Malta enters top rank in global tax secrecy league

Top 20 billing for Malta, but fourth overall for financial secrecy among EU member states

Malta has edged up seven places in 20th ranking among the world’s safe havens for tax evaders, according to the new Financial Secrecy Index.

The index is published by fair taxation advocates Tax Justice Network, a ranking that highlights places around the world that provide relatively safe havens for tax avoiders.

The last index was published in 2015, when Malta ranked 27th overall and fifth among EU member states. The 2018 index places Malta in 20th position and fourth in the EU, after the Netherlands, Germany and Luxembourg. The United Kingdom places fifth.

Switzerland, the United States and the Cayman Islands were ranked the world’s biggest contributors to financial secrecy.

JurisdictionSecrecy scoreFSI value
Cayman Islands72.31267.68
Hong Kong71.11243.68
United Arab Emirates83.9661.15
British Virgin Islands68.7502.76

Dubbed the “global capital of bank secrecy”, Switzerland retained the worst ranking, and the United States also moved up to second. With Bahrain and Lebanon dropping out of the top ten, Guernsey and a new entry in Taiwan replaced them.

The most transparent country – Slovenia – has a secrecy score of 41.8, out of a total possible score of 100. A score of 0 would represent ideal, competition and market friendly transparency.

“In other words, if the Financial Secrecy Index were a school exam, Slovenia (the best student) would have barely passed, with less than 60% of the correct ‘transparency’ answers. The worst countries only got close to 10% of the ‘transparency’ questions right (a secrecy score close to 90). Following this analogy, practically all countries would have to repeat the school year,” the Tax Justice Network said.

Malta scored 60.53%, barely passing into the league of major offenders.

This score has to be taken in context of the other high scorers, where in the case of the Bahamas, which placed 19th after Malta, the score was way higher at 84.5%.

Switzerland and the United States ranked tops because they are resistant to the key policy of automatic information exchange between tax authorities. And while the US refuses to take part altogether, it has its own parallel system (FATCA) which seeks information on US citizens abroad, but provides little, if any, data to foreign countries. Malta is a party to FATCA.

“As the FSI demonstrates, countries like Switzerland are fundamental to the flow of illicit financial funds, such as the proceeds of corruption. Switzerland’s attempts to stop transparency for funds they receive from countries with perceived high levels of corruption will simply make tackling corruption in those countries harder,” the Tax Justice Network said.

The NGO published no narrative on Malta, which is known for having attractive tax incentives for multinationals who set up tax-resident holding companies that can qualify for rebates on their taxed profits of up to 85%.

The UK government continues to insist on the right of its satellite tax havens like the British Virgin Islands to maintain the secrecy of company ownership, and the German government, with others, have sought to have sought to impede attempts to make progress on the beneficial ownership issue within the European Union.


Corruption versus secrecy

Of note is the fact that the countries that ranked highest in the Financial Secrecy Index, like Switzerland, Germany, Luxembourg, the USA, and the Netherlands, are the ones who are deemed to be the least corrupt nations in the Transparency International index of 2016.

“As long as tax havens and secrecy jurisdictions keep offering banking secrecy and the ability to hide other assets or the identities of criminals behind secretive companies, trusts, partnerships or foundations, it will be impossible – both for poor countries and for rich ones – to stop the suffering resulting from corruption, tax evasion, money laundering and other financial crimes,” the Tax Justice Network said.

Additionally, the European countries ranking the highest in the FSI are billed as being “largely compliant” according to the OECD’s peer reviews, a tax transparency system created by the rich nations club.

“The EU and the OECD point fingers at jurisdictions that may indeed be more secretive than the top 10 jurisdictions in the Financial Secrecy Index. But is that really where action is most urgently needed?” Tax Justice Network asked.

“If Trinidad and Tobago and four other jurisdictions blacklisted by the EU became fully transparent, global financial secrecy would be reduced only by 3%, since all of these jurisdictions have only 0.15% of the market of offshore financial services – the global impact would be negligible. In contrast, if the Top 10 jurisdictions of the Financial Secrecy Index became more transparent, the impact would be huge because these are responsible for almost a third of all global financial secrecy, since they represent almost 60% of all offshore financial services. It is also likely that if the US, Switzerland and others decided to become more transparent, they would also push other countries to follow them, and so the impact would be even larger.”

The Financial Secrecy Index ranks every jurisdiction according to its actual contribution to harmful financial secrecy globally. It’s not a typical blacklist because it doesn’t distinguish between “tax havens” and “cleaner” countries, but assesses and ranks every jurisdiction.

Liz Nelson, Tax Justice Network Director responsible for the Tax Justice and Human Rights programme said:

“Secrecy jurisdictions are a safe haven for the world’s dirty money. Kleptocrats, tax evaders and multinationals engaging in tax trickery all abuse secrecy jurisdictions.

“The damage being done to public services around the world is incalculable, and the violations in human rights are severe, whether this be through a lack of access to clean drinking water in sub-Saharan Africa, or the pressures facing public health services in the UK and US.

“If we are to live in a better world, more equitable where our social and human rights are protected, we need to end financial secrecy.”