‘Be aware of those flying morality flag’ – Edward Scicluna rebukes Malta tax critics

Finance Minister Edward Scicluna mustered a strong defence of Malta’s tax imputation system – an 85% rebate on tax for foreign dividend holders – after the system came under fire by tax justice campaigners and an MEP from the Panama Papers committee.

The critical comments were made on the back of data showing that Malta wipes out an annual €4 billion in tax charged on profits generated outside of Malta, so that the taxman can keep just over €200 million: a considerable chunk of Malta’s €1 billion in annual tax receipts.

In an address to the Malta Council for Economic and Social Development (MCESD) on Monday, the finance minister said the taxation system had been examined by the Commission and the Directorate-General for Competition, prior to Malta’s accession to the European Union.

READ Every year Malta wipes out €4 billion in foreign tax by giving shareholders 85% rebates on their tax

“It took months, if not years, of investigation by the EU which declared that our tax regime is acceptable and is not in breach of EU rules,” Scicluna said, adding that Malta was closely following developments and adopting new standards.

“We do not accept tax evasion: in our case, Malta offers advantageous tax rates allowing it to compete with other countries. Even the United Kingdom is planning to reduce its 25% rate to 17% by 2020.”

The minister was reacting to a report published by MaltaToday on Sunday. Although he had been shown the critical comments from organisations like Oxfam, Eurodad, and MEP Fabio de Masi, the finance ministry did not deny the figures and only released a short comment; a leading member of Malta’s Institute of Financial Services Practitioners did not comment.

Scicluna reiterated that every country had the right to choose which tax rate to adopt. “Sensationalist articles quoting the usual critics do not reflect the sentiment of bigger countries about Malta,” he said.

“These comments, made by people who don’t understand our taxation system, only endanger our sectors. Taxation matters affect all of our economic sectors, be it manufacturing, tourism or iGaming. Be aware of those who try to fly the morality flag,” Scicluna said.

But the tax justice campaigners say Malta’s tax refund scheme helps foreign companies and shareholders to avoid paying their fair share of tax where they do business.

“These types of aggressive tax planning schemes deprive other countries of valuable tax revenues which they need to pay for vital public services such as healthcare and education,” said Oxfam’s tax expert Susanna Ruiz.

“Recent Oxfam analysis [PDF] revealed that when it comes to helping corporate tax dodgers, Malta has some of the most harmful tax practices in Europe,” Ruiz said. “Malta and many countries across the globe are engaged in a damaging competition on corporate tax. In a misguided attempt to attract corporate investment they will decimate their countries’ corporate tax base – for the benefit of no one but a handful of shareholders. It must stop now.”

On his part,Scicluna warned that “competitors” have an interest in harming Malta.

“Everyone knows our system, including the Organisation for Economic Co-operation and Development, which doesn’t want to attack the taxation system. We’ve abided by the anti tax avoidance directive, where we had to give up a lot to reach a compromise.”

The finance minister said that tax evasion was and remains unacceptable, and that the European Commission was clamping down on state aid and individual negotiations with individual companies leading to ‘discrimination’ – referring to the EC ruling instructing Ireland to claw back €13 billion of corporate tax savings it granted to Apple, which it termed was illegal state aid.

“Malta, together with other countries, was asked to submit information on every tax ruling for the last 10 years. We were not affected because we don’t practice this tax method,” Scicluna added.