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

New Petrol Stations: immediate moratorium needed

For a short period of time, the number of new petrol stations in Malta was on the decline but recently this trend has reversed, undoubtedly as a result of the Planning Authority 2015 Fuel Service Station Policy.

New petrol stations are mushrooming all over the place, and not only is it easier to obtain a development permit to construct a petrol station but you get the added “concession” to ruin up to 3,000 square metres of surrounding land.

Those proposing the development of new petrol stations claim to be doing us a favour. They argue that the increasing number of cars on the road necessitates more and more petrol stations. The number of petrol stations in the Maltese islands currently stands at around 80 and new ones are mushrooming, undoubtedly fuelled by the 3,000 square metres permissible footprint in the 2015 planning policy.

It is submitted that the policy on the development of fuel stations should complement the policy on the phasing out of internal combustion engines and an immediate moratorium on the development of new petrol stations is essential.

During the 2017 General Election campaign, Alternattiva Demokratika proposed the phasing out of vehicles running on internal combustion engines in Malta over a 20-year period. This time-frame was deemed sufficient to develop an infrastructure for electric-driven cars. It was also deemed to be a reasonable time-frame to permit those who possessed vehicles running on internal combustion engines to adjust to a new reality without petrol or diesel.

This position was also taken up by the Labour government in Malta after the June election. However the details have not yet been determined.

Various other countries have decided on, or are considering, eliminating internal combustion engine driven vehicles from their roads, including Norway (by 2025), the Netherlands (by 2025), Germany (by 2030), France (by 2040), the United Kingdom (by 2040), India (by 2040) and China (by 2040). Others will soon inevitably follow.

In addition, car manufacturers are considering shifting to a manufacturing mode that will only produce hybrid or fully electric cars. Volvo will proceed on such a path by 2019 and no doubt others will follow fast on Volvo’s heels.

Within this context, does it make any sense to continue issuing development permits for more petrol stations?

We need an in-depth examination of transport related policies. It is clear to everyone  that our roads are bursting at the seams and that the further development of our road infrastructure is opening up our roads to more cars, as a consequence adding to our pollution problems and simultaneously making our accessibility worse.

An overhaul of Malta’s transport policies should seek to promote sustainable transport policies thereby reducing the number of cars on our roads.

Yesterday, I addressed a press conference on the site of the proposed extension to the road network at Attard. This project, when implemented, will take up valuable irrigated agricultural land. This is one more instance which will increase the number of cars on our roads, gobble up agricultural land and ruin the life of full time farmers.

Transport policy on these islands seems to be multi-directional, sending mixed signals in all directions. Some coherence is required. Establishing a moratorium on the construction of new petrol stations and establishing a date by which internal combustion engine driven vehicles are phased out from our roads would be a good first step. This should then be followed by ending the crazy spree of the development of new roads.

It is a process which will lead us to reclaim our roads for our own use, but then it will take some time.

published in The Malta Independent on Sunday : 3 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

Land Reclamation and the construction industry

land reclamation 01

The issue of land reclamation should be tackled in a responsible manner.

The Netherlands used land reclamation successfully to adequately manage its low-lying land. Hong Kong made use of land reclamation to create high value land required for its airport on the Chek Lak Kok island. Through land reclamation Singapore expanded its container port, an essential cornerstone in its economy.

In Malta land reclamation was used in the past to create the Freeport Terminal at Kalafrana in the limits of Birżebbuġa.

MEPA has during the recent past engaged consultants to assess the potential of land reclamation in Maltese waters.

A 2005 study was commissioned by MEPA and carried out by  Carl Bro. This study identified six relatively large coastal areas as search areas for potential land reclamation sites. The study had  recommended that these six areas, or a selection of them, be “investigated in further details in parallel with the execution of a pre-feasibility study, before a principal decision is taken on whether land reclamation is considered realistic under Maltese conditions. It is recommended that such investigations and studies be carried out by the Government prior to the involvement of the private sector in possible land reclamation projects.” (page 8 of report).

MEPA took up this proposal and commissioned ADI Associates together with Scott Wilson to carry out a detailed study on two of the identified coastal areas. These studies were finalised in 2007 and 2008 and consist of 4 volumes. The coastal areas identified and studied are those along the  Magħtab/Baħar iċ-Ċagħaq coastline and the Xgħajra/Marsaskala coastline.

These latter studies conclude with a detailed set of recommendations on more focused studies relative to environmental and economic impacts which would be necessary if land reclamation is to be further considered.

In Chapter 10 of its electoral manifesto the Labour Party is committed to utilise a programme of land reclamation as an important tool in the infrastructural development of the country.  The said electoral programme emphasises the environmental and economic sensitivity of such projects and underlines a  commitment to high standards in environmental, social, economic, land use planning and sustainable development fields.

In Parliament it has been declared that the next step would be for expressions of interest to be submitted by those proposing  projects for  development on reclaimed land. A call should be issued in the near future.

I believe that this is not the way forward.  On the basis of the studies carried out to date and such additional studies as may be required it would have been much better if government presents for public consultation a detailed draft land reclamation strategy.  Such a strategy would then be subjected to public consultation. A dialogue is required, not just with the developers but also with civil society, including most importantly with environmental NGOs.

