€55 million down the drain

Our roads are bursting at the seams. We all agree that this is an accurate statement, but the problem is with identifying sustainable solutions addressing the issue.

Government has opted for the solution which focuses on an upgrading of the road network: widening roads, reorganising road intersections, constructing flyovers and underpasses. These solutions may reduce commuting time in the short term but they will, however, in the long term inevitably increase the number of cars on our roads, as a result making the situation even worse than it is now. This is a policy which sends one clear message: the private car is the transport policy makers’ preferred mode of transport.

This policy option is clearly unsustainable.

Malta’s transport policy makers have – time and again – failed to understand that the foundations of transport policy in Malta have to be based on the simple fact that everywhere is close by – a stone’s throw away. An efficient public transport system would solve most of our mobility needs. However, for public transport to feature more prominently in the manner we select our mobility requirements, subsidies are not enough.

After more than sixty years of neglect, the policy-makers need to take a clear stand to encourage alternatives to owning and driving a car. It is only then that public transport can take its rightful place as the leading – and preferred – provider of sustainable mobility in our islands. This could be supplemented with sea-transport, cycling and walking. As a result of fewer cars on our roads, both cycling and walking would undoubtedly become more attractive options.

From the reply to a Parliamentary Question answered earlier this month by Transport Minister Ian Borg, it results that, on the 30 April 2018 we had 377,305 vehicles on our roads. With a population estimated at 432,000 that translates to 832 vehicles per thousand people, one of the highest car ownership statistics in the world. This is not a sign of effluence but the most solid proof that the policy-makers have failed to come to grips with the real issues of sustainable mobility in a small country.

According to 2014 statistics available, Luxembourg had 661 vehicles per thousand population on its roads. This too is a very high car ownership rate, but applying it to Malta would signify that we could do with removing 75,000 cars from our roads: a 20 percent reduction. Luxembourg, having a population comparable to Malta, is also small in size as a country, with everywhere being easily within reach, even though it is approximately six times the size of Malta. Turkey, on the other hand, which is much larger in size and population when compared to Malta, has 134 cars per thousand people on its roads: a car ownership statistic which, if applied to Malta, would mean that we have an excess of 302,000 cars on our roads – 80 per cent. Rather than further developing our road network with fly-overs and under-passes we could then start planning for the transformation of most of our existing roads into recreational areas! This, of course, is wishful thinking.

However, these are the real issues that need debating. Unfortunately, there is no interest in considering the reduction of car ownership as a realistic policy solution which effectively addresses traffic congestion and consequently sustainable mobility.

Rather than a policy of upgrading our roads we need a policy of transition, that slowly nudges our behaviour from one as a result of which cars rule our roads to one where our mobility is addressed in a sustainable manner primarily through a substantially increased use of public transport. It will obviously take time to reverse a 60-year neglect – as a result of which the state in Malta abdicated its duty to offer guidance leading to the development of sustainable mobility solutions.

It is this state of affairs which earlier this week led Minister of Transport Ian Borg to launch a “Central Link project”. €55 million down the drain.

published in The Malta Independent on Sunday: 27 May 2018

Encouraging the avoidance of paying tax

The issue as to whether or not  Malta is a tax haven has been brought to the fore once again, as a result of the amendment to the Panama Papers Inquiry Report discussed in the European Parliament earlier this week. The defeated amendment would have seen Malta, Luxembourg, Ireland and the Netherlands labelled by the European Parliament as “tax havens”.

The matter is much more complex. On the one hand it involves tax competition and on the other hand it is a matter of justice in taxation matters.

As has been repeatedly stated, competition on taxation matters is one of the few areas in which small, as well as peripheral, countries in the European Union have a competitive advantage. Alternattiva Demokratika-The Green Party is not in favour of loosing this competitive advantage through tax harmonisation in the EU. However, it has to be used in a responsible manner.

