Oil trader on €2.3 million tax audit claims rights breach

The oil trader at the heart of the 2013 Enemalta oil scandal – George Farrugia – is claiming that the refusal of his objection to the Tax Compliance Unit’s audit of his undeclared earnings, is a breach of his fundamental rights. 

Farrugia, who in 2013 was granted a presidential pardon to reveal his actions in paying bribes or ‘commissions’ to Enemalta’s top brass, including its then-chairman Tancred Tabone, had his company Aikon Limited audited by the TCU in October 2013. 

Aikon was used by Farrugia to siphon monies made by lubricants business Powerplan, which fell under his family’s holding company John’s Group. He fell out with his siblings, also partners in the family company, who suspected he had been funnelling undeclared commissions on oil sales to a secret Swiss bank account owned by Aikon. 

READ ALSO: 2013 in review | The story of the year

Farrugia’s contestation to the TCU concerns an audit carried out over Aikon’s business between 2004 and 2010, in which the tax auditors increased his chargeable income by €2.37 million: these comprised, among other things, €441,000 in undeclared commissions, €382,000 in payable commissions – reduced from €1.2 million – a drag racing donation of €36,000 that was disallowed, €46,000 in travel expenses that were disallowed, and a €1 million deduction which the TCU reduced to €106,000. 

Additionally, his tax assessment was only finally issued in 2023, nine years after the start of the TCU’s audit, which Farrugia is now insisting is time-barred by the maximum five-year period stipulated at law. 

Farrugia’s appeal is against the Tax Commissioner’s refusal to his objection on the TCU’s higher assessment of tax due from Aikon, arguing that he had been ordered to pay an additional €27,000 in tax, in breach of the company’s fundamental rights. 

In a letter sent to Aikon in March 2023, the Commissioner said that the company’s contestation could not be upheld, and accused the company of not having declared all the income it generated in 2011, failing to provide conclusive evidence of the generated income, as well as failing to substantiate any deductions it claimed with “appropriate evidence and explanations.” 

After taking into account profits and losses on its investment portfolio, interest, and bank charges amongst other factors, the company’s chargeable income for the period 2004 to 2010 was increased by €2,378,068. 

In an appeal filed in July 2023, Farrugia’s Aikon argued that the additional €27,000 tax imposed on it constituted a breach of the right to peaceful possession of property because “despite the delays on the part of the defendant Tax Commissioner to issue the relative estimate and conclude his investigation, the interests and additional tax on the omission began and continued to accumulate, and are still accumulating to this day in spite of this appeal.” 

His lawyers – Siegfried Borg Cole, Arthur Azzopardi, Keith Borg and Celine Cuschieri Debono – said Aikon had first been informed of the tax audit in May 2012, and had striven to provide the documentation and relevant explanations to the TCU so that the assessment could be completed within a reasonable time-frame. The assessment was later issued in October 2013, and Aikon filed objections in 2014. 

“Despite this, the defendant Tax Commissioner took nine years to issue the Liquidation of Tax due for the year of assessment 2011,” the company said, pointing to the assessment which was finally issued in March 2023. Because of this, Aikon Limited is contending that the letter was time-barred, as it had not been served on the company within the five-year period stipulated at law. 

This delay on the part of the Tax Commissioner had also led to an exorbitant amount of interest accumulating over the years, which the company described as “ironic and manifestly unjust.” 

Farrugia’s lawyers said the additional penalties imposed by the Commissioner were also unjust, and imposed in an arbitrary manner, as the law did not provide a mechanism by which to calculate them objectively. 

Additionally, he claimed the Tax Commissioner had calculated the company’s income on the basis of income received by third parties, made mistakes in the calculations and assessed its capital in a manner that was not in conformity with international audit standards. 

Farrugia is calling on the Administrative Review Tribunal to revoke the Commissioner’s decision to reject its objections and the subsequent liquidation of additional tax, as well as to declare the additional tax imposed on it to breach its fundamental rights, as safeguarded by the European Convention on Human Rights and the Constitution. 

The Tribunal was also asked to arrive at and award a sum in damages should it find a breach. 

Farrugia’s secret operation 

The John’s Group subsidiary Powerplan, run by George Farrugia, had exclusivity agreements with oil giants Total and Trafigura which legitimately entitled the company to a commission of $1 per metric tonne of oil sold to Enemalta. 

But Farrugia would also invoice some of the sales under his own personal company Aikon Ltd. 

In 2010, the Farrugia brothers discovered that their own brother was siphoning off business from Powerplan, and commissioned audit firm FST Consulting to examine the company’s computers. E-mails found on the personal computers of George Farrugia and his wife had been addressed to officials from Totsa, Total’s Geneva-based subsidiary, and Trafigura B.V. with attachments of invoices on the letterheads of both Aikon and Powerplan. 

The invoices discovered added up to some $1.56 million for the period 2004 and 2008. 

The investigative report estimated that Mr Farrugia had siphoned off some $8.6 million (€6.4 million) worth of commissions from Powerplan to his company. Nonetheless, the company declared sales of some €55,000, €49,000 and €24,000 respectively for 2006, 2007 and 2008. 

The oil trader set up his company Aikon’s bank account at the Edmond de Rothschild bank in Geneva some time in 2004; but his brothers sued him in 2010 for having funnelled cash from Powerplan into his Swiss bank account, at their detriment. 

After MaltaToday broke news of the Enemalta scandal and illegal commissions in January 2013, former Enemalta chairman Tancred Tabone and business partner Frank Sammut, businessmen Francis Portelli and Anthony Cassar, were charged in court. The case is still ongoing. 

But in 2014, police also filed charges against Farrugia’s five brothers, all principals of the Johns Group, accused of knowing of their brother’s kickbacks system. 

Decade of court delays 

Since then, many of the people accused by Farrugia as having accepted his ‘gifts’ have also been acquitted. In 2021, the ineffectiveness of the Maltese prosecution in the oil scandal after 2013 were placed in a harsh light by the Constitutional Court, in a fair hearing complaint by a former Enemalta functionary, Tarcisio Mifsud. 

The Constitutional Court, presided by Chief Justice Mark Chetcuti, said that in 27 sittings for the compilation of evidence against Mifsud, nothing had happened in 15. And after issuing charges in 2015, the Attorney General prevented a summary procedure by imposing a condition to have two other criminal suspects testify. This delayed any resolution by an additional 14 sittings “in which absolutely nothing happened,” Chetcuti said. 

“It is undeniably the unique shortcoming of the prosecution as well as of the Attorney General, which tied the hands of the magistrates’ court,” Chetcuti berated the AG in his decision on the case against the then-76-year-old Mifsud: “At his advanced age, he has every right to have these proceedings take place within a reasonable peirod of time, even as one of the co-accused Alfred Mallia passed away over the course of these delays. So what is the prosecution waiting for? That all the witnesses die, including Tarcisio Mifsud?”