On tax morality, nobody can hold their head up high

If we saw the ‘Panama Papers’ for what they really are, would we also be ready to admit Malta’s role in taking other countries’ tax money?

Even if they don’t resign – as they most certainly should have – Konrad Mizzi and Keith Schembri will never be able to hold their head up high: how can a minister justify using offshore and hide his beneficial ownership?
Even if they don’t resign – as they most certainly should have – Konrad Mizzi and Keith Schembri will never be able to hold their head up high: how can a minister justify using offshore and hide his beneficial ownership?

It has always been clear to everyone in possession of common decency, that the act of avoiding to pay tax is plain simple theft. Of course, in almost every part of the world tax evasion and avoidance are practised on every single level where the right conditions allow it to happen: undeclared labour can just go unnoticed; peripatetic hairdressers probably live tax-free; big businesses will try and cook the books.

Laws will be broken and loopholes exploited. Such ‘venial’ crimes have cost the Maltese piggy bank, at least back in 2008, €731 million in uncollected tax; that historic figure has since then fallen to just over €600 million, €400m of which is deemed ‘uncollectable’. [NAO annual report PDF].

But there is another dimension of larceny, of profit-shifters who scour the world for those tax jurisdictions which are going to make it easier for their profits to look smaller, and then, to tax those profits as little as possible.

It’s this kind of tax avoidance that has been artfully packaged under the convenient reasons of ‘competitiveness’ and ‘efficiency’, ‘job creation’ and ‘economic growth’, which our own MPs will continue to defend even as the Panama Papers lay bare the inequality that offshore centres and similar EU-blessed regimes keep propagating, by offering low taxes for multinational profits, intellectual property rights, and non-domiciled shareholders’ dividends.

No umbrage for Joseph Muscat on the highly impolitical and immoral decision by his minister and chief of staff to open a secret company in Panama. After Offshore/Swiss/Lux leaks, the prime minister is concerned that Panama Papers is about to make it easier for the European Commission to come down hard on our low-tax incentives.

Yes, this is Malta. Charging 0% tax to non-dom chief executives who are paid salaries higher than €5 million; 15% on just over €82,000 for these executive positions [https://ird.gov.mt/taxguides/qualifiedpersons.aspx] that serve as sweeteners for large multinationals that need Malta’s financial services industry to open gaming and aviation companies.

But the main reason has always been that the 35% per cent income tax levied on their dividends (profits paid out to shareholders) is slashed thanks to the so-called imputation system of taxation, a refund of up to 85% on taxed dividends. It usually results in an effective rate of Malta tax of 5%, a very nifty, efficient, and competitive reason to ‘set up shop’ in Malta.

The question we have to ask ourselves is whether we are OK with taking millions upon millions of untaxed income from countries that are poorer than ours, to take the ‘crumbs’ for ourselves and leave the rest with nothing

It’s why energy giant Npower dodged up to £108 million in UK corporation tax by posting a loss in the UK, and shifting its profits to a company, Scaris, in Malta; why in 2010, Australia’s Commonwealth Bank used a six-person back-office firm in Malta, CommBank Europe, to save €38.9 million in taxes; and why it is one of many tax jurisdictions employed by chicken restaurant chain Nando’s to safeguard its multi-million profits.

As many lawmakers and corporate types will tell you, “thousands of jobs depend on this tax system” – the Big Four firms in Malta alone make millions in billings on tax services. Mid-tier firms alone can make €2m to €5m in billings, the top firms €5 to 10 million annually.

Malta is certainly not Luxembourg, whose tax administration blessed tailor-made tax rulings facilitated by the Big Four firms for multinational giants, by using transfer pricing and intra-group loans to erode their tax base.

But then again, our onshore regime and its vaunted OECD standards is a game that’s open to everyone, not just the well-meaning multinationals seeking to ‘maximise tax efficiency’: why would Isabel dos Santos, Africa’s richest woman, the daughter of Angolan dictator Jose dos Santos, use Malta for her companies, whose shareholders include state-controlled companies Endiama (diamonds) and ENDE (energy)? What does corruption-stained Odebrecht have Maltese subsidiaries for? Why would Azerbaijani state oil company SOCAR set up a one-man office in Malta? Why would Ilham Aliyev’s daughters use companies in Panama and Malta for their ownership in mobile telephony companies?

The question we have to ask ourselves is whether we are OK with taking millions upon millions of untaxed income from countries that are poorer than ours, to take the ‘crumbs’ for ourselves and leave the rest with nothing.

The answer might be clear enough to those who can do the math, from the large companies who spent decades carving out Malta’s system of tax incentives for asset-rich foreigners, down to the smaller accountants and lawyers who serve industries that provide fronts for organised criminality and their poker-playing representatives.

For both the elite members of the accountancy and banking world, and the remoras who don’t care where the money is coming from, tax avoidance of this sort is just par for the course in ‘the global jungle’: play the game or lose out on the untaxed billions being taken out of other countries. Allowing foreign shareholders to pay just 5% tax is just another way of making hay while the sun shines.

The system’s defenders will resist attempts from Brussels to hamstring Malta with BEPS rules. They told me as much when three senior members from top and mid-tier firms told me to “slow down” on a Freedom of Information request on the imputation tax system.

Joseph Muscat said as much on Monday; so said shadow finance minister Mario de Marco in the House when he said the EC’s effrontery on tax planning was “unacceptable”. Even Opposition leader Simon Busuttil will not bare his teeth against a system that is now possibly ‘too big to fail’.

Because Panama Papers is not simply just about the crafty minister and the PM’s chief of staff. It is also about the global system of tax avoidance, a system that enjoys full legality while it takes cover in the perpetual shadow of the capitalist economy.

Even if they don’t resign – as they most certainly should have – Konrad Mizzi and Keith Schembri will never be able to hold their head up high: how can a minister of the state even defend the use of an offshore company which hides his beneficial ownership, as a way of managing his family estate? How can Keith Schembri open his own prime minister to such a high degree of suspicion, where a Panamaniam offshore is used as a front for business services while a bank account in another part of the world is used to, perhaps, deposit money inside a zero-tax trust?

It’s all circumstantial evidence that suggests regular commercial business. But it’s the same circumstantial evidence as that used for criminality, tax evasion or money laundering.

So it’s certainly bad for them. And if it’s bad for them, it must be bad for those who use Malta for their nefarious tax purposes. And bad for the rest of our lawmakers and their supporters in the business world, who are intent at defending a system that makes the rich richer and exploits global inequality.

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