Scicluna says tax system has its weaknesses, Malta is no mafia state

Finance Minister Edward Scicluna stressed that it is not “drug peddlers” investing in Malta, but legitimate rich people, such as celebrities, who choose the island to invest their money instead of secretive jurisdictions.

The International Consortium of International Journalists (ICIJ) revealed the Paradise Papers scandal relating to a leak of 13.4 million files from two prominent offshore corporate service companies which expose how the world’s rich and famous place their vast wealth in secretive jurisdictions which conceal their identities and limit tax exposure in a big way.

Paradise Papers found that world famous singer Bono used Malta to buy part of a shopping mall in Lithuania. Another famous singer, Shakira, was found to have her song rights held in a company within Smart City. Malta is not an offshore jurisdiction but it does provide massive tax advantages to foreign investors.

Setting up in offshore, secretive jurisdictions does not necessarily translate into illegal behaviour; it does, however, allow for some individuals to engage in tax avoidance, tax evasion and money laundering. Malta’s registry of companies is included in the data leak. While this registry is available to the public, it is not possible to search for individuals linked to a company.

Malta’s tax imputation system entices foreign investors to register companies here and benefit from a 6/7 tax rebate, effectively allowing them five per cent corporate taxation on company profits.

Many EU countries have taken umbrage at this, as large companies register bases in Malta to limit their tax exposure, but many believe big companies should be paying taxes where their major operations are.

Critics of Malta’s system also argue that enforcement is lacking, which opens the door to abuse. A separate revelation dubbed ‘Malta Files’ detailed how a pay-day loan company which preyed on poor people took advantage of the local system to limit paying tax.

With attack after attack on Malta’s tax system, Scicluna acknowledged that there are certain weaknesses. However, he said that legitimate people invest in Malta, that “they could choose secretive offshore jurisdictions and hide their wealth from the tax authorities, but they do not do that.”

He continued to say that because Malta has many double taxation agreements, legitimate people and businesses choose Malta to “limit their tax exposure and declare all activity with their relevant tax authorities.”

Last year, the ICIJ’s Panama Papers revelations exposed how rich people and companies used a Panama based law firm, Mossack Fonseca, to conceal their wealth. Many countries were implicated, such as the UK, Luxembourg Cyprus and Malta. Scicluna stressed that of all the countries mentioned, Malta had one of the fewest, quickly adding that he was not saying that steps should not be taken to curb abuse, but that he categorically refutes the assertion that Malta is a mafia state.

The implication of Minister Konrad Mizzi and the Prime Minister’s chief of staff in the scandal, through the discovery of their Panama companies, and the police’s failure to investigate does cast serious doubt on the country’s ability to oversee, regulate and enforce.

Scicluna concluded by saying that one must be able to “seriously distinguish between what is legitimate and what is illegitimate.”

The minister was responding to questions after hosting a press conference where the European Commission gave a positive review in its 2017 spring economic forecast for Malta.