[WATCH] MEPs told of Panama fallout and Malta's role in global tax avoidance game

‘The MEPs were mainly interested in Malta’s financial services system and tax regime, the role of gaming companies, and the oversight of the police on money laundering’

MaltaToday executive Matthew Vella was invited to address the EP's Panama committee. Photo: James Bianchi/MediaToday
MaltaToday executive Matthew Vella was invited to address the EP's Panama committee. Photo: James Bianchi/MediaToday

MaltaToday executive editor Matthew Vella was invited to appear before a committee of MEPs, set up in the fallout of the Panama Papers revelations to discuss tax avoidance and money laundering across the EU.

Vella was invited alongside Times of Malta journalist Ivan Camilleri, ONE news editor Aleander Balzan and Malta Independent columnist Daphne Caruana Galizia.

“The MEPs were mainly interested in Malta’s financial services system and tax regime, the role of gaming companies, and the oversight of the police on money laundering. They had read articles MaltaToday had carried related to tax justice, and were keen to know why both main parties are so disinterested in reforming the taxation system,” Vella said, after the meeting.

He added that no MEP said said outright that Malta is a tax haven, but they did have an impression of Malta as a country that is good for business where tax is concerned: “Many companies make money in a foreign country, transfer the money to a Maltese bank account, pay taxes in Malta, and then request a discount on those taxes.”

Vella explained that many MEPs, including German ones, are interested in this system because they think that German companies come to Malta to avoid paying tax in Germany. The MEPs, he added, wanted to know the viewpoint of Maltese politicians.

“I told them that there are some Maltese politicians who have financial interests in companies, that a degree of intimacy exists between the financial services class and the political class – which is why there is no political will or enthusiasm towards tax reform and tax justice. Panama Papers exposed a global kleptocracy and, although Malta is not Panama, it does play a small part in the whole system.”

Full transcript: Matthew Vella’s presentation to the PANA committee

I am the executive editor of the newspaper MaltaToday, a privately-owned, independent newspaper.

When the Panama Papers broke, MaltaToday was not part of the newspapers selected as ICIJ partners for access to the documents, despite several attempts on our behalf to get in touch with the ICIJ and individual ICIJ journalists and partners to also have access to the documentation. On the whole, we followed suit on the work by our colleagues, namely The Times and The Malta Independent, and of course the main revelations from The Australian Financial Review.

Reporting Panama Papers

At the outset, before Panamagate broke a month earlier than the ICIJ leak, I had been informed by an aide to Konrad Mizzi – then energy minister – that he intended making a declaration on an offshore trust he had set up, just days before his election as deputy leader of the Labour Party. At the time, the newspaper was not informed of any of the allegations that Mizzi was about to face, but as a newspaper which views the setting-up of such ‘undeclared’ offshore trusts as suspicious we ran a front-page that the minister was making this declaration. From then on, the report spurred on full revelations from Daphne Caruana Galizia on the existence of trusts and Panamanian offshore companies owned by people, which included Mizzi – who did not at that point declare his offshore company – and Keith Schembri.

As a newspaper shorn of the ICIJ collaboration, we followed up on Panama Papers as best as we could, taking the cue from other newspaper revelations. Since we had no privileged access on the Mizzi and Schembri documents, we also reported on the publicly available information released by the ICIJ, on the various Maltese individuals who had set up Panama companies; on the financial intermediaries who had assisted them.


Editorially, we maintained a constant focus on Panama Papers:

Throughout this political season, my newspaper editorially insisted that unless Mizzi and Schembri go, doubts regarding their actions would linger for the rest of the term, and that Joseph Muscat would be tainted by Panamagate at every turn.

We wrote: “Panamagate has become an electoral albatross around Muscat and Labour’s neck; and the more the government drags its feet the more damage will be inflicted on Labour’s chances of winning the next election. No man is bigger than the party or government. Nobody is indispensable and if Mizzi and Schembri really are irreplaceable then Muscat has a dearth of talent within his ranks.”

On 29 February we said that Mizzi’s declaration was an admission of “a basic breach of trust…  [of a] possibility of tax avoidance, or – worse – undeclared incomes being channelled to these overseas accounts. Otherwise, why a trust in New Zealand and not here in Malta? Why also own a shell company in Panama?”

Ironically, Mizzi was at this point extolling New Zealand’s financial transparency while ignoring the secrecy of the Panamanian structure that he had sought out. He also claimed he had informed Prime Minister Joseph Muscat of his tax structure at the beginning of February 2016, when – one surmises – it was clear that his tax affairs were about to be discovered. It then became clear he had not declared his offshore trust to the Maltese tax authorities.

On 3 March, we said that “the unsightly revelations concerning Energy Minister Konrad Mizzi’s (and also the prime minister’s chief of staff, Keith Schembri’s) overseas assets [had] highlighted the urgent need for a proper reform of financial regulations, especially concerning ministers, members of parliament, and other politically exposed persons.”

