Former minister Austin Gatt settles ‘Swiss’ tax investigation

An investigation by the Tax Compliance Unit into a Swiss account held by the former transport minister Austin Gatt, ballooned into a €29,000 penalty over unpaid taxes resulting from having incorrectly claimed his full ministerial expense allowance.

A court challenge by Gatt against the tax assessment has since been resolved.

Gatt had been investigated in June 2013 by the Tax Compliance Unit over a Swiss account he failed to include in his ministerial declaration of assets. Additionally, the TCU said Gatt had to reduce his claims for non-taxable income after he included personal constituency expenses in his tax deduction for his ministerial allowance.

Originally the TCU investigation was prompted by newspaper reports after the account became public knowledge during the 2013 election campaign when Labour Party reporters asked Gatt whether he held a Swiss account. Gatt had admitted to inheriting the account after his parents passed away but said there had been no transactions for over 40 years.

Gatt later informed the TCU in writing that the reason he did not declare any income from the UBS account was that he never received any interest or other income.

He adopted the Inland Revenue Department’s interpretation on the tax treatment of the Swiss account, since the interest was also subject to Swiss tax at source at 35%: which means that even if they were declared, any Maltese tax would have been set off by double taxation relief.

In October 2013, Gatt filed adjustments to his tax returns to pay the tax due on a paltry UBS account interest of just over €1,000 a year.

Gatt was also told by the TCU that he had claimed a tax deduction on the entire ministerial expense budget despite not having exhausted the entire allowance. Gatt protested that he used his ministerial expense allowance for “unavoidable out-of-pocket expenses” such as gifts for weddings and baptisms, and hospitality costs, telling the TCU that it was unreasonable to expect that all expenses be supported by documentary evidence.

In turns out that in 2009 the expense allowance paid to ministers had been increased, and despite not claiming the full amount in expenses, Gatt still claimed a full deduction of the allowance in his tax returns, “on the understanding that once the allowance was a non-taxable receipt, and once it was never calculated to be exactly equal to the actual costs... the increase in the allowance was meant as a non-taxable increase.”

In 2014, Gatt agreed to make payments of tax of over €33,000 to cover the adjusted amount of tax due. But a year later, the Inland Revenue requested another €29,000, which included the extortionate amount of €8,800 in interest and €14,000 in penalties, over an unpaid portion of his tax bill amounting to €6,745.

Gatt protested the bill, saying he had already paid his tax due in 2014, and that he should not suffer the delays of the IRD, which resulted in the 9% interest on unpaid taxes.

Gatt later filed a court case contesting the IRD’s tax bill, which earlier this year was ceded by both parties after a resolution on the payment of the tax bill was reached.