Tax avoidance: does Malta play a role?

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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

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The recycled summit

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The Valletta Migration Summit is over. Prime Minister Joseph Muscat has described it as a ‘historic summit’. It seems to me that it would be more accurately described as the ‘recycled summit’.

In one of the last speeches at the Summit, on Thursday morning, Senegalese President Macky Sall encapsulated in a few words the sentiments of the African side when he stated that African nations would have no need of aid if multinationals corporations active on the African continent paid their fair share of taxes and a fair price for the natural (African) resources. Of course President Sall left out an important last sentence: he avoided any reference to corrupt politicians generally in sync with these multinational corporations.

Earlier in the week had seen the 20th anniversary of the judicial killing of environmental activist Ken Saro Wiwa and his colleagues, who were executed on the orders of a secret military tribunal on the basis of trumped-up charges in Nigeria on 10 November 1995. Ken Saro Wiwa and his colleagues had  stood up in defence of the Ogoni people against Anglo-Dutch multinational Shell, who ignored one and all in its intensive corporate greed.

The conclusions of the Valletta Summit are nothing but a re-cycling of measures that have been discussed for some time: EU leaders have continued to focus on returning migrants and outsourcing problems to frontline states. This is an approach that the EU had previously attempted with Libyan dictator Gaddafi who, way back in 2010, had demanded €5 billion as his price-tag to stem the flow of immigrants across the Mediterranean. In contrast, the initial carrot dangled before African heads of state was a mere €1.8 billion. Another €3 billion was simultaneously being offered to Turkey by Frans Timmermans Vice President of the EU Commission.

Bargaining with non-EU countries in the hope of trading EU funds in return for re-admission mechanisms is not the right approach. The original EU proposal of linking funds to a take-back of immigrants who did not qualify for asylum had to be withdrawn as the African side of the Summit refused the bait.

The causes of immigration into the EU are various. They range from repression and civil war to the accumulating impacts of climate change – primarily drought and the resulting collapse of domestic agriculture. Matters are made worse as a result of tribal rivalry, as well as the absence of the strong institutions of a democratic state. Consequently, the resulting vacuum is filled by corrupt politicians who, after taking their fill from accommodating multinational corporations seek to top up their spoils through additional contributions from Brussels.

The situation is tricky for the EU as there is no one else to talk to. It is for this reason that the Action Plan tied the proposed €1.8 billion assistance to specific projects subdivided into sixteen priority areas built around five priority domains.

Will this Action Plan solve anything? It is too early to tell, as it is a long-term issue which will be implemented within a number of timeframes specified in the plan itself. The main point of contention remains the immediate short term, during which the pressures on the EU borders will keep increasing to the point that, as Donald Tusk indicated, the whole Schengen process is under threat.

In this context it is pertinent to underline that Malta has recently been spared the troubles as the flow of immigrants ending in Malta has decreased to a trickle as a result of Italy taking up all immigrants that it has intercepted or rescued in Malta’s search and rescue area. The reasons why Italy is behaving in this manner are not yet officially known: the rumour mill has it that oil exploration rights are part of the equation. Originally, Home Affairs Minister Carmelo Abela had indicated that there was some informal agreement with Italy only for him to come back and state that he had been understood.

As stated by Guy Verhofstadt, former Belgian Prime Minister and Liberal leader in the European Parliament : “The EU leaders have let us down.”

While the Valletta Summit has agreed to a reasonably detailed Action Plan which can form the basis of action in the long term, it has failed at containing the migration crisis in the short term.

published in The Malta Independent on Sunday: 15 November 2015