As the revelations of the Panama Papers rolled on, on 7 March we insisted yet again how Mizzi’s was “a position that is hypothetically easy to abuse, and an offshore structure such as this only raises suspicions” and that “as a Cabinet minister, he should be above suspicion at all times.”

“Even Schembri’s offshore interests pose a problem for the PM, because he is Muscat’s right-hand man. Even if he is an unelected official, and not directly answerable to parliament, his closeness to the Prime Minister raises questions about how much of this financial arrangement was known to Muscat from beforehand.”

Despite the pressure mounting across the nation, with the Opposition leading two national protests and two no confidence votes, Muscat was clearly in no mood to ask for their resignation.

Muscat’s position to retain Mizzi as minister, as well as Schembri as his closest ally, was flawed: the greater mistake lied in the prime minister’s approach to the Panamagate issue. Once again Muscat confirmed that he simply failed to appreciate the extent of the public outrage at these revelations. And this is a very worrying prospect, given that Muscat was elected in 2013 on the strength of his commitments to transparency and accountability.

Instead of making clear that he would not tolerate any behaviour that runs counter to these two principles – such as ethical breaches or tax avoidance – Muscat provided us a with a half-baked measure that did not even address the core issue at stake in the Panamagate scandal.

So the Cabinet reshuffle emerged as a political manoeuvre calculated with the next election in mind, rather than a moral response to what was ultimately a moral dilemma.

Serious shortcomings

The press was starved of concrete details on the tax structures as the government attempt to minimise damage:

  1. There was no clear information on any of the tax investigations dealing with Swissleaks, Luxleaks, or even the Panama Papers – the more serious scandal;
  2. There was no clear information as to why the Police was not investigating Panama Papers from the point of view of PEPs who had used offshore tax structures;
  3. There was no communication from the finance minister – except until recently when Malta assumed the EU presidency – of the progress of these investigations;
  4. An external audit launched in March/April into Konrad Mizzi’s tax affairs has yet to see the light of day.

The role of intermediaries

While it can safely be said that the Panama Papers debate in Malta was in the main concerned with Mizzi and Schemrbi, little has been said about the role of Maltese intermediaries in international tax avoidance structures – some of whom you will meet today, and will defend Malta’s taxation regime.

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.

On this my newspaper has written extensively about how Malta serves as a financial services centre that minimises tax exposure of multinationals setting up a tax base in Malta: Malta retains some €200 million in tax receipts after foreign dividends are first taxed at a full 35% rate and then rebated by some 85% of that tax, which suggests every year almost €4 billion in taxes are returned to these foreign shareholders.

Although the vast majority of the intermediaries named in Panama Papers leaks have a base in the EU, with the United Kingdom in the forefront, Malta is also crucial here since it provides intermediaries who – depending on which side you are – assist in tax evasion and tax avoidance.

It is for that reason that we need better laws and effective supervision of law firms, notaries, tax advisers and accounting firms to ensure fair competition and to end the business of tax dodging. Transparency is key here since creating an offshore company is ultimately used to hide ultimate beneficial owners.

Malta is also a part of a global system that Panama Papers exposed, 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. One would for example ask, why Angola’s richest woman – Isabel dos Santos – uses a small Malta office in St Julian’s as the centre of so many of her foreign companies.

Although it has never been blacklisted as a tax haven (once in the 1990s by the OECD), Malta itself has gained an undesirable reputation as a haven for illicit money or lower tax rates within Europe. One can cite a recent report by the European Greens on BASF.

In order to maintain a competitive edge, Malta offers wealthy individuals and corporations advantageous tax rates, using tax breaks to attract investment. This system is not immune from the spillage of criminal activities that can crop up in the world of online gaming, for example.

On a global level, this race to the bottom often irks larger economies and the EU’s economic powerhouses are less than pleased with Malta’s tax regime. We know Malta is under increased pressure as Germany, France and Italy are pressing the EU to tighten restrictions on tax havens, after calling for measures to impede “aggressive tax planning” and “profit shifting”.

For too long now politicians on either side have spoken of Malta’s tax regime only in terms of the profits generated by investment, and the associated spin-offs… of which the number is not small.

Ultimately, we must ask ourselves where we would like to position ourselves on the tax evasion map. The Panama Papers show Maltese companies and law firms have assisted individuals to set companies in secretive locations. Malta itself is not a secretive location per se, and we must make a clear difference between letterbox companies trying to minimise tax exposure on profits generated elsewhere, and those companies that are creating jobs in Malta.

This on its own raises ethical issues and those involved cannot hide behind the excuse that they are simply doing their job. People make choices in life. Advising people to open shell companies in secretive locations is not an ethical choice.

It is admittedly a complex issue. There is an old argument that ‘others would step in if we pulled out’. It is undeniable that making one country less attractive to global capital will simply push the flow of black money to other territories. The problem is international, and requires a worldwide solution.