The rules permitting the refund of a substantial amount of tax paid by foreign-owned companies based in Malta is one of the main reasons for the current spotlight. This substantial tax refund effectively reduces the tax paid by such companies from 35% to five per cent and is obviously considered very attractive by a number of companies. The basic question that requires a clear answer is how many of these companies are letter-box companies, that is companies which do not have any part of their operations on Maltese soil?

It would be reasonable to encourage companies to base part of their operations in Malta and, as a result, make use of tax advantages. But in respect of those companies which have not moved any part of their operations to Malta, making use of beneficial taxation arrangements is unreasonable and unjust. It leads to such companies avoiding paying tax in the countries in which they create their profits and consequently avoiding their social responsibilities on paying taxes in the countries that are providing them with the very facilities which make it possible for them to create their wealth.

In a nutshell, Malta is providing these companies with the legal framework to avoid their taxation responsibilities in the countries in which they operate through payment of a fraction of these taxes to the Maltese Exchequer. They pocket the rest.

Hiding behind the EU unanimity rule on tax issues will not get us anywhere, as Ireland has learnt in the Apple case. At the end of the day, the situation is not just about  taxation: it also involves competition rules and rules regulating state aid, as the legal infrastructure encouraging the avoidance of taxation is, in effect, a mechanism for state aid. The is also an issue of tax justice, as a result of which tax should be paid where the profits are generated.

Tax competition has a role to play as an important tool that small and peripheral countries in the EU have at their disposal. No one should expect these countries, Malta included, to throw away the small advantage they have, but it should be clear that this should be used responsibly and in no way should it buttress the urge of multinationals to circumvent the national taxation system in the country where their profits are generated.

Profits should be taxed where they are actually generated and not elsewhere. The EU needs to end – once and for all – not only tax evasion but also tax avoidance resulting from loopholes in national taxation rules. For this to happen, the EU member states must not only be vigilant, but they must also refrain from encouraging tax avoidance through the creation of more loopholes.

Tackling tax evasion and tax avoidance seriously will mean that taxes are paid where they are due, thereby funding the services and infrastructure that is required in a modern, civilised society. This can only happen if more companies pay their dues.

Tax competition need not be a race to the bottom.

published in The Malta Independent on Sunday : 17 December 2017

Tax avoidance: does Malta play a role?

basf-malta

On 30 August, the European Union, through Competition Commissioner Margrethe Vestager, ordered Apple Corporation to pay €13 billion in unpaid taxes to the Irish state.  The EU ruling considered that the special tax treatment of Apple, whose tax bill was substantially reduced, amounted to unlawful state aid.

In November 2014, through Luxleaks, we learnt of tax avoidance schemes in Luxembourg and elsewhere, as a result of which billions of euros in tax were being avoided by multinational corporations.

The EU has subsequently launched various investigations into the favourable tax treatment which Luxembourg, The Netherlands and Belgium have granted to various multinationals.

As a contribution to the on-going debate on tax avoidance in the EU, the Green Group in the European Parliament has recently published a study on the tax avoidance strategies adopted by the industrial giant BASF, the largest chemical company in the world.

Founded in 1865, BASF has its headquarters in Ludwigshafen, Germany, from where it manages a €70.4 billion turnover with production sites in 80 countries.

Malta features in this report together with Belgium, the Netherlands and Switzerland.

Over the years, BASF has used mismatches in national tax systems in order to avoid paying its taxes. It is estimated that, over a five-year period spanning 2010 to 2014, BASF avoided the payment of close to one billion euros in taxes.

Chapter VIII of the report, published by the Green Group in the European Parliament, deals with Malta. It refers to the existence of a BASF subsidiary in Malta which held €5.07 billion in assets. These assets where transferred to a new German subsidiary, BASF Finance Malta GMBH, which was managed from an office in St Julian’s, thereby creating the eligibility for preferential tax treatment which could amount to as much as a refund of six-sevenths of all tax payable in Malta.

