The Malta Independent 20 March 2018, Tuesday

TMID Editorial: Malta’s day of tax reckoning

Saturday, 9 December 2017, 10:37 Last update: about 4 months ago

Malta's generous and attractive system of corporate taxation is facing a day of reckoning on Strasburg next week as European parliamentarians are set to take a vote on a Socialist proposal to list Malta and two other EU member states - Luxemburg and the Netherlands - as tax havens.

This will happen on Wednesday, when the European Parliament votes on the recommendations of the Panama Papers Inquiry Committee.  And although parliament's main political grouping, the EPP, of which Malta's Nationalist Party forms part, is against labelling any EU member state as such, the S&D grouping, of which Malta's labour Party forms part, has slipped in an amendment to consider Malta, plus Luxemburg and the Netherlands, as tax havens.

Malta's Labour MEPs, for the record, yesterday vowed to fight the amendment tooth and nail.  Should the Socialist bid to name Malta as a tax haven prove successful, the country would be left with a significant amount of egg on its face, and it may even be forced to reconsider the taxation system that has served it so well for so long.

The issue at stake has nothing to do with money laundering or any of the other hanky-panky exposed by the Panama Papers but, rather, with the far more long standing issue of Malta's corporate taxation structure, which effectively allows European businesses to avoid tax in their home countries by setting up corporate structures in Malta.

This is not illegal, and the system has been endorsed by the Organisation for Economic Cooperation and Development as well as the European Commission.  It has been the subject of the Offshore Leaks, the Malta Files and, more recently, the Paradise Papers.

In these latter cases some of these leaks Malta's tax imputation system has been dragged through the dirt and many have been the calls for amendments to be made. 

The system is not illegal, but it may be immoral and, bluntly put, unfair.

The issue at stake concerns Malta offering a platform for others to avoid and evade tax in their own jurisdictions, where Malta is being increasingly seen as aiding and abetting the theft of their public coffers.

Indeed, the latest Paradise Papers have not, on the surface, revealed anything illegal in Malta's respect.  Yes, celebrities and the world's rich by the dozens may have set up trust funds, management or holding companies in Malta but so far the practice remains above board, objectionable but above board.

The stories that have done the rounds in several reputable newspapers portray Malta as a tax and offshore haven and some imply that there is some kind of illegality thriving on these isles as far as its taxation system. International charity Oxfam has even urged the EU to list Malta, Luxemburg and the Netherlands as tax havens.

Such international news does Malta's image as a financial centre of excellence with a robust regulatory regime no good at all, quite the opposite in fact. Malta had spent years carefully building that reputation, which is being called increasingly into question. 

There have been numerous efforts far and wide to force a change to this system employed by Malta, all of which have been unsuccessful for the very reason that there is nothing illegal about it - contentious in that it deprives other states of taxation revenue, but perfectly above board.

Still, legal or not, the issue is leaving a stain on Malta's reputation.

Malta's tax imputation system has earned the country some quick bucks, but what could it cost us in the end?  That will remain to be seen but the fact of the matter is that the other shady business that some members of this government have been exposed as having partaken in does not help matters at all.

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