Millions in profit, zero employees: Malta is hotspot for ghost banking operations

Malta’s reputation as an international financial centre is allowing top banks carry out ‘ghost operations’ by booking their profits here for minimal taxes, without employing anyone, a report by Transparency International has found.

Ghost banks employing zero staff in Malta generated €590 million in profits between 2015 and 2019 – much the same as that generated by a sample of banks operating in Slovenia. However, those profits were backed by 9,831 employees working in those banks.

While running operations in countries like Malta for tax reasons can be explained by a variety of legitimate reasons, banks registering an empty subsidiary with profits amounting to tens or even hundreds of millions of euros are engaging in profit shifting so as to pay less tax than back home.

Read our MaltaToday Investigation • Every year Malta wipes out €2 billion in foreign tax by giving shareholders 85% rebates on their tax

The jurisdiction where banks’ activity is most frequently run by ‘ghosts’ is the Cayman Islands. On 20 occasions, eight different banks reported being active on the islands without employing a single person to generate this activity.

Malta takes the top spot in Europe, recording 14 cases of banks operating in the jurisdiction with zero staff. 

The report identified five banks operating in Maltese jurisdiction thanks to ‘ghost’ employees: BBVA, Banco Santander, Deutsche Bank, DZ Bank and UniCredit, which managed to churn out €590 million in profits through effective tax rates that reached as low as 9% on average.

While Malta has one of the highest nominal tax rate in Europe at 35% of declared profits, its imputation credit system for foreign companies who book their profits in tax-resident companies in Malta allows such banks to be refunded some 68.9 cents on the euro after paying full tax, with a profit ratio of almost 70%.

This places Malta as the second most profitable European country behind Cyprus.

One of the major beneficiaries of Malta’s convenient tax environment has been the Spanish bank BBVA. With fewer than 15 employees working in its Maltese branch, the bank reported over €100 million in profits every reporting year except for 2016. Of its total profits of €440 million over the 2016-2019 period, BBVA paid only €26 million in income tax – an effective tax rate of less than 6 per cent. 

Comparable profit volumes and even better tax deals were booked in Malta by Deutsche Bank. The German bank made a €418 million profit between 2015 and 2019, on which it paid a total effective tax rate of 4.5 per cent. That is almost eight times less than the nominal corporate income tax rate in the country.

“It only takes one tax planning department for a multinational firm to reshuffle its profits so the money earned in Italy or Germany appears under the accounts of Malta or Saudi Arabia. Subsidising large corporations without any regard for their tax behaviour and structure might easily end up as an investment that will never contribute to the country whose taxpayer pays their bills,” TI said.

Using data on 39 of Europe’s largest banks, Transparency International found that at least 32 of those banks had substantial operations in member states, with Malta, Ireland and Luxembourg among the more lucrative spots. Major discrepancies were also revealed between profits generated in their headquarter countries vis-à-vis those earned in foreign operations – Spanish banks earn profits that are 18 times higher than those generated in their home country.

Tax avoidance has long been a major issue in the national budgets of Member States. According to a 2015 European Parliament study, aggressive corporate tax planning in the EU led to estimated government revenue losses ranging between €50 to €190 billion. Malta has repeatedly been called out by fellow EU counterparts for being a tax haven and facilitating aggressive tax planning, but with a proud stance taken by government on taxes remaining untouched it is likely that Malta’s tax haven status will remain as is.

In Italy, banks have profited only an average of 10 cents from each euro earned in the jurisdiction over the years. In Spain, it has been less than 6 cents. In contrast, all banks operating in Luxembourg have profited an average of 60.5 cents on each euro, and banks in Malta have profited 68.9 cents.

“Corporate tax avoidance is not the secretive offshoring of briefcases filled with cash to island havens. Today, it occurs as a sophisticated system interwoven with regulatory loopholes, diverted income flows, accounting tricks and often the blessing of official tax authorities,” TI said in its report.”