The draft strategy would undoubtedly indicate the proposed permissible development on the reclaimed land. It would be interesting to note if the said strategy would consider the need for residential development in view of the over 70,000 vacant residential properties  on the islands. On the basis of existing and possibly additional studies the strategy would also seek to ensure that Malta’s coastline is protected much more effectively than Malta’s countryside has been to date.

All views should be carefully considered before such a strategy is finalised.

Once the strategy is finalised its environmental impacts should be carefully scrutinised  as is provided for in the Strategic Environment Assessment Directive of the EU. This Directive now has the force of law in Malta. It is only when this assessment has been finalised and the impacts identified are suitably addressed through changes in the draft strategy  itself (if required) that it would be reasonable to invite expressions of interest from interested parties.

Land reclamation is no magic solution to a construction industry which is in urgent need of restructuring. Even if land reclamation is permitted it cannot and will not offer a long term solution to an ailing construction industry which has been capable of contributing to an accumulating stockpile of vacant dwellings which are equivalent to 9 ghost towns, each the size of B’Kara.

The country would be economically and socially much better off if the construction industry is assisted in its much needed restructuring. It would undoubtedly need to shed labour which can be absorbed by other sectors of the economy. Retraining would  be required  to ease the entry of the shed labour force into other economic areas.

This  would certainly be much more beneficial and sustainable than land reclamation.

published in The Times  on 27 April 2013 under the title: Land Reclamation and Building

Ir-riżenja ta’ George Pullicino

Naf li qed noħlom meta ngħid li George Pullicino għandu jirreżenja. Imma naf ukoll li l-politika hi t-twettiq tal-ħolm.

Pullicino għandu jirreżenja għax arroganti u inkompetenti. Dwar l-arroganza tiegħu inkiteb ħafna matul il-perjodu li kien responsabbli għall-MEPA. L-agħar perjodu għal ħafna snin għall-ambjent f’pajjiżna.

Nhar is-7 t’Awissu 2012 il-Kummissjoni Ewropea ippubblikat rapport analitiku dwar kif qed titħaddem fis-27 pajjiż membru l-politika dwar l-immaniġjar tal-iskart. Dan ir-rapport hu intitolat Screening of Waste Management Performance of EU Member States.

F’dan ir-rapport Malta ġiet ikklassifikata fost dawk il-pajjiżi li għandhom deficit fi prattikament l-oqsma kollha tal-implimentazzjoni tal-politika tal-immaniġjar tal-iskart. Ir-rapport hu iktar iebes minn hekk, juża l-kliem implementation gap. Jiġifieri ghad baqa’ ħafna ħafna xi jsir biex il-paroli u l-fatti ma jibqgħux jikkuntrastaw!

Il-Greċja u l-Bulgarija biss ġew ikklassifikati agħar minn pajjiżna. Il-Greċja qegħda f’tarf ta’ kollass ekonomiku u l-Bulgarija mifnija bil-korruzzjoni! Il-Litwanja kklassifikati daqsna!

Dak ċertifikat!

Għal dawn l-aħħar tmien snin ir-responsabbilta’ politika għall-politika dwar l-iskart kienet ta’ George Pullicino.

Kienet responsabbilta li għaddhielu Lawrence Gonzi fl-ewwel Kabinett tiegħu. Responsabbilta’ li ħadha mingħand Ninu Zammit u għaddiha lil Pullicino f’Marzu 2004.

F’dawn it-tmien snin Pullicino iktar kien moħħu fil-konfront politiku bħal dak li infexx fih f’Marsaskala dwar l-Impjant ta’ Sant Antnin milli li jiżviluppa politika dwar l-iskart li taħdem għax hi aċċettata. Bl-arroganza tipika tiegħu rnexxielu jkisser il-possibilita ta’ kunsens mal-komunitajiet u tefa lura ħafna l-iżvilupp ta’ sens komunitarju fil-politika tal-immaniġjar tal-iskart. Ir-riperkussjonijiet għadhom qed jinħassu anke’  illum.

Hu veru li r-rapport tal-Kummissjoni Ewropea janalizza l-qagħda kif kienet sentejn ilu u dan għax jaħdem fuq statistika u rapporti li ilhom ftit ippubblikati. Imma dan ma jgħoddx biss għal pajjiżna. Jgħodd ukoll għal pajjiżi bħall-Awstrija, l-Olanda, id-Danimarka u l-Ġermanja li kienu fuq quddiem nett fil-klassifika u komplew jissaħħew!

Anke’ jekk imxejna ftit il-quddiem, ftit iktar milli jindika r-rapport, xorta għadna lura ħafna. Għal dan jaħti biss George Pullicino.

Ir-rapport juri falliment fil-parti l-kbira mill-kriterji addottati biex jitkejjel il-performance tal-pajjiżi membri tal-Unjoni Ewropea.

Dan hu ċertifikat ta’ falliment li għalih għandu jassumi responsabbilta politika l-Ministru George Pullicino. Jiġifieri għandu jkun raġel u jgħid “fallejt” u jirreżenja. Jagħmel il-wisa’ għal min jista’ jagħti kontribut pożittiv għall-implimentazzjoni tal-politika dwar l-iskart.