Panama Papers: More than just offshore

In a week that saw Italian channel RAI 3’s Report once again putting the focus on Malta’s role in the Panama Papers scandal as the country gets ready to take on the EU presidency, critical voices from inside the European Parliament – like German left-wing MEP Fabio de Masi – have been given some deserved attention in the press. These are voices which are uninterested in the partisan bluster that is connected to Panamagate: in their minds, Malta is not just host to a minister who was caught opening an offshore company in Panama, but also the land of the Individual Investor Programme and where tax rebates allow foreign companies to pay almost just 5% tax.

These three points were made clear in Milena Gabanelli’s introduction to Report’s feature on Malta last Monday. And not without good reason: the Panama Papers committee in the European Parliament itself is not limited to discussing simply the Panama Papers, but its ramifications within a wider realm of tax laws inside the European Union. As the committee’s adopted text announcing its set-up states, the committee of inquiry seeks to delve into maladministration of EU law on money laundering, tax avoidance and tax evasion, tax justice and fair tax competition.

This sentiment echoes the words of another Green MEP and member of the PANA committee, Sven Giegold, who has been critical of Malta’s financial supervisory structures and the use of letterbox companies who seek out Malta for its tax benefits, and even by De Masi himself, who has told MaltaToday how the 6/7 refund on tax paid on foreign dividends “plays a significant role in aggressive tax planning”. De Masi is also vice-chair of the PANA committee.

One would have to rightly ask why MPs in Malta, the only European Union country with a minister who was found to have sought a Panamanian offshore company, would shy away from discussing the same subjects being brought up at the PANA committee in its own special parliamentary committee, modelled on the same raison d’être as Brussels’s.

The PANA committee’s remit is not to simply talk about Mossack Fonseca, the Panamanian law firm that is now the enduring image of egregious financial misconduct. As a sort of ‘LuxLeaks mark II’ committee, PANA MEPs have undertaken a wide remit, one that is certainly problematic for EU member states. Why would the lawyers serving the Council of Ministers – the EU’s highest decision-making body of prime ministers – say that MEPs have no power to summon ministers? There is a clear split between States and MEPs because taxation is one of the most jealously guarded competences for EU states.

But it is this very act of tax sovereignty that is also at stake in the talks that the Panama Papers committee will be engaging in. MEPs like Sven Giegold have been especially critical of Malta’s vibrant financial services industry, having stated he was interested in finding out more about the industry of fiduciary companies in Malta and the services they render to so-called letterbox companies or other companies that use Malta for their tax residence.

Financial industry observers will be keen to point out the bias that Germans have towards Malta: newspapers like Der Spiegel rue the fact that companies seek out Malta’s tax rebate system, allowing them to effectively pay just 5% tax here instead of paying a full rate back home on the profits they generated. MaltaToday’s front-page report on this tax system, a taboo subject because it guarantees over €200 million in solid tax revenues (what is left over from €4 billion tax that would otherwise be charged), was universally derided by financial services workers, politicians, and even unions.

Such ‘heretical’ talk is disliked. Tax sovereignty is a country’s family jewels. Malta’s groin guard has long been kept in place, through an accepted discourse that the hallowed 6/7ths rebate on tax paid on profits paid out to foreign shareholders, is a guarantee of jobs and corporate services revenue.

So to make a ‘Panama Papers committee’ in Malta as effective as possible, would not just mean hauling Konrad Mizzi or Keith Schembri over the coals. To reflect the European spirit at work inside Brussels’s PANA committee, would mean having MPs agree to speak of offshore, trusts, wealth management, tax optimisation and planning in Malta, and all aspects of this legalised world of tax avoidance that Maltese corporate services providers are part of.

Morality is instantly problematic in a planet that engages in tax competitiveness at various levels. Every country is interested in outsmarting the next country, some employing more piratic financial services practices than others, some using onshore and transparency to their benefit to ensure their industry has a clean bill of health.

So the question is: would Maltese politicians be able to speak about the real effects of Panama Papers and go beyond the tip of the iceberg that Mossack Fonseca is? They would be happy to have Mizzi and Schembri answer before a committee, but would they also be ready to talk about the system that MPs themselves form part of as lawyers, auditors, and from which their friends and political backers benefit? Probably, not.