All this is a clearly planned movement of profits through generous loopholes as a way of avoiding most of, if not all, of the taxation which would be due under normal circumstances.

This abuse of the differences in national tax systems needs to be addressed urgently. As rightly stated by Malta’s Finance Minister Edward Scicluna at a Luxembourg ECOFIN meeting last September, the way forward lies in coordination at an EU level and not in the harmonisation of the national taxation systems, as some EU member states are insisting.

Tax competition has a role to play as an important tool that small and peripheral countries in the EU have at their disposal. No one should expect these countries to throw away the small advantage they have, but it should be clear that this should be used responsibly and in no way should it buttress the urge of multinationals to circumvent the national taxation system where their profits are generated.

Profits should be taxed where they are actually generated and not elsewhere. The EU needs to end – once and for all – not only tax evasion but also tax avoidance resulting from loopholes in national tax rules. For this to happen, the member states must not only be vigilant, but must also refrain from encouraging tax avoidance through the creation of more loopholes.

Tackling tax evasion and tax avoidance seriously will mean that taxes are paid where they are due, thereby funding the services and infrastructure that is required in a modern, civilised society. This can only happen if more companies pay their dues. Tax competition need not be a race to the bottom.

published in The Malta Independent on Sunday – 4 December 2016

Unhappy meal : zero-hours contracts and tax avoidance

for reader offer. McDonald's logo.

 

In 2009 McDonald’s restructured its business in Europe with the effect of extracting billions in royalties from its European operations.

This restructuring involved a number of decisions .

A Luxembourg based intellectual property holding company (McD Europe Franchising Sàrl) was set up immediately after a tax policy change (in Luxembourg) which allowed companies to benefit from significant reductions of their tax rate on income earned from intellectual property. Subsequently billions in royalties from McDonald’s European operations were routed to Luxembourg in the coffers of McD Europe Franchising Sàrl.

Over the five years 2009-2013 it is estimated that McDonald’s avoided the payment of €1 billion in taxes. Consequently the European states hosting 7,850 outlets which in 2013 had an estimated turnver of €20.3 billion have lost €1 billion in tax revenue.

McDonald’s the tax avoider tries to depict itself as a vital provider of jobs, particularly for youth. Most of McDonald’s employees experience precarious, low-wage work with little prospect for steady employment or advancement. It is known for instance that in the UK, the vast majority of McDonald’s 97,000 employees are on zero-hours contracts : employment contracts with neither guaranteed hours nor work schedule stability.

A very unhappy meal. Precarious employment for the employees and tax avoidance galore for the corporation!

 

Information extracted from : Unhappy Meal: €1 billion in tax avoidance on the Menu at McDonald’s  (report published by  Coalition of European and American Trade unions and War on Want, the UK based anti-poverty campaign group, 24th Feburary 2015)

Malta, il-Lussimburgu u l-evażjoni tat-taxxa

Juncker + Muscat

Matul il-ġranet li għaddew segwejna l-informazzjoni żvelata dwar il-Lussimburgu. Kif l-awtoritajiet tat-taxxa tal-pajjiż, fiż-żmien li Jean Claude Juncker kien Prim Ministru innegozjaw ma numru ta’ kumpaniji kbar status fiskali li permezz tiegħu setgħu “jiffrankaw” biljuni kbar f’taxxi.

Din li jiffrankaw fil-fatt ma hi xejn għajr evazjoni legalizzata tat-taxxa. Biex ma jħallsux taxxa f’pajjiż jagħmlu użu mil-liġijiet ta’ pajjiż ieħor. Għal min hu fil-business dan hu aċċettabbli. Fil-fatt meta kien ippressat mill-istampa Jean Claude Juncker qal li dak li ġara kien legali imma jifhem li mhux aċċettabbli etikament.

