Issue link: https://maltatoday.uberflip.com/i/725667
maltatoday, SUNDAY, 11 SEPTEMBER 2016 11 Celebrity 'tax planners' This tax system is arguably the main reason why Malta, with its company register of over 74,000 companies, keeps attracting for- eign players and multinationals to its shores. Supporters of the system say that tax 'planning' or optimization is a lawful activity that allows multi- nationals and individuals to mini- mise their tax exposure by setting up tax residency where it benefits them the most. But the result is that tax that should be paid in the place where profit and trading occur, never gets paid in that country. Malta has served as a tax base for countless multinationals which channel their profits into Maltese subsidiaries: examples include Azerbaijani state oil company, SOCAR's Swiss trading hub, and Nando's chicken restaurant. Af- rica's richest woman, Isabel dos Santos, the daughter of Angolan dictator José dos Santos, has also set up shop in Malta with various companies related to the Angolan state's national electricity compa- ny and national diamond mining company. For example, the subsidiaries of the beleaguered Brazilian gi- ant Odebrecht SA have posted millions in profits in Malta. Ode- brecht SA is the 99% owner of Odebrecht Construction Malta (OCM), which ran operations in Libya however. In 2008 and 2009, OCM regis- tered sales of over €250 million and declared gross profits of €13 million and €22 million respective- ly. Under the imputation system, it would have paid a 35% tax of €4.6 million and €7.8 million respec- tively for those two years, before benefiting from anything between 66% to 85% in tax refunds. Another case is Azerbaijan's state oil company (SOCAR), whose So- car Trading Holding Ltd (STHL) is hosted in Ta' Xbiex, acting as a back-office to the real companies where the money is made: its sub- sidiary SOCAR Trading SA trades in crude oil from its Geneva of- fices. SOCAR itself has rebutted ac- cusations of secrecy by the Nobel- nominated Global Witness NGO, by explaining that Malta was used as "an investment platform to ben- efit shareholders of the holding company from tax advantages pro- vided under the Maltese participa- tion exemption system." "This is the hallmark of Malta as a jurisdiction," auditor Noel Butti- gieg Scicluna had told MaltaToday in February 2015 when questioned on his client Isabel dos Santos's holding companies in Malta. "The companies pay the taxes they are obliged to pay and file their finan- cial statements that are also pro- fessionally audited, all as required by law." Sovereign right Supporters of Malta's 'full impu- tation' tax – devised after World War II when the island was still a British colony – say the system is not just an important source of tax revenue. It sustains a substantial part of the accounting sector in the form of jobs and back-office sup- port: tax services alone account for tens of millions of euros in receipts for top-tier audit firms. When back in March, this news- paper filed a Freedom of Informa- tion request to the Malta Financial Services Authority for data on the 85% refunds on tax on for- eign dividends, the request was leaked to the Institute of Finan- cial Services Practitioners. Then, PricewaterhouseCoopers senior partner Kevin Valenzia and former Deloitte partner Andrew Manduca contacted MaltaToday (as well as PKF partner George Mangion sep- arately) requesting that no 'dam- aging' information be published due to Maltese efforts to convince the European Commission not to come down heavy on its tax sys- tem. But when contacted this week by both email and mobile phone, Va- lenzia was not forthcoming with any comment on the scale of criti- cism that Malta is facing over its tax system. MaltaToday's FoI request has since been refused, but this news- paper obtained the tax data from other publicly available reports. Since then finance minister Ed- ward Scicluna said the full impu- tation system would survive ef- forts by the EU to clamp down on tax avoidance – with only some changes to close loopholes. Scicluna insisted with MaltaTo- day that a sovereign state is enti- tled to its own tax system. "Our system is totally transpar- ent, as confirmed by the Global Forum peer review, and approved by the EU Code of Conduct Group/DG Competition. We have operated this system that is in line with the applicable international standards and in the light of such assessment and approval. "It is pertinent to note that Malta continues to follow international standards in this area as attested by its recent joining of the Inter- national Framework on BEPS. Malta voted in favour of the EU Anti Avoidance Tax Directive (ATAD) which includes measures that go beyond the current stand- ard on BEPS (base erosion, profit- shifting). In view of the above, the comments quoted are incorrect and give a misguided view of the situation." Despite Scicluna's assurances however, Malta's induction into the Panama Papers hall of shame will surely mean that its imputa- tion system will fall under the limelight of the European Par- liament's investigation into tax avoidance practices. "Malta is not only a tax haven," German MEP Fabio de Masi says. "But experience tells us that the imputation scheme with a gener- ous tax refund is the perfect tool to also launder criminal money. "If member states do not agree to tackle tax dodging by corpora- tions and wealthy shareholders we should move to punitive source taxation for cross-border flows." mvella@mediatoday.com.mt Taxable profit €100,000 Net profit €65,000 LESS 35% tax €3,500 6/7th refund on tax paid €30,000 Net profit plus refund €95,000, effective Malta tax of 5% No further tax Malta Tax Residence Co. Ltd Malta Holding Co. Ltd Profits generated abroad are booked into Malta firm Holding company shareholders ap- ply for refund on tax on dividends MHC owned by MTR Shareholders Malta's tax refund system News "The Maltese tax trick identified here causes us great concern. It is highly problematic that there is apparently no transparency around how this rule is being used or abused," Tove Maria Ryding Malta has served as a tax base for Azerbaijani state oil company, SOCAR's Swiss trading hub, Nando's chicken restaurant chain, and even Africa's richest woman, Isabel dos Santos, the daughter of Angolan dictator José dos Santos