The budget: beyond the €s

Liza Minelli’s song “Money makes the world go round” is the underlying theme of the Budget speech delivered by Finance Minister in Parliament last Monday. The message driven home was that money and the accompanying affluence clearly indicate that we have never had it so good and that handouts to all are not a problem, both to those who need them, and, more importantly to those who don’t.

Today, taxation is a dirty word in our political lexicon: hence, it was suggested that the message that no increases in existent taxes or new taxes have been proposed is a positive one by the Honourable Minister. Handouts are for all, almost. First for those in need, secondly for most of the rest. The dictum “from each according to his means, to each according to his needs” no longer has any significance when trying to understand the political philosophy underlying the budget of this “labour” government.

Taxation collected in Malta apparently only has some significance when taxing foreign companies operating outside Maltese territory but having some small office, or just a letterbox, on this rock. This is done so that they can avail themselves of reduced taxation rates, substantially lower that those payable in the countries where they operate.

Similarly, companies operating in the financial services sector benefit from a tax package which offers them substantial savings on their tax bills in order to entice them to set up shop.

The government thinks it is smart, but all it is doing is encouraging tax avoidance. Malta’s message is clear: those who want to avoid tax in their country are welcome as long as they are prepared to pay a small part of the taxes avoided to the Maltese exchequer.

In this respect, the case study entitled “Toxic Tax Deals. When BASF’s Tax Structure is more about style than substance” published by the Green Group in the European Parliament around two years ago is indicative. In that study, it was concluded that BASF, the German chemical giant with its headquarters in Ludwigshafen, 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, paying instead a small amount of the taxes avoided, in gratitude for this wonderful opportunity made possible by the Maltese governments, blue and red.

In this context the Finance Minister’s declaration against tax evasion, tax avoidance and money laundering is deemed mere rhetoric. It has to be viewed in the context of the Panama Papers saga, as well as the established fact that a Cabinet Minister and the Chief of Staff in the Office of the Prime Minister set up companies in Panama, a tax haven, and no punitive action was taken against them. With this background, the Minister’s sanctimonious declaration is in no way credible.

The Budget proposals strengthen the social safety net as it assists the vulnerable financially. However, the quality of life is not measured solely by financial metrics. The Budget has various green gaps that affect our quality of life.

The welfare of cars assumes an importance over human quality of life, as government considers it is important to widen and improve roads in order to facilitate the passage of cars, thereby aiming at reducing congestion. An inverted sense of logic: reduction of the number of cars on our roads should have been the target as that is the real and actual problem. Widening roads and improving road infrastructure with flyovers and underpasses only serves to grow the number of cars on our roads, thereby increasing the problem. Providing and facilitating alternative transport is the only solution. Paying lip service to alternative means of transport but simultaneously financing an exponential
increase of the problem signifies that we still have to learn the ABC of transport policy.

The government’s own transport master-plan places considerable emphasis on the need to reduce cars from our roads but it seems that the government is not interested.

Therefore, we have a government which is more interested in the welfare of cars than in our quality of life.

This is just one example. There are countless of others.

The Budget loses an opportunity to make a lasting difference in a number of areas important for our quality of life that goes beyond finances.

published (online) at Malta Independent

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Il-baġit : lil hinn mill-€s

Id-diska ta’ Liza Minelli “Money makes the world go round” donnha li hi t-tema li madwarha hu minsuġ id-diskors tal-Baġit li nqara mill-Ministru tal-Finanzi nhar it-Tnejn fil-Parlament. Il-messaġġ ċar li wasal fi djarna kien li l-flus u l-“ġid” li hawn jagħmlu possibli li tirċievi ċekk id-dar, kemm jekk għandek bżonnu kif ukoll jekk m’għandekx.

F’dawn iż-żmienijiet il-kelma taxxa donna saret kelma moqżieża fid-dizzjunarju politiku: għalhekk ġie suġġerit li n-nuqqas ta’ taxxi ġodda, inkella ta’ żieda fit-taxxi eżistenti kien element pożittiv fid-diskors tal-Onorevoli Ministru. Ċekkijiet għal kważi kulħadd. L-ewwel għal dawk li għandhom il-ħtieġa u mbagħad għall-parti l-kbira tal-bqija. Dak li kien jingħad li “jittieħed mingħand kull wieħed skont ma jiflaħ, u jingħata lil kulħadd skont il-ħtiġijiet tiegħu” donnu li ma għandu l-ebda piz illum meta nippruvaw nifhmu l-filosofija politika li fuqha hu mfassal dan il-baġit ta’ Gvern “Laburista”.

