‘Malta needs to tackle potential abuses of its tax system’ – EU Council report

Tista' taqra bil- Malti.

Malta needs to address the areas of its tax system that have the potential to allow individuals and multinational organisations to carry out ‘aggressive tax planning,’ a recommendation by the Council of the European Union reads.

A new EU council recommendation report focused on the 2019 National Reform and Stability Programmes for Malta states that, the country needs to improve it structures and processes for dealing with corruption and money laundering.

While recognising that Malta has taken steps on these evasion strategies, the report also outlines that companies have the ability to exploit the current rules on outbound payments.

They state that, ‘the high level of royalty and dividend payments as a percentage of GDP suggests that Malta’s tax rules are used by companies that engage in aggressive tax planning. The absence of withholding taxes on outbound (i.e. from EU residents to third country residents) dividends, interest and royalty payments made by Malta based companies may led to those payments avoiding tax altogether, if they are not subject to tax in recipient country.’

The recommendation comes to light following numerous reports published by European bodies including the Council of Europe and high profile revelations within Malta, bringing attention to a lack of action to investigate allegations of corruption and tax evasion.

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While recognising the number of institutions involved in checks and balances in Malta, the Group of States against Corruption (GRECO) has also criticised the Government and the Police for failing to take effective action on corruption. The same body had also previously reported in March that Malta’s criminal justice system was in real need of updating or face collapsing.

This led them to outline a number of recommendations including the limiting of the number of persons of trust and the capacity of bodies like the Economic Crimes Unit to actively investigate and bring cases to Malta’s law courts.

GRECO also expressed its dissatisfaction with the lack of efforts to investigate key figures allegedly associated with offshore companies and part of the Prime Minister’s inner circle.

17 Black

The PM’s Chief of Staff Keith Schembri and Tourism Minister Konrad Mizzi were both allegedly linked to secret offshore Panamanian companies as well as having alleged dealings with the owner of a Dubai-based company called 17 Black. The owner was understood to also be the Director of the Electrogas Power Station in Malta.

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A joint Reuters and Times of Malta investigation found that 17 Black was meant to transfer €150,000 every month to Mizzi, and Schembri.

The TAX3 Committee on Financial Crimes, Tax Evasion and Tax Avoidance, of the European Parliament, subsequently called on the United Arab Emirates to freeze the bank accounts associated with 17 Black back in February.

Impact for business?  

The EU report also conjectures that the lack of governance efforts on corruption could spell problems for business and investment in Malta.

It states that there is a risk for a conflict of interest coming from various levels of Malta’s government as well as the understaffing with the Police’s Economic Crimes Unit.

They recommend that there a stronger framework decided in government and speedy implementation, preventing Malta’s economy facing ‘reputational risks.’