Issue link: https://maltatoday.uberflip.com/i/725667
maltatoday, SUNDAY, 11 SEPTEMBER 2016 10 CONTINUED FORM PAGE 1 In 2015, Malta's international tax unit kept €247 million in revenues left over after the refunds paid out: estimated in total by a financial advisor who assisted MaltaToday, to be well over €4.1 billion. "Malta's tax refund scheme helps foreign companies and shareholders to avoid pay- ing their fair share of tax where they do business," said Oxfam's tax expert Susanna Ruiz, one of many analysts contacted about Malta's tax system and shown the figures. "These types of aggressive tax planning schemes deprive other countries of valuable tax revenues which they need to pay for vi- tal public services such as healthcare and education," she said. In 2012, Malta booked a total of €166 million in international tax; the following year, it grew massively to €211 million. And as Malta's status as a tax-friendly country gained momentum, it generated €227 mil- lion in 2014 and almost €248 million in 2015. It means close to €14 billion in tax that could have been paid in other countries, was wiped off clean in just four years. Oxfam affirmed that the data did not come as a surprise. "Recent Oxfam analysis revealed that when it comes to helping corporate tax dodgers, Malta has some of the most harm- ful tax practices in Europe," Susanna Ruiz said. "Malta and many countries across the globe are engaged in a damaging competi- tion on corporate tax. In a misguided at- tempt to attract corporate investment they will decimate their countries' corporate tax base – for the benefit of no one but a hand- ful of shareholders. It must stop now." Malta's tax trickery is certainly different to other countries and does not negotiate unique tax rates with companies, as hap- pened in the case of Apple in Ireland, or other multinationals in Luxembourg – even though its tax refund system was widely used for branches of the companies that featured in the Luxleaks scandal. In theory, companies pay a 35% tax rate in Malta, but a 'rebate' system brings that tax down to effectively 5%. If the company is domiciled outside Malta, but the tax residency is in Malta, the com- pany will only be taxed on income arising in Malta but not foreign-sourced income. The most common tax refund is 6/7th of the Malta tax suffered, resulting in a net ef- fective tax charge of 5%. Company share- holders can expect their refund to be paid back within two months. 'Malta is a tax haven' A recent Oxfam analysis of European countries corporate tax practices conducted in May 2016 revealed that Malta has some of the most harmful tax practices in Europe. "14 of the 33 indicators of harmful tax prac- tices identified by the European Commis- sion as allowing multinational companies to avoid tax are evident in Malta's tax system. Of the 28 European member states only the Netherlands (17 indicators), Belgium (16 indicators) and Cyprus (15 indicators) per- formed worst," Ruiz said. A separate comment was solicited from tax expert Prof. Omri Marian, of the University of California, Irvine school of law, who was shown the figures and how Malta's imputa- tion tax system works. "If Malta corporate tax rate is 35% and for- eign dividends get a 6/7 refund on the tax paid, then Malta's 'real' corporate tax rate on foreign earnings is 5%. "So any corporate income in Malta, attrib- utable to foreign shareholders is statutorily taxed at a very low rate. If lawyers can act as nominees for company directors, this cre- ates secrecy," Prof. Marian says, referring to the fact that the real owners of a company can have their beneficial ownership hidden by a nominee. "In addition, it seems that there is no real requirement for substantive presence in Malta. The combination of such factors makes Malta look very much like a tax ha- ven. "The only reason I can think of for hav- ing a 35% nominal corporate tax rate on the books, but hiding a 6/7 refund in the detail, is so Malta won't lose face." The vice-chair of the European Parlia- ment's Panama Papers committee, Fabio de Masi, was categorical in his description of Malta as a tax haven. "I do think that Malta plays a significant role in aggressive tax planning as Malta's imputation tax 'fits nicely' with artificial in- terest or royalty payments. While Malta is undoubtedly a beautiful spot under the sun, the sheer amount of financial flows passing through Malta does not correspond to its genuine economic substance," De Masi, a German MEP for the Left Party, said. Eurodad – the European Network on Debt and Development – was also critical of Malta's tax system. "The Maltese tax trick identified here causes us great concern. It is highly prob- lematic that there is apparently no trans- parency around how this rule is being used or abused," Tove Maria Ryding, Eurodad's tax justice coordinator said. "We have called for the European Un- ion to do much more to expose and close tax loopholes, but during recent nego- tiations about new tax avoidance rules, many Member States seemed much more focused on protecting their own harmful practices than actually solving the prob- lem. "The result is a very sad race to the bot- tom, where countries are earning extra income by creating loopholes for multi- national corporations that want to avoid taxes. In the overall picture, ordinary citi- zens and small national companies in all countries are losing much more when the world's largest companies are protected from taxation." News Tax refund leaves millions in Maltese coffers but denies other countries billions in tax "Malta is not only a tax haven," German MEP Fabio de Masi says. "But experience tells us that the imputation scheme with a generous tax refund is the perfect tool to also launder criminal money." Panama Papers hall of shame will surely mean that Malta's tax imputation system falls under the limelight when European Parliament committee starts investigating tax avoidance structures Year International tax receipts 2015 €247,929,222 2014 €227,920,994 2013 €211,742,764 2012 €166,641,036 2011 €140,000,000 2010 €120,000,000 2009 €131,000,000 2008 €87,000,000 2007 €42,406,000 2006 €23,920,000 Malta's 5 per cent Money left with the Maltese taxman after it refunds 85% from the 35% tax levied on foreign shareholders' profits Malta voted in favour of the EU Anti Avoidance Tax Directive (ATAD) which includes measures that go beyond the current standard on BEPS (base erosion, profit-shifting). "In view of the above, the comments quoted are incorrect and give a misguided view of the situation," finance minister Edward Scicluna (right) seen here with European Commissioner Pierre Moscovici says German MEP Fabio de Masi, also vice-chair on the PANA committee