According to the Australian publication Australian Business, “the tax haven of Malta could become a base for other big Australian banks to conduct business in the European Union if Commonwealth Bank of Australia’s fast-growing operation is acceptable to the Australian Taxation Office.”

In an article published yesterday, a senior banker said that the industry was looking at Malta with interest. This, the article said, followed the revelation in The Weekend Australian that CBA had probably become the Mediterranean country’s largest financial institution, growing its balance sheet fourfold to Australian $4.7 billion in the June 2006 year with only four staff members. Directors of CommBank Europe Ltd, holder of a Maltese banking licence since August 2005, also painted a glowing picture of the company’s prospects in the 2006 accounts.

“The bank’s financial position is strong, and the directors expect that the present level of activity will increase over the coming year,” they said. The Maltese operation, along with lower tax rates in New Zealand, Singapore and Britain, contributed to a 150 basis-point reduction in the effective tax rate for CBA’s banking operations to 26.7 per cent. A senior banker, who requested anonymity, said yesterday that his bank could look to using a similar structure. “If this is OK, maybe we should be doing it too,” he said.

“The advantage with Malta is the double-taxation treaty with Australia, which deems tax to have been paid (in Malta).” Pre-tax profit for CommBank Europe surged from $865,000 to $31.4 million in the 2006 financial year. Tax paid in Malta was $2.3 million – equivalent to a rate of 7.3 per cent. However, CBA said top-up tax was paid in Australia under the controlled foreign company rules.

While the ATO lists Malta as one of 38 tax havens, a CBA spokesman said the tax office had “no reason to be concerned”. “The group has met all of its tax obligations,” he said. “CBA pays all tax which it is liable to pay, but does not seek to pay more tax than is required by law to be paid.” An ATO spokeswoman said yesterday that the agency could not comment about individual taxpayers or companies. A spokesman for federal Treasurer Peter Costello said the government expected every company to meet its tax obligations. “The ATO has been well-resourced to achieve that end,” he said.

CBA pumped $1.3 billion into CommBank Europe in 2006, but the bank said it would not hamper its ability to pay fully franked dividends. “CBA is paying very large amounts of Australian tax, as is demonstrated by the substantial growth in its franking account balance during the last financial year to $559 million, in addition to paying fully franked dividends of $3.3 billion in respect of the year’s profit,” the CBA spokesman said.