Taxation is about morality, too

It is now official: on Friday, Finance Minister Clyde Caruana told this newspaper that his government had finally caved in to the 15% minimum corporate tax, as proposed by the OECD’s global tax pact (albeit with ‘reservations’ over certain details). 

As such, Caruana’s statement puts an end to years of speculation, in which the one question on the lips of Malta’s entire business sector was: how long could this country possibly continue resisting a universal tax harmonisation drive, of the kind that has now been adopted as a global policy by the G-17? 

All along, there was a sense of inevitability underpinning that question; but there was also a deep sense of irony.  

Even the fact that both Labour and Nationalist Parties have traditionally always converged on this one issue – evidenced by the Oppositions’ cry of ‘foul’, at news of Malta’s capitulation – attests to a certain distance that exists, between the causes both those parties are committed to, on paper… and the geo-political realities that inform their actual opinions and positions. 

The Labour Party’s former defence of Malta’s tax regime, for instance, placed it at loggerheads with its own political grouping in the European parliament (as confirmed by PES president Iratxe Garcia Perez, in an interview last Sunday). 

This is perhaps less true of the PN – which, paradoxically, belongs to the same group as Hungary’s Viktor Orban: among other EPP governments to oppose the OECD tax pact – but the Opposition’s stance nonetheless overlooks a central pillar of the ‘rule of law’ clarion-call it has chosen to adopt. 

For the issue of global corporate taxation is ultimately an issue of social justice, more than economic gain. The argument against preferential tax incentives is that they deprive other governments of the revenue that is needed to provide essential social services, across the length and breadth of the European Union. 

Curiously, however, nowhere is this aspect ever mentioned by either Government or Opposition: while defending what most other European countries would surely consider to be an ‘indefensible’ position. 

This is also true about how the country tends to react to scandals involving tax evasion: like the recent Pandora Papers, a leak of almost 12m documents which revealed the sheer extent of ‘tax shopping’ that is taking place behind the scenes. 

Malta’s presence in the Pandora Papers has so far only revealed one dishonourable mention: that of former European Commissioner John Dalli, who hid the existence of an offshore firm he opened while an MP, both when he became minister; as well as European Commissioner.   

But beyond Dalli’s mention, the Pandora Papers also revealed that 35 current or former heads of state are among the customers of secrecy jurisdictions where huge sums of money are hidden in order to avoid tax and transparency.  

The names included the likes of King Abdullah II of Jordan, Czech prime minister Andrej Babiš; the Azerbaijan’s ruling Aliyev family; along with more than 100 billionaires and rich individuals from all over the world. All the same, it seemed to reveal nothing new about the big tax game played by the rich; except, perhaps, the extent of the involvement of individual countries.   

But it is this practice, ultimately, that the global tax pact was intended to combat. And the reason is simple: offshore firms are intended at evading one’s obligations towards the national exchequer; because by hiding one’s wealth, the rich refuse to pay their share towards the national health service, education, and energy on which everyone depends.   

As such, morality can never be too far from the surface. And trying to find any morality in that sort of system – on a planet that engages in tax competitiveness at various levels - is clearly going to be problematic.  

The ugly reality is that every country is simply interested in outsmarting the next, at every opportunity: 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.  

Malta, for instance, is often accused of being part of the ignominious line-up of global tax havens: mainly due to a system of tax rebates on foreign profits that are taxed (at the highest 35% rate), before being discounted.  

But the Pandora Papers also give some much-needed context to the scale of the problem: the UK chancellor, Rishi Sunak, claimed that the prominent role of the City of London in this system was not a “source of shame”. He is mistaken: British crown dependencies and overseas territories were pioneers in the tax avoidance business. The City of London is the fulcrum of this kind of global system of laundering profits through the tax minimisation system.   

But parasitic financial services practices will only continue as long as governments are allowed to keep on fanning this industry. Unless concerted action is taken at EU, and possibly global level, via the OECD, the elites’ ‘tax planning’ game is an industry will still has more life in it.   

Malta’s capitulation to the global tax pact must therefore be seen from that perspective, too: as part of our own commitment towards achieving a just and fair society for all.