It-taxxa li tinġabar f’Malta donnha li hi utli biss meta tinġabar mingħand kumpaniji barranin li fil-waqt li joperaw barra mit-teritorju Malti jkollhom uffiċċju żgħir jew sempliċi letterbox f’Malta. Dan biex ikunu jistgħu jibbenefikaw minn rati ta’ taxxa sostanzjalment iktar baxxi minn dawk li jkunu soġġetti għalihom fil-pajjiżi fejn joperaw.

Diversi kumpaniji fis-settur tas-servizzi finanzjarji ukoll jibbenefikaw minn rati ta’ taxxa li bihom jiffrankaw sostanzjalment minn dak li jħallsu band’oħra.

Il-Gvern mingħalih li għamel opra. Fir-realtá qed jibgħat messaġġ li Malta tilqa’ li min irid jevadi t-taxxa f’pajjiżu, kemm-il darba jkun lest li jħalli xi ħaġa minn dak li jiffranka fil-kaxxa ta’ Malta!

F’dan il-kuntest l-istudju intitolat Toxic Tax Deals. When BASF’s Tax Structure is more about style than substance. ippubblikat mill-Grupp tal-Ħodor fil-Parlament Ewropew madwar sentejn ilu jispjega b’mod ċar x’inhu jiġri. F’dan l-istudju ġie konkluż li l-BASF, ġgant Ġermaniz fil-qasam tal-industrija kimika ibbazat f’Ludwigshafen, jagħmel użu minn differenzi fis-sitemi nazzjonali tat-taxxa biex jevita milli jħallas it-taxxi dovuti. Huwa stmat li, tul il-ħames snin bejn l-2010 u l-2014, BASF evitaw madwar biljun euro fi ħlas ta’ taxxi. Minflok ħallsu ammonti ferm inqas, b’ħajr lill-gvernijiet Maltin (blu u ħomor) talli għinhom jevitaw dawn it-taxxi kollha.

F’dan il-kuntest id-dikjarazzjoni tal-Ministru tal-Finanzi kontra l-evażjoni tat-taxxa u l-ħasil tal-flus jidhru dak li fil-fatt huma: eżerċizzju ta’ retorika. Inżommu f’moħħna ukoll il-kaz tal-Panama Papers, li kien stabilixxa l-fatt li membru tal-Kabinett u ċ-Chief of Staff fl-uffiċċju tal-Prim Ministru kellhom kumpaniji fil-Panama, pajjiż rinomat għall-evażjoni tat-taxxa, u dwar dan ma kienu ittieħdu l-ebda passi kontra tagħhom. Fid-dawl ta’ dan, id-dikjarazzjoni ta’ “qdusija” da parti tal-Onorevoli Ministru hi nieqsa minn kull kredibilitá.

Il-proposti tal-Baġit isaħħu ix-xibka soċjali u dan billi jgħinu finanzjarjament lill-vulnerabbli. Imma l-kwalitá tal-ħajja ma titkejjilx biss f’termini ta’ flus. Fil-Baġit hemm bosta miżuri ambjentali nofs leħja.

Il-ħarsien tal-karozzi huwa iktar importanti mill-kwalitá tal-ħajja għalina. Il-Gvern jikkunsidra li hu iktar importanti li jwessa’ t-toroq biex jiffaċilita ċ-ċaqlieq tal-karozzi u b’hekk jipprova jnaqqas il-konġestjoni. Loġika rasha l-isfel. Il-mira kellha tkun it-tnaqqis tal-karozzi mit-toroq tagħna għax dik hi l-problema. It-twessiegħ tat-toroq u t-titjib tal-infrastruttura bil-kostruzzjoni ta’ flyovers lil hawn u lil hemm iwassal biss għaż-żieda ta’ karozzi fit-toroq tagħna u b’hekk tikber il-problema tal-konġestjoni. L-unika soluzzjoni hi li jkun inkoraġġit bis-serjetá t-trasport alternattiv. Il-Gvern qiegħed fl-istess nifs jinkoraġixxi kemm lit-trasport alternattiv kif ukoll iż-żieda fenomenali ta’ karozzi: dan ifisser li għadu ma tgħallem xejn. Wara kollox huwa l-pjan nazzjonali tat-trasport imfassal minn dan il-Gvern stess li jpoġġi quddiemna l-mira tat-tnaqqis tal-karozzi mit-toroq tagħna. Imma jidher li l-Gvern qed iwarrab il-pjani tiegħu stess.