Għax il-politika m’għandiex x’taqsam biss mal-liġi. Dak li hu legali mhux dejjem huwa aċċettabbli. Fil-prattika, l-Lussimburgu taħt it-tmexxija ta’ Juncker għamlitha possibli lil numru ta’ multinazzjonali jħallsu ħafna inqas f’taxxi.  Dan hu etikament ħażin. Għax ċaħħdet lill-pajjiżi fejn joperaw dawn il-kumpaniji minn taxxi li kienu meħtieġa għal programmi soċjali f’dawk il-pajjiżi.

L-argumenti politiċi li jinġiebu s’issa huma dawk dwar il-kompetizzjoni fiskali. Jiġifieri li ġaladarba t-tassazzjoni hi kompetenza tal-istati membri fl-Unjoni Ewropeja, x’rati ta’ taxxa jitħallsu u minn min hu determinabbli biss individwalment mill-istati membri tal-Unjoni Ewropeja.

Imma issa hemm min qed jargumenta li meta pajjiż jagħti status fiskali privileġġjat lil dawn il-kumpaniji biex jiġbdhom lejn il-pajjiż, idaħħal ftit taxxi minn fuqhom kif ukoll joħloq numru ta’ impiegi konnessi mar-reġistrazzjoni u l-amministrazzjoni tal-kumpaniji, dan kollu hu għajnuna mill-istat (state aid) liema għajnuna mhiex aċċettabbli.

Għalhekk fetħet investigazzjoni dwar il-Lussimburgu li qed titmexxa mill-Kummissarju għall-Kompetizzjoni, id-Daniża Margrethe Vestager.

Hu inevitabbli li dan kollu f’xi stadju ser iħalli impatt fuq is-settur finanzjarju f’Malta. Huwa magħruf li bosta xogħol f’dan il-qasam ġie f’Malta minħabba pakkett ta’ inċentivi li jinkludi rati ta’ taxxa favorevoli ħafna. Fi ftit kliem dawn il-kumpaniji ġew hawn għax jaqblilhom. Jaqblilhom għax iħallsu ftit taxxi ħdejn li jkollhom iħallsu f’pajjiżi oħra. Bħala riżultat ta’ dan qed jagħtu kontribut lill-ekonomija tal-pajjiż kif ukoll qed jiġġeneraw numru mhux żgħir ta’ impiegi.

Il-problema hi li dan kollu huwa ibbażat fuq l-evażjoni tat-taxxa f’pajjiżi  oħra. Hi problema li rridu niffaċċjaw fix-xhur li ġejjin meta l-Kummissjoni Ewropeja tiddeċiedi jekk tiftaħx investigazzjoni dwar Malta kif ukoll dwar pajjiżi oħra fosthom l-Irlanda u dan wara li tiżviluppa ftit ieħor l-investigazzjoni dwar il-Lussimburgu.

Tajjeb li l-istat Malti jiġġieled f’Malta kontra l-evażjoni tat-taxxa. Imma imbagħad hi ipokrezija politika li Malta tfittex li tibbenefika mill-evażjoni tat-taxxa f’pajjiżi oħra.  Jew aħna kontra l-evażjoni jew m’aħniex!  Ma nistgħux inkunu kredibbli bħala pajjiż jekk nibqgħu niżviluppaw l-ekonomija tagħna fuq l-evażjoni tat-taxxi f’pajjiżi oħra.  L-ekonomija u l-etika għandhom jimxu id f’id.

When to resign

Ombudsman. Joseph Said Pullicino

Jean-Claude Juncker Prime Minister of Luxembourg has just submitted his resignation after accepting political responsibility for a spying scandal.

In Malta Magistrate Francesco Depasquale ruled that the Ombudsman was not right to claim immunity when his statement on Judge Lino Farrugia Sacco was subjected to libel proceedings. Moreover, ruled the Magistrate, the Ombudsman was not even authorised in terms of law to comment on the judiciary.

Would it be right if the Ombudsman Dr Joseph Said Pullicino resigns? I think that it would be the decent thing to do.