Brussels perceives Malta as a tax haven – Alfred Sant

Almost three months since former energy minister Konrad Mizzi and the prime minister's chief of staff Keith Schembri were revealed to have offshore interests, the fallout of the Panama Papers revelations could go beyond political implications as it has strengthened the EU’s resolve to harmonize financial systems across the bloc, Labour MEP Alfred Sant has warned.

All of Malta’s six MEPs, including Sant, have strongly resisted the introduction of corporate tax harmonization across Europe, insisting that issues on taxation should remain a matter of national competence over which the EU should have no jurisdiction.

Ever since the LuxLeaks – a financial services scandal that revealed how several multinational corporations were enjoying massive tax reductions in Luxembourg – the EU’s rhetoric in favour of tax harmonization across Europe has increased. And now, the spotlight shed by the Panama Papers revelations on tax evasion by the wealthy has given the European Union greater impetus in fighting for tax harmonization.

If implemented, a corporate tax harmonization across Europe would lead to tax convergence and could influence the way Malta structures its financial services industry.  Tax harmonization would see Malta unable to control the taxation rates for companies based in the country.

Malta - which just like other small European countries uses low taxation levels to attract foreign investment – could lose its competitive edge as it would lose its flexibility in tax policies. Moreover, not being able to control the level of taxation could see the companies depart from Malta, endanger thousands of jobs and damage Malta’s economy in the process.

The implications on the competitive edge of Malta’s financial services industry were recently sounded by Central Bank governor Josef Bonnici, and on a similar vein, Labour MEP Alfred Sant explained that the Panama Papers strengthened the EU’s resolve in favour of tax harmonization.

“They [those advocating corporate tax harmonization] didn’t need much strengthening. There has always been this drive to harmonize financial systems within the EU, especially now within the banking union project,” Sant said during an interview with The Sunday Times of Malta.

“The European Commission came up with the idea of analyzing the advantageous tax rules from the perspective of state aid, and it is working on this in earnest. The European Parliament also pushed initiatives to close tax loopholes and create a common corporate tax reporting system that would be the precursor for harmonizing tax levels,” he said.

And, according to the former prime minister, tax harmonization is not only harmful to the financial services sector as it Malta would also lose its remaining flexibility in tax policies. He explained that as a result of Malta having to adopt the EU’s regulations “the country’s flexibility to shape its economy has diminished a lot.”

“A small country like this needs some form of flexibility, and the only tool left in our hands is taxation. Tax relief can provide the leverage to attract companies and losing this is not good for us,” he said.

Asked whether the presence of Konrad Mizzi and OPM chief of staff Keith Schembri in the Panama Papers is derailing the government’s case against tax harmonization, Sant insisted that this is not the case. Rather, it is Brussels’s perception of Malta that is harming our cause.

“Panama Papers has nothing to do with Malta’s case. Panama is so big and Malta is so small. That is not the problem. The real problem is whether we are being perceived as a tax haven or not,” he said.

“Brussels perceives Malta as a tax haven,” Sant said.

But despite countries such as France perceiving Malta as a tax haven, the country is not as it upholds the highest standards and provides complete transparency in exchange of information. It adhered to the OECD Regulations, does not have any secrecy laws, and as opposed to offshore tax havens, employs full transparency.