Taxman says Labour under-valued sale of Australia Hall by €1.4 million

Labour refuses to pay capital gains tax on €2 million land it sold for €580,000 • Originally, land was valued at €5.5 million but Labour protested valuation

Australia Hall
Australia Hall

The Labour Party undervalued the disputed land and property occupied by the historic Australia Hall in Pembroke by millions, and has been called upon by the Inland Revenue Department to pay up thousands in capital gains tax.

The PL is now opposing the tax charge by the Commissioner for Tax, who first said the Australia Hall land was worth nothing less than €5.5 million – merely months after the party sold the land – and then revised the value downwards to €2,025,000.

But Labour sold the land to A.H. Development, a company owned by shareholders in the Fino furniture company, for just €582,000 in 2014, claiming it had also settled an unspecified amount of debt with the buyers.

The party is now opposing the tax assessment in court, after it was told to pay an additional €14,426 in capital gains tax over and above the €23,296 first incurred on the original selling price.

The party is also claiming it is exempt from paying capital gains tax, since political parties do not pay income tax – a claim that is being opposed by the Commissioner for Tax, who has told a court that nobody is exempt from capital gains tax.

The saga behind Australia Hall reached a head in 2014 when the new Labour government stopped a court action instituted by the Lands Department under the former Nationalist government, to take back the Pembroke land accorded to the party back in the 1970s as compensation for the government expropriation of land it owned in Marsa.

The Nationalist Party protested the action, accusing the Labour government of using its overweening power for its party’s financial gain.

In July 2014, the party transferred the land – over 6,100 square metres of developable land in Pembroke – to A.H. Development for just €582,343, and in a statement said the final price took into consideration unspecified outstanding debts with the buyers.

But in December 2014, the Commissioner for Tax instructed architect Hector Zammit to carry out a valuation of the property sold. Zammit said the property was inside the building scheme, had three structures that included the 800 sq.m. Australia Hall. Although the former theatre was in a poor state that required rehabilitation, “the adjoining land can be developed for commercial use.”

Zammit tagged his valuation at €5.5 million, for which the Commissioner of Tax proceeded to issue a further charge of €49,176 to the Labour Party.

“The Commissioner had no option other than to proceed with an assessment on the basis of the difference between the value of the property in question as determined by him on technical advice, and the declared price,” the Commissioner said in a court writ.

In February 2015, Labour’s lawyer Pawlu Lia wrote to the Commissioner of Tax, protesting the valuation that came without a motivated report, and insisting that political parties were exempt from paying income tax.

“The value declared on contract is the real value of the property, taking into consideration the factors impinging upon it,” Lia protested in his letter of objection, claiming that the property was in disrepair, had a perpetual ground-rent of €20,964 annually, and was the subject of political controversy.

The Commissioner further received an objection from the buyer, A.H. Development, and proceeded to appoint another architect – Paul Micallef – to carry out a new valuation in June 2015.

This time, the value of the property was severely marked down to €2,025,000, incurring an additional tax charge of €14,426.

In his valuation, Micallef offered a more lenient appraisal of the land, pointing out that Australia Hall was scheduled and had to be restored under strict supervision of heritage authorities. “The market price of land in the same area is in the region of €1,000 to €1,200 per square metre. However, since the land cannot be fully developed and the existing premises was scheduled, in my opinion the value of the land is €400 per square metre taken as freehold.”

Micallef placed the market value at just over €2.4 million, but also deducted the capitalised ground rent (20 times €20,964), to get a value of €2,025,000.

Despite the generous revaluation downwards, Labour still objected and in October 2015 challenged the assessment.

The Commissioner for Tax took issue with Labour’s assertions, saying that capital gains tax is payable on the value of the property at the time of its sale, not at the price declared.

He also said that Labour’s claims that the property was subject to contentious legal cases had no value at all, since it was Labour in government that ceded the actions on the property.

“The Commissioner of Tax is empowered to establish the real value of property at the time of its sale, through the use of architects appointed by the Commissioner… additionally, the tax laws apply independent of any exemption on income tax.”

However, while the letter defending the Commissioner’s decision was in the main put forward by the director of property tax, the Labour Party exhibited in court records of email communication with the Commissioner for Tax, Marvin Gaerty, reassuring Labour CEO Gino Cauchi that political parties are exempt from both income tax as well as capital gains tax.

This glaring contradiction seems to put into confusion the insistence of the Inland Revenue Department that Labour must pay up the additional tax on the undervalued Pembroke land.

Australia Hall was valued at €5.5 million by the Inland Revenue Department while Labour sold it for €585,000, then the valuation was generoulsy revised downwards to €2 million

How Labour got and sold the Pembroke land

The Labour Party was granted the land in Pembroke in the late 1970s as compensation for Marsa land expropriated by the same Labour government of the day to build the Malta Shipbuilding.

The Marsa land was acquired from the private sector in 1963, where it was earmarked for its headquarters, a printing press, and a theatre. The land, located on the inner harbour, was identified by the government as the ideal location for its shipbuilding enterprise, so it proceeded to expropriate the land from Labour. In exchange, the party was granted the 6,000 sq.m of land in Pembroke which included Australia Hall, which served as a theatre for British servicemen living in the barracks nearby, as well as the Admiralty House that later became ‘Raffles’ discotheque, and the British army force’s cook house.

In 1997, the party entered into a promise-of-sale agreement with the company Tamarac, a company owned by the Fino business group. Then Labour prime minister Alfred Sant cancelled Lm250,000 (€600,000) in arrears owed by his own party on government lands since 1979, through a parliamentary motion.

The Nationalist government, which took power in 1998, however filed a constitutional case so that it could request a parliamentary resolution to rescind the 1979 expropriation deal, claiming the property compensation had not been a fair one.

The promise-of-sale was renewed periodically, until the Nationalist government ceded the constitutional case. At that point, Tamarac moved to seal the deal, but the Labour Party wanted to renegotiate the price of the land. This prompted Tamarac to start its own legal action against the Labour Party, and in 2010, the PN government opened a new case, this time to take the land back through the Lands Department. To counter this last action, Labour requested that the government return the land at the Malta Shipbuilding if it was to lose the land at Pembroke.

Albert Mamo, the former commissioner of lands between 2000 and 2012, later said in a Public Accounts Committee hearing on the sale of Australia Hall, that he was acting upon the policy set by former lands minister Jason Azzopardi. The department had decided that by leaving the properties, including the historical building Australia Hall, to deteriorate, Labour had breached the contractual conditions in the lease.

In 2013, when Labour was elected, the government decided to privatise the shuttered Malta Shipbuilding zone, and proceeded to drop the case instituted by the Lands Department to recoup the Pembroke land, and to proceed with the sale to the Fino group.

The sale was dubbed “morally corrupt” by the Nationalist opposition, which insisted the land was public property that had to be returned to the State. The PN had then claimed the land was valued at €10 million.

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