"Last year, I put forward a new coordinated EU stance against tax havens, which would include a common definition, coordinated blacklisting and sanctions. If implemented by the member states, this approach could serve as a real deterrent to tax havens. I also suggested criminal sanctions for tax evaders. But for many EU countries that was going too far. I hope there will be a growing willingness to act," said European Union tax commissioner Algirdas Semeta in an interview with Spiegel (15 April, 2013).
Mr Semeta is on a crusade. One cannot help but feel the gusto with which he utters these statements and his thirst for the blood of taxpayers. The inquisition reloaded.
If all goes as per Mr Semeta's plan, 2015 will see the start of a process that will result in a worldwide automatic exchange of information on all income and assets. Let's look on the bright side. We will not be required to send any tax returns as tax will be deducted world-wide from our income and sent to deserving governments who will spend it wisely and for our greatest benefit. How will this be done? With the help of the private sector of course that has been enrolled to act as tax collector and whistleblower on their own clients. It is apparently felt that such a state of affairs is fit and proper. After all the private sector has nothing better to do and clients and business grow on trees. Why should it waste its time creating wealth and jobs. Thus is born the new world order.
Where to begin? We will start with some basic definitions from the EU Governance Manual.
TAX EVASION: when taxpayers do not pay their due taxes according to established rules. In order to avoid ambiguity, governments squandering tax monies, thereby keeping taxes unnecessarily high, is not a tax offence.
TAX AVOIDANCE: when one follows the established rules exactly designed to achieve the objective of the taxpayer incurring less tax. We can also define this as not being daft and following the rules.
MORAL HIGH GROUND: anyone who advocates high taxation (e.g. Mr Semeta) or who is daft (see definition for Tax Avoidance) has the moral high ground. Any person who dares to talk about low taxation or high cost of government is blasphemous and wretched and, like the proverbial camel, will not pass through the eye of the needle into the Kingdom of Heaven.
HIGH TAXATION: this is not knowable. It is a concept that can best be described as being somewhere between Dogma and a Zen Koan in that it cannot be questioned and leaves one in a bit of a trance. Taxation should be as high as possible as the needs of governments and the EU are infinite.
LOW TAXATION (and cost control): the solution that would solve the contentious issue of tax evasion and avoidance and improve tax compliance to levels that would, over a period of a generation , solve the deficit and public debt predicament in the EU. This is the immoral thing to do.
DEMOCRACY: leaving it all in the hands of people who know better as it is all too complicated and anyway ignorance is bliss and we cannot be bothered. Anyone who dares to state that the EU does not have our best interest at heart should quite honestly be put away.
EU DIRECTIVES: Savings Directive, Administrative Cooperation Directive, FATF recommendations, The Action Plan, FATCA, Anti Money Laundering Directives 1, 2 & 3 and 4 soon to follow. These are the tools the private sector needs in order to fulfil its role as the tax collector world-wide for all governments. We should not forget that this is also very important so that EU member states can pay for the EUR1,000,000,000,000 (one trillion) EU seven year budget.
THE ECONOMY: the activity undertaken by a struggling private sector creating the wealth and jobs necessary to fund an increasingly expensive public sector or the usual mega-construction projects ultimately funded by taxpayers' money.
ECONOMIC POLICY: funding votes through deficits.
TAX HAVEN: any country that has taxation levels that are lower than the country claiming that that other country is a tax haven.
EU CRISIS MANAGEMENT: management by committee where all decide but no person is responsible or let us keep the gravy train going.
EU SOLIDARITY: we will help you only as long as it benefits us and you do not do too well out of it, or we will crush you if it goes against our agenda.
The financial services industry in Malta is precious and home grown (as is tourism and manufacturing). A huge amount of hard work has gone into financial services by so many practitioners and dedicated employees. It has been generating wealth, taxes and jobs. The spin offs have also been tremendous. Visiting entrepreneurs, high remuneration for Maltese employees, FDI and support services maintain the jobs of tens of thousands of people in Malta in all sectors of the economy. The reasons for Malta's success are varied, however one of these reasons is undoubtedly a favourable tax regime that attracts foreigners to do business from Malta.
Apart from tax considerations, why do foreign entrepreneurs come to do business in Malta? Malta is seen as business and family friendly with a stable and non-aggressive government that essentially lives and lets live. We do not spy on each other and the government does not see itself as Big Brother and does not spy on its people. We are altogether perceived as being reasonable and law abiding. We can be outspoken in our arguments but at the end we get on, as happens in small communities. Tax rules are clear and our tax authorities are approachable and not out to get you and, importantly, they do not make spurious arguments about morality. One can obtain tax rulings thereby getting certainty as to future taxation on any transaction.
We still have some pristine environment left. We are also perceived as doers and achievers and, in today's EU wide political crisis, clients feel pride at doing business with or from Malta and despair at the politics in their own country.
These are the qualities on which our financial services industry has been built. They are real and tangible and give us an edge. They are not to be taken lightly or for granted and we should fight tooth and nail to protect them against any external threat. As the EU crisis deepens and nationalist movements continue to gain ground and dominate in every country, solidarity will be thin on the ground.
The direction that the EU is taking is not one that is in Malta's best interest. Malta's membership in the eurozone also needs a serious rethink. Both the EU and the eurozone cannot simply be seen as concepts that, having some theoretical merit, are therefore good for Malta under any circumstance no matter what the consequence. It is vital for Malta that this debate start in earnest.
The gloves are off and the EU is now showing its true colour. The government in the UK is very concerned about the EU's unrelenting grab for more and more centralised power, and so they should be. The UK wants to renegotiate the EU treaties.
More recently the Dutch government has made a list of 54 action points, aimed at rolling back power from Brussels, that it intends to present to the European Commission and to the other 27 European Union members. Taxation policy is prominent on this list. "These recommendations ... could be translated into an action agenda for a more modest, more sober but more effective EU, starting from the principle.... 'at European level only when necessary, at national level whenever possible," said Dutch Foreign Minister Frans Timmermans in a statement to parliament. Frans Timmermans was echoing his Prime Minister, Mark Rutte, who said "Europe (Brussels) has to become smaller, leaner and meaner in many areas and cost less money."
Our government has to navigate extremely treacherous waters as we seek to maintain what we have achieved and there are some tough decisions to be made. The country needs its own comprehensive vision. This vision would see Malta as part of Europe, but not the Europe we have today, whose only objective is a federation of states under a European Parliament and governed by an EU Commission making our own Parliament and elected Cabinet of Ministers redundant.
There are no paths that mark time. All paths lead somewhere. Without a comprehensive vision we will end up somewhere for sure, however whether this will be a good place or not will be a matter of pure chance. I don't know about you but I would rather choose my destination and then engage all my resources in a coordinated effort to get there.
Malta would do well to consider closing ranks with the UK and the Netherlands and to make its voice heard. Let's make history, not suffer it.
David Marinelli is CEO of Portman International, a European Financial Services Group