Government denies claim that Malta tried to slow down EU efforts against tax avoidance

Malta is fully committed to fighting tax avoidance by multinationals

The Maltese Presidency of the EU Council has reportedly tried to halt efforts against multinational corporate tax avoidance for fear it would ultimately hurt Europe’s economy through the creation of legal uncertainty.

Finance Minister Edward Scicluna denied this, saying the intention was never to slow the momentum in the fight against tax avoidance. He stressed that when considering the tax reforms required by OECD in their strategy against tax avoidance, it is important to have clear rules that act as a deterrent rather than ones that scare investors away.

The OECD had come up with a strategy to tackle the issue of multinational corporations exploiting tax loopholes, as well as to tackle tax evasion known as Base Erosion and Profit Shifting (BEPS).

Reuters international news agency reported on the paper presented at a meeting of the EU finance ministers in the capital last Friday and Saturday.

The paper discussed over the weekend said that “the proposed reforms would increase uncertainty, harming international investment and trade,” Reuters wrote.

Questioned by members of the press, Minister Scicluna said that the report was a “misrepresentation”, and that Malta is fully committed to fighting tax avoidance by multinationals.

Background

The EU made a renewed effort to put forward legislative proposals in order to eradicate tax loopholes which are currently completely legal after the Panama Papers revelations and the LuxLeaks scandal.

Panama Papers refers to a massive leak of client documents belonging to Panama-based law firm Mossack Fonseca and exposed how the world’s elite make use of legal taxation loopholes in order to conceal their wealth and avoid paying tax.

LuxLeaks refers to the scandal where, through a former PWC whistle-blower, Luxembourg’s practice of offering secret preferential tax deals with huge multinational companies. In effect, this meant that multinationals managing to broker such deals with Luxembourg would make use of transfer pricing, in practice transferring profits from countries where most profits are being made to smaller countries in order to take advantage of lower corporate tax.

Minister Konrad Mizzi and the Prime Minister’s chief of staff Keith Schembri were caught out to each have a company in Panama sheltered by a trust in New Zealand. Both denied any wrongdoing, with Dr Mizzi claiming the complicated financial structure was set up for “estate and family planning”. The EU had even set up a committee under the European Parliament to investigate all forms of tax evasion, avoidance and money laundering across the EU. The committee said that the structures look like “a classic case of money laundering” however no concrete proof was found.

Therefore, following one full year of criticism, Malta facilitating the use of tax loop holes by offering a 35% tax rebate to multinationals who set up shop in Malta, coupled with involvement of this current government in Panama Papers sheds a negative light on reports that Malta wants to slow down tax avoidance legislation within the EU. The Prime Minister stripped Dr Mizzi of his health and energy portfolios and retained him as a cabinet minister, however he is widely regarded as the de facto energy minister.

‘Malta and other smaller EU states’ show caution to reform – Reuters

The Reuters report goes on to say that Malta, together with other small EU member states have, on more than one occasion, “showed caution” against the fight for reform, for fear that multinational corporations with deep pockets will relocate their headquarters, taking with them lots in tax earnings.

It quoted the paper presented by Malta as having said that “a certain amount of time is needed in order to properly formulate, assimilate and apply such legislation” proposed by the EU Commission in relation to tax avoidance.

The Maltese presidency reportedly argued in favour of assimilating tax reforms to what is taking place on the global sphere, with the news agency commenting that “moves at global level are notoriously slow on tax matters”.

Also included in the paper was a call for “enhanced” use of “regulated tax rulings”, allowing for multinational companies to settle their tax bills in advance. Reuters writes that this is “a practice used by several multinationals to obtain sweetheart concessions in EU countries”.