unleashed by the LuxLeaks and similar scandals should not be taken as a carte blanche for the Mandarins in Brussels to extend their powers and riding roughshod over tax sovereignty - a right enjoyed by all member states.

Naturally the curse of money laundering has to be addressed and Metsola argued that there is no doubt of the need and urgency to tackle it. At the same time, she cautioned against the unpleasant effect of knee-jerk reactions. The young politician wisely rebuked overzealous lawmakers eager to go down the road of drawing up a disproportionate legislative response that risks infringing states' sovereignty on taxation matters under the guise of going after money laundering. She was the only one to pick an argument in favour of tiny Malta - a jurisdiction which over past years nurtured a clean image where good governance and tax transparency has not attracted mammoth tax evasion scandals so prevalent in other countries.

A dark shadow is cast over jurisdictions (other than Malta) which discovered billions of euro in tax dodges cleverly siphoned off from host countries by multinationals after signing sweetheart deals with respective EU states. This is not easily forgotten. Some firms managed to get away with effective tax rates of less than one per cent on profits when economies in Europe were sluggish with over 20 million unemployed.

The LuxLeaks scandal broke when Juncker took the top post at the EU Commission. Juncker has consistently denied any wrongdoing despite having governed the small landlocked nation for two decades. He stated: "What comes under the term LuxLeaks really; what they are talking about is a kind of common practice in many member states. In fact, that is why I'd rather say EU leaks than LuxLeaks." This scandal exposed the corrupt money laundering activities on an almost industrial scale and shed a light on the secret financial set-ups aided and abetted by senior EU politicians. Tax transparency advocates are now pushing to force mega companies to make more financial information public. The idea has gained some traction with more countries backing plans aimed to create public registers that reveal the true owners of businesses and where the profits were actually generated.

Only last week a new report by Eurodad, a Brussels-based NGO, shocked many as it revealed that secret tax deals between Luxembourg and multinationals have increased dramatically since the LuxLeaks scandal broke in late 2014. By comparison we find that Belgium's tax deals increased by 248 per cent in only one year. This centre around elaborate schemes devised by tax consultants to reduce global tax bills of multinationals and the breaking news was that in Luxembourg more schemes have been secretly signed following the scandal which rocked the financial world in 2014. Between 2002 and 2010, around 340 tax evasion schemes were discovered. Since 2014, these have in fact mutated in number by another 50 per cent. One can easily comment that the sinner never repented

Tove Maria Ryding, one of the authors of the report, said in a statement, "It's as if the LuxLeaks scandal never happened." Ryding remarked that the fact that multinational corporations now have more than 1,000 sweetheart deals in Europe is deeply concerning. Another study in 2015 commissioned by the EU Parliament assessed that such deals cost up to €70 billion in lost tax revenue annually. As often happens in such instances Brussels slams the barn door real hard but only after the horses had bolted. As an antidote to such scandals, a select panel of tax experts at OECD and G20 have been drafting strict anti-avoidance rules styled BEPS (base erosion and profit shifting) to buttress member states regulations in their armoury how to combat abuses.

Concurrently, Apple in Dublin was investigated and was recently fined €13 billion for obtaining illegal corporate tax benefits from Ireland. As can be expected, Apple which employs thousands in Dublin wants to appeal while the Irish government is rather careful not to scare away such a prize horse from their stables. The Commission is investigating other firms based in Luxembourg including Amazon, Engie [formally GDF Suez], and McDonald's.

Here in Malta, what are we doing to protect our own patch given that over the years we were diligent and have not indulged in such massive tax dodges? It is pertinent to note that when Minister for Finance Prof. Scicluna addressed the last ECOFIN Council in Luxembourg, he stated categorically that Malta can accept the latest version of a proposal for an EU Anti-Tax Avoidance Directive (ATAD). This consists of a new dose of tax avoidance measures introduced to fight tax evasion. Another measure is the Common Consolidated Corporate Tax Base (CCCTB) neatly camouflaged as the elixir in tax systems which shall deliver a growth-friendly and more competitive regime in the Single Market.

The Commission had originally proposed the CCCTB in 2011, but it proved too ambitious so it stalled. Following the tax scandals (as mentioned above) the Commission plans to introduce CCCTB in a two-stage process. The appetizer on the menu is harmonization of the tax base followed by a main serving styled "consolidation" across the EU. The latter is worked out using a prescribed three-point formula (a one size fits all) to allocate profits to respective member states where the group operates. So far there has been no attempt (refer to the cautionary admonition expressed by Metsola) to steam roll a common tax rate across the Single Market which goes against national sovereignty rules. Many fear that this harmonisation measure will follow anyway.

In my opinion, debates should be organized by professional bodies to inform the commercial community on the perils of CCCTB, particularly to explain how this could blunt the competitive edge of our tax incentives, which so far have attracted substantial investment in financial services, manufacturing, aviation and iGaming sectors. This does not mean that attempts to fight tax double taxation and aggressive tax planning are not welcome. Minister for Finance Professor Scicluna stated that Malta can accept tax avoidance legislation such as ATAD but resisted CCCTB. On the other hand, in his opinion it is imperative that Malta defends its imputation system. It is a fact that due to our geographical insularity and an open economy, entrepreneurs are handicapped as the island has no raw materials and suffers extra logistical costs to import and export its merchandise. Thus, we need EU support to overcome such handicaps.

So far, the use of the full imputation tax system has been the fulcrum around which fiscal incentives are activated to attract FDI so that investors are entitled to claim refunds on tax credits imputed on distribution of dividends. Without the imputation mechanism, our tax incentives grind to a halt. In conclusion, one prays that Malta will be spared the assault on its tax sovereignty and Roberta Metsola our champion will find enough backing in Brussels to save our fledging financial services sector. As far as our economy is concerned, this seems to be our only hope of deliverance.

 

Mr Mangion can be contacted at [email protected] or on +356 2149 3041