L-Gvern hu iktar interessat mill-ħarsien tal-karozzi milli mill-ħarsien tal-kwalitá tal-ħajja tagħna lkoll.

Dan hu biss eżempu wieħed. Hemm bosta oħrajn.

Il-Baġit qed jitlef l-oportunitá li jagħmel differenza f’numru ta’ oqsma fejn li troxx il-flus mhux biżżejjed.

 

Ippubblikat fuq Illum: Il-Ħadd 28 t’Ottubru 2018

Undermining the rule of law

The “rule of law” is a basic democratic principle codified in the laws of democratic countries.

We are all servants of the law in order to be free and in a democracy, the law should apply to one and all without exception. A weak “rule of law” thus results in less and less democracy until one is left with only a free-standing façade.

The law is there to be observed: it should be a constraint on the behaviour of individuals as well as on that of institutions. All individuals ought to be subject to the same laws, whereas institutions are there to protect us all, not just from ourselves but also from all possible attempted abuse of authority by the institutions themselves.

It is within this context that the report of the ad hoc delegation of the Committee of Civil Liberties, Justice and Home Affairs of the European Parliament has to be considered. The report is an illustration of how others see the state of our democracy, even though at points it may be inaccurate.

The delegation’s brief was to investigate “alleged contraventions and maladministration in the application of Union law in relation to money laundering, tax avoidance and tax evasion”.

The observations and conclusions of the delegation in its 36-page report are certainly not edifying. The common thread running through the different pages of the report is that in Malta there are more masters of the law than servants; this is how others see us.

In my opinion they are not far off the mark. The report repeatedly emphasises the point that the law should be observed in both letter and spirit.

The institutions in Malta are very weak. I would add that they are weak by design, in other words they are designed specifically to genuflect when confronted by crude political power. This is reflected both in the type of appointees as well as in the actual set-up of the institutions which are supposedly there to protect us.

The above-mentioned report observes, for example, that none of the Financial Intelligence Analysis Unit (FIAU) reports on Maltese politically exposed persons (PEPs) were investigated by the Police, notwithstanding the fact that the said reports had been forwarded to them “for any action the Police may consider appropriate”.

Is it too much to expect that the police do their duty in at least investigating? The fact that no such investigation was carried out drives home the clear unequivocal message that for the police, PEPs are not subject to the law like any other person. The EU Parliament report is very clear as to why such investigations are essential. In fact it is stated that: “Persons perceived to be implicated in serious acts of corruption and money- laundering, as a result of Panama Papers revelations and FIAU reports, should not be kept in public office and must be swiftly and formally investigated and brought to justice. Keeping them in office affects the credibility of the Government, fuels the perception of impunity and may result in further damage to State interests by enabling the continuation of criminal activity.”

The question to be asked is: why is this possible? Why do Maltese authorities tend to bend the rules or close an eye here and there?

You may find an indication as to why this is so in two small incidents occurring in Malta this year. These illustrate the forma mentis of the Maltese “authorities”.

The first example is associated with the fireworks factory at Iż-Żebbiegħ. After 30 years in Court the rural community of iż-Żebbiegħ won a civil case as a result of which a permit for a fireworks factory was declared null and void by the Court of Appeal. The government reacted by rushing through Parliament amendments to the Explosives Ordinance. These amendments with approved by Parliament with the full support of the Opposition. As a result, notwithstanding the decision of the Court of Appeal, a permit for the fireworks factory can still be issued.

The second example is still “work in progress”. The Court of Appeal has, in the application of rent legislation, decided that the Antoine de Paule Band Club in Paola was in breach of its lease agreement. As a result the Court of Appeal ordered the eviction of the band club from the premises they leased within four months.

The government reacted by publishing proposed amendments to the Civil Code, as a result of which the eviction ordered by the Court of Appeal will be blocked.

These are two examples of the government reacting to decisions of our Courts of Law by moving the goalposts – with the direct involvement of the Opposition. The public reactions to these two cases have been minimal. Maltese public opinion has become immune to such “cheating” and bending of the rules because this method of operation has become an integral part of the way in which our institutions function. The Opposition is an active collaborator in this exercise that undermines the rule of law in Malta.

Is it therefore reasonable to be surprised if this “cheating” and bending of the rules is applied not just in minor matters but in very serious ones too? Moving the goalposts whenever it is politically expedient is, unfortunately, part of the way in which this country has operated to date. It is certainly anything but democratic and most obviously anything but respectful towards the rule of law.

published in The Malta Independent on Sunday : 20 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)