‘A system that works’

With an escalating war of words between Germany and Malta over our country’s tax system, how is the financial services sector holding up? Paul Cocks spoke to Ed Nesbaum, Global CEO of Grant Thornton, and Mark Bugeja, Grant Thornton Malta managing partner

Ed Nesbaum: Malta is always going to be criticised because of its tax system, but it is a system that appears to be working
Ed Nesbaum: Malta is always going to be criticised because of its tax system, but it is a system that appears to be working

The Grant Thornton group has 47,000 people within its fold worldwide. How big a challenge is recruitment?

Mark: In Malta, we – like other sectors – are finding it difficult to find enough quality people to join our team and that is a challenge that as a country as a whole we need to overcome. Luckily, because of the work that has been done over the past few years, the brand is now more known and it has helped to attract more skilled people. We also take part in various initiatives at university, MCAST and even Junior College, putting our name out there. In fact we now have a group of between 40 and 50, of 16 years and over, coming in for a summer internship. They cost us a lot of money, but it is our hope they decide to pursue a career in this industry and join us.

Why is it difficult to get young people to take up a career in financial services?

Mark: First of all, in Malta, the numbers are not there. Many young people are choosing to go abroad and gain experience there, and rightly so. But it’s a factor that affects our supply, which already is not enough. There’s also the economic growth that we have been experiencing and other new sub-sectors in financial services, like fund companies and gaming, which we did not have before. We have to get people from abroad, which is a lengthy and rigorous process, especially if the persons are from outside the European Union. We may be a bit more choosy than others when it comes to recruitment but we prefer to pursue quality.

Speaking of the EU, how do you see the UK’s decision to leave the EU affecting the sector? And do you see Malta as a possible post-Brexit alternative destination for financial services companies currently based in the UK?

Ed: First of all, the big question is the unknown. We only know some parameters around the Brexit timing but not much else. I know some companies are evaluating leaving London and some already have decided to do so. Malta is definitely a clear option and could end up benefiting from Brexit. Certainly, the UK will work hard to keep those companies there. We are advising our companies, at this point, to examine all scenarios and helping clients to examine possible tax challenges. Certainly Malta is an attractive destination, with its tax structure, but I don’t think Malta could accommodate all companies that decide to leave London because of Brexit. At the moment, we know a lot of companies are considering leaving the UK but that is all for now, until we know more of what Brexit will mean. Interestingly enough, our surveys show that business optimism in Malta is extremely high, but – interestingly – it is also high in the rest of Europe and the UK. There is a level of nervousness, yes, but not pessimism, definitely not.

Is Grant Thornton Malta getting any enquiries from companies in London as to what relocating to Malta would entail for those companies?

Mark: Yes, we have already gotten a number of enquiries and I can say that as a possible post-Brexit option, Malta is definitely on the radar, mainly in the case of financial services providers. Obviously we have to be mindful that we have competition and we have to make sure to put forward our best possible offering. Because sometimes we run the risk – because of our success – that we raise our expectations too high. And we also have to keep in mind that if a Maltese operator is trying to attract a huge UK operator, many issues will arise, including space, human resources. Sometimes, something like this could be easy to sell but difficult to deliver.

With regard to Malta’s tax system, our country has recently come under attack for either being a tax haven or for not playing fairly. Where do you stand on that?

Mark: I think we need to keep reminding ourselves that everything we are doing is 100% above board. We had an offshore regime for a few years that was voluntarily wound down and changed to an on-shore regime. And in the run-up to EU accession, we introduced more stringent rules and procedures and ultimately, our system withstood the tough scrutiny of the European Commission. And now we have a very strong – and I think, critical – system, that taxes at an ultimate rate of five per cent. It is a rate employed across the board and we do not have any one-to-one rate decisions.

Ed: In countries like Germany, France and all the bigger countries, they cannot afford to have a lower tax rate if they want to keep their governments running at their current levels. That’s a fact. They’re supporting a very large population, a big administration, and they see their people insisting that the government’s major funding comes from corporate tax. And so, politically, they could not – even if they wanted to – lower the taxes. So from their perspective they would like to see every other country raise their taxes to their same level, but that’s not reality. The reality is that many countries are looking to lower their corporate taxes to attract businesses. Even some large businesses, such as in the UK and even the US, where President Trump has vowed to lower corporate tax.

Why? Because he does not want US companies to leave the country. Obama tried to do it by passing laws that would stop US companies from merging with companies from other jurisdiction with a lower tax rate. But President Trump is doing it by lowering the tax rate, therefore stimulating business, stimulating investment in America. No difference from Malta. I think this comes from a desire to stimulate business and stimulate growth in an economy.

In some countries, like Germany, France and Italy, their solution is to try and convince other countries to raise their tax levels to match theirs and that will never work. You know, Malta is always going to be criticised because of this, but I think it is a system that appears to be working.

Is Malta’s tax system transparent enough to satisfy international obligations?

Mark: Yes, definitely. In international transparency ratings, with a score of around 50, we fare better than countries like Germany and Austria. And let us not forget also that our company register is available online for public access, with every company registered in Malta including its accounts, ownership, shareholding and every other detail necessary. Let’s be clear, there will always be some individuals who will try to find loopholes in any system and try to exploit them. In the Malta Files, for instance, some companies were mentioned that are in the pay-day loan businesses. That in itself is an aggressive market and necessitates high interest rates. Now if Malta were to introduce legislation so as not to allow pay-day loan businesses any more, that would be adhered to. But that has not happened yet.

Should Malta keep its current system?

Mark: We have to. We don’t have any resources and we have to be creative with how to generate revenue. God forbid if we were to lose this.

Ed: From my perspective, as a foreigner looking in, I have seen Malta’s economy grow and we have also seen our clients grow with it. Rules and regulations are important, but compliance is even more so. Having said that, the system as a whole may need some minor tweaking, but it’s working. The economy is strong, business optimism in Malta is extremely high and business leaders are very optimistic about what they see, even based on our surveys. They’re predicting higher revenue, higher profits, increased employment, more growth, more investment in research and development.