The Paradise Papers, a massive leak of 13.4 million documents showing how the world’s richest and most powerful shelter their wealth, made for interesting headlines. Bono, Lewis Hamilton and even the Azeris made an appearance right here in Malta.
And while this year’s files, unlike last year’s Panama Papers, may not have uncovered criminality, they have lifted the veil on the complicated schemes individuals and businesses adopt, partly as part of a sophisticated tax strategy.
Malta’s position as an onshore, but low-tax, jurisdiction seems to be the reason for its involvement. Recent leaked documents, reported in the local media, even show that Appleby, the firm named in the leak, had considered setting up a branch on the island, since it viewed Malta as a “modified offshore specialist”, with representatives apparently having met with Malta Financial Services Authority (MFSA) chairman Joe Bannister, as well as various law firms to discuss the possibility.
In reaction, we asked Finance Minister Edward Scicluna if it is time to rethink Malta’s tax package to ensure it does not get mistaken for an offshore jurisdiction and to encourage more reputable foreign investors.
“Any financial jurisdiction whether it is London, Luxembourg or Malta is in the business of attracting legitimate financial transactions from all over the world,” Prof. Scicluna replied. “The Financial Action Task Force (FATF) guidelines for due diligence and reporting of suspected criminal activity are there for all. I do not think that this crusade against particular countries is based on mistaken identities. Either they are offshore or they are not. Either they are secretive or they are not. Either they are cooperative with other jurisdictions when it comes to exchange of tax and other information or they are not. Whoever is trying to confuse these issues is misleading the reader. Whether this is done through ignorance or through malice is a moot point at the moment.”
He pointed to Malta’s compliance with international regulations. “What should give comfort to us as Maltese is that the relevant international regulatory authorities know that Malta as a financial jurisdiction is not secretive. It is very cooperative in exchanging requested information on both tax and AML fields, and abides by the accepted EU and OECD standards in the area of taxation and anti-money laundering,” he continued.
This was reiterated by Malta Chamber of Commerce President Frank V. Farrugia, who also pointed to the recent PANA report. “Together with other leading business organisations, the Malta Chamber welcomed the PANA Committee’s confirmation that the Maltese tax system is in line with current international standards and that the country respects OECD standards in terms of transparency, the fight against tax fraud and money laundering. While being advantageous for businesses who make use of it, the Maltese tax regime is completely compliant with EU laws. In fact, the PANA report further declared that Malta is not a tax haven as was alleged of late,” Mr Farrugia said.
Despite this, questions have been asked as to whether regulators should increase their systems of checks to ensure that the companies set up are not being used for tax avoidance or illegal evasion. In the case of the latter, Prof. Scicluna pointed to the automatic exchange of information between Malta and other EU member states, and the agreements the island has with other non-EU countries, but noted that the only way to fight tax avoidance was “to agree [on] appropriate EU-wide legislation” and also referred to the latest legislation passed by Ecofin council in Brussels on anti-tax avoidance, namely ATADI and ATADII.
With regards to the possibility of implementing a greater system of checks to less transparent jurisdictions, Prof. Scicluna mentioned discussions occurring on a European-wide level. “The system which we are devising in the EU is to blacklist countries which are non-cooperative in the area of anti-tax avoidance legislation and practices,” he said.
Prof. Scicluna emphasised the ways in which secrecy and opacity can be reduced within Malta’s financial services industry, through the sharing of information between regulatory authorities, as well as those in other jurisdictions. “The principle is Know Your Customer (KYC). These company registers will be shared by all EU member states once the amendments to the Fourth Anti-Money Laundering Directive are agreed upon between the Council and the European Parliament,” he said. He also claimed that “under the present system Malta’s ranking by the International Tax Justice Network in the area of transparency compares very favourably with other countries.”
Chamber President Mr Farrugia also pointed to Malta’s commitment to transparency. “Malta’s public registry is open for scrutiny as the country remains committed to the international standards of transparency and exchange of information. Malta has a broad network of EOI instruments with a significant number of jurisdictions in place that facilitates this exchange of information,” he said.
“At this delicate juncture, we must not cast a dark shadow on honest businesses who have trusted the Maltese taxation system, with their legally and ethically gained funds,” Mr Farrugia continued. “The successful growth of the financial services industry in Malta is the result of a number of factors namely innovation, a robust operational infrastructure, efficiency of the relevant regulatory authorities and a strong responsiveness to industry practitioners,” he concluded.
This article was originally published in The Business Observer