The big sleep

When the International Consortium for International Journalists issues hundreds of thousands of more names and companies, including Maltese owners with registered offshore interests in Panama or the British Virgin Islands, using the good offices of Mossack Fonseca or Morgan & Morgan, what will the reaction of our political parties be?

What will the Prime Minister or the Opposition leader, their MPs and party apparatchiks and media pundits say about the scale of tax avoidance that exists under the guise of ‘legally acceptable’ offshore outfits? What will they make of the law practices and audit and advisory firms that have set up offshore firms for their clients?

No prizes for guessing that, unless a politician will be directly involved in the international taxation game of hide and seek, there will be nary a whimper on the global tax ruse that is offshore – a system of tax evasion that benefits from euphemistic semantics such as ‘avoidance’ or ‘tax planning’ or ‘minimising tax exposure’.

In reality, it is simple tax evasion rendered legal only through the sheer power of sovereign might. Malta spent years making its transition from offshore to onshore, ensuring double taxation agreements and tax information exchange agreements according it the status of a respectable tax regime. But how else would one describe the use of Malta as a base for foreign shareholders to get 85% lopped off their tax on dividends, if not a tax evasion of sorts?

That system of ‘legal tax planning’ is responsible for hundreds of millions in international tax left in the country’s coffers, and it is a system jealously guarded by our financial services industry because it guarantees millions in billings for the audit firms, and hundreds if not thousands in direct jobs for tax auditing.

This is the reason why political leaders like Joseph Muscat and Simon Busuttil have spoken about ‘pulling the same rope’ on tax and financial services (the former) and ‘international damage to Malta’s name’ (the latter): the Panama Papers, whose high-profile ‘victims’ in Malta were Konrad Mizzi and Keith Schembri, will further whet the European Commission’s appetite for a harsher onslaught on profit-shifting to low tax regimes.

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, Malta also played a part in the LuxLeaks controversy, with companies being set up in Malta as part of an inter-company loan system employed to reduce the profits on which tax would be eventually charged. Malta is also a part of a global system that Panama Papers exposed – this international collaboration of journalism that showed us how offshore works – because it accepts the money of kleptocratic kingdoms from Angola to Azerbaijan, to minimise their tax exposure and serve as nodes in endless chains of company control. Panama Papers is not just about Konrad Mizzi. It is about our global system of tax avoidance, where trillions of dollars disappear each year from national tax systems.

So when the ICIJ this week releases names that will ring familiar to us, will the political parties commit themselves to the global fight against offshore? Or will they concede that lawyers and auditors and the other remoras who play this global game of enrichment, are not doing anything illegal so long as their actions are blessed under the guise of what is permissible in Panama and the British Virgin Islands, or Jersey and the Isle of Man?

Will the Labour and Nationalist Parties insist that, once a minister and top government official endeavoured to hide their beneficial ownership in offshore companies, then so should any other party official and member representing offshore interests in whatever shape or form, be forced to sever such business associations?

Simon Busuttil has already said he would expect the full force of the law to be visited upon anyone who commits something illegal. But hiding one’s ownership in a Panama or BVI company is not necessarily illegal. It’s just wrong. It will be up to the Commissioner for Inland Revenue and the finance minister to really assure the public that a real investigation on tax avoidance will take place once the ICIJ names are published.