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No politics, no scandal

As with Panama, Malta features prominently in the cache of the leaked Paradise Papers, but to date, no political names have been exposed.

9 November 2017, 7:55am
Cartoon by Mikiel Galea
Cartoon by Mikiel Galea
There seems to be a contradiction in the way Malta approaches the related issues of tax avoidance, tax evasion and money laundering. When the Panama Papers scandal broke in 2016, the rest of the world reported it as a data leak revealing the complex machinations through which the world’s richest regularly circumvent their tax obligations: often through deceptive offshore financial set-ups.

The Panama Papers had immense political repercussions in the rest of the world: including the resignation of Iceland’s Prime Minister, among other high-profile casualties. But it wasn’t, in itself, a political scandal. What prompted global outrage was primarily the injustice of it all: the fact that countries are visibly struggling to finance their overstretched social welfare systems, while those who should be contributing the most, are dodging their dues for entirely selfish reasons.

It also exposed the sheer intricacy of the legal and accounting infrastructure – all legal and above board – that had evolved to cater for this unsavoury demand. We know, for instance, that within the EU itself, the Panama Papers committee in the European Parliament was not limited to discussing simply the Panama Papers, but also their ramifications within the wider realm of tax laws inside the European Union: maladministration of EU law on money laundering, tax avoidance and tax evasion, tax justice and fair tax competition.

All this has a direct bearing on Malta’s chosen economic model. Yet the local discussion was largely limited to the immediate political fallout from the scandal. It is as though we were talking about a different scandal altogether.

This week, the same journalists who worked on the Panama Papers, repeated the exercise with a major new leak of documents from two offshore services firms based in Bermuda and Singapore, as well as from 19 corporate registries maintained by governments in secret offshore jurisdictions.

As with Panama, Malta features prominently in the new cache of leaked documents. Yet, significantly, to date there have been no political names exposed. For this reason alone, little fuss is being made locally over the latest ICIJ exposé in Malta. It seems that without the partisan bluster that was naturally part of Panamagate, nobody is interested in dealing with the role Malta plays as the land of the Individual Investor Programme and where tax rebates allow foreign companies to pay just 5% tax.

Another thing that is missing from he local point is any sense of ethical professionalism, in any sphere but politics. While the latest trend is to demand maximum transparency from governments, we are content to close an eye at our role in the secret world of the global elite that plays tax games: disguised by a veneer of legality that separates tax evasion from tax avoidance.

The Paradise Papers expose this world, and also show that secrecy, trusts, shell companies and a thriving tax-avoidance industry undermine much-needed tax revenues in other nations to the benefit of financial centres like Malta. There is moral bankruptcy on both sides: the jurisdictions which allow this kind of thing to happen at home, such as Bermuda or the Cayman Islands, and also the countries which benefit from being facilitators of tax avoidance, like Malta.

This is a very thorny debate in Malta, where the consensus between both parties is that the financial services industry in Malta has to be protected at all costs.

Indeed it is Malta’s very tax sovereignty that is also at stake in this discussion. MEPs who are critical of Malta’s vibrant financial services industry speak from a position of superiority: unlike most EU countries, Malta has only its services sector to give it a competitive edge against continental member states. It is even true that peripheral states like Malta have to double their efforts in attracting trade away from the European financial centres.

 Financial industry observers will be keen to point out the bias that Germans have towards Malta: newspapers like Der Spiegel rue the fact that companies seek out Malta’s tax rebate system, allowing them to pay just 5% tax here instead of paying a full rate back home on the profits they generated. MaltaToday’s front-page report on this tax system – a taboo subject because it guarantees over €200 million in solid tax revenues (what is left over from €4 billion tax that would otherwise be charged) – was universally derided by financial services workers, politicians, and even unions.

To reflect the spirit of the investigative journalism that has unleashed scoops such as Panama and Paradise Papers, would mean seeing Maltese MPs speak about offshore, trusts, wealth management, tax optimisation and planning in Malta, and all aspects of this legalised world of tax avoidance that Maltese corporate services providers are part of.

 But the reality is that this will never happen. In a zero-sum view of the way the world works, it is understandable that Malta cannot afford to be outsmarted by some other country.

Parasitic financial services practices will only continue as long as governments are allowed to keep on fanning this industry. Unless a concerted action at EU and possibly global level, via the OECD, takes place, the elites’ ‘tax planning’ game is an industry that still has more life in it.

DealToday
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