The Organisation for Economic Cooperation and Development (OECD) has downgraded Malta on its tax transparency, deeming it only “partially compliant” with international standards in a report published this month.
The downgrade was confirmed in the second round of the OECD’s Global Forum on Transparency and Information for Tax Purposes. In the first round, dating back to 2013, Malta had been deemed largely compliant overall.
Malta has been downgraded on four of the ten criteria assessed by the intergovernmental organisation.
Back in 2013, it had been deemed largely compliant on the availability of ownership and identity information and on the availability of accounting information, and deemed compliant on the availability of banking information and on the quality and timeliness of the responses. It is now deemed partially compliant on all four, whilst remaining compliant on the six other criteria.
The OECD assesses the criteria on a 4-point scale, from best to worst: compliant, largely compliant, partially compliant and non-compliant.
Recommendations not followed up
Back in the first round, one of the key recommendations made to Malta concerned the lack of monitoring and supervision on the implementation of cooperation regulations, which seek to ensure the availability of ownership, accounting and banking information. Malta was asked to build on its efforts to ensure that its supervisory and enforcement powers were sufficiently exercised in practice.
But Malta was not deemed to have taken sufficient measures to address this recommendation, leading to concerns on the availability of relevant information on commercial entities, particularly in light of the fact that the annual filings rates of companies and partnership and the filing rates of taxpayers are very low. The OECD had also flagged the existence of 10,000 inactive companies in the Malta Business Registry and the 12,000 registered with the tax authorities.
The requests for information received by Malta have increased sharply in recent years, but the timeliness of its responses has deteriorated in turn.
The OECD has thus largely reiterated its original recommendations, calling on Malta to strengthen its monitoring and supervision activities to ensure that its enforcement powers are sufficiently exercised. It should also impose effective sanctions in cases of non-compliance by banks, particularly since the supervision and monitoring of banks’ obligation to maintain information on beneficial owners of bank accounts remains weak.
Additionally, Malta has been asked to boost human resources to ensure that requests for information can be addressed promptly, and to provide status updates should it not manage to provide the information requested within 90 days.
Government contests rating
In its official response, the Maltese government said that it “respectfully disagrees” with the downgrade, even though it agreed with many aspects of the review.
“Whilst Malta acknowledges that there is room for improvement on the practical aspects addressed in the report, Malta feels that not enough recognition has been given to (i) work carried out in addressing issues encountered; (ii) processes that are actually in place (particularly on banking supervision); (iii) the particular circumstances that Malta faced during the review period (particularly the sudden significant increase in requests in 2016); and (iv) the overall picture in relation to exchange of information in practice as corroborated by peer inputs including main exchange partners.”
The sudden significant increase in requests coincides with the publication of the Panama Papers, which famously named then-minister Konrad Mizzi and Joseph Muscat’s chief of staff Keith Schembri as holders of secretive Panama companies. Neither were removed from office until developments in the investigation of the assassination of Daphne Caruana Galizia led to widespread anti-government protests last year, forcing Muscat to resign in disgrace.
Another downgrade for our financial services – PN
In contrast, the Nationalist Party blamed the government for the downgrade, stating that it contrasted with the empty promises made by Prime Minister Robert Abela that the country had changed course and was now prioritising good governance.
In a statement signed by MPs Mario de Marco, Kristy Debono and Claudio Grech, the party noted that Malta was downgraded to one of the lowest ratings received by an EU member states.
The MPs warned that the downgrade was particularly bad news in light of the upcoming review by the Council of Europe’s anti-money laundering body Moneyval, with Malta facing the risk of grey-listing which could be devastating to its economy.
“This is the result of policies which led to poor supervision from the authorities concerned, and of the police’s failure to act on the few occasions when they received information on suspected financial crimes,” they said.
“And this is before taking into account the more infamous cases, where in spite of serious allegations of criminal behaviour by former minister Konrad Mizzi and Joseph Muscat’s former chief of staff, the two are yet to be charged.”