European Parliament approves 'tax haven' resolution critical of Malta

The European Parliament have voted in favour of a resolution on financial crimes, tax evasion and tax avoidance that labelled Malta, along with six other countries, as having the characteristics of a tax haven.

The report, drafted by the Tax3 committee, was passed by 505 MEPs voting in favour and 63 voting against. There were 87 abstentions.

Among other things, this report calls for a freeze on golden visa schemes and calls on the United Arab Emirates to cooperate in the 17 Black investigation. It also calls for a public inquiry on the murder of Daphne Caruana Galizia to start.

All six Maltese MEPs voted against the resolution in line with Malta's long-held position against moves to introduce tax harmonisation across the EU.

Nationalist Party reacts

"We will continue to stand strong against all proposals that would reduce Malta's flexibility in taxation," the PN MEPs said in a statement released after the vote.

They said that the European Parliament was pressing member states that have a competitive tax system and that following today's vote, further efforts would be made with the European Council to shift the decision-making process on taxation from unanimity to qualified majority voting.

The MEPs said they voted against the resolution which was critical of several taxation systems in a number of member states, including Malta.

"It was the Nationalist Party that set up Malta's taxation system and ensured it was compliant with EU rules before acceding to the European Union. This yielded positive results, with thousands of jobs being created and attracting substantial investments," the statement read.

The report

The report by Danish socialist MEP Jeppe Kofod and centre-right Czech MEP Luděk Niedermayer followed continued revelations over the last five years from Luxleaks, the Panama Papers, Football Leaks and the Paradise Papers.

The report notes that existing tax rules are often unable to keep up with the increasing speed of the economy.

“There is an urgent and continuous need for reform of the rules, so that international, EU and national tax systems are fit for the new economic, social and technological challenges of the 21st century,” the report says.

The report stressed that cash transactions remain a very high risk in terms of money laundering and tax evasion, including VAT fraud. The Commission is called on to prepare a proposal on European restrictions on payments in cash, while maintaining cash as a means of payment, and to phase out the ability to use €500 notes, whcih present a higher risk in terms of money laundering.

MEPs expressed concern that a majority of Member States have adopted citizenship by investment (CBI) or residency by investment (RBI) schemes, generally known as ‘golden visa and passports’ or investor programmes, by which citizenship or residence is granted to EU and non-EU citizens in exchange for financial investment.

At least 5,000 non-EU citizens have obtained EU citizenship through citizenship by investment schemes. Members deplored the fact that the opaqueness surrounding the origin of the money connected to CBI and RBI schemes has significantly increased the political, economic and security risks for European countries.

They also stated that the Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market. Members took the view that these jurisdictions can also be regarded as facilitating aggressive tax planning globally.

Members noted that cum-ex transactions have been a known global problem since the 1990s, including in Europe, yet no coordinated counteraction has been taken. They deplored the tax fraud revealed by the so-called cum-ex files scandal which has led to publicly reported losses of Member States’ tax revenue, amounting to as much as €55.2 billion according to some media estimates. The complexity of tax systems can give rise to legal loopholes facilitating tax fraud schemes such as cum-ex.

MEPs called on the Commission to start working immediately on a proposal for a European financial police force within the framework of Europol with its own investigatory capabilities, as well as on a European framework for cross-border tax investigations and other cross-border financial crimes.

They also called for a clear definition of these companies and for the identities of the actual owners to be disclosed to tax authorities.

Maltese MEP Alfred Sant issued a scathing criticism of the report, saying it was fundamentally flawed.

“This report should have been factual, focussed and clear on the causes of abuse and their remedies. Unfortunately, it takes on board at face value mere allegations and suspicions.

“Disparate elements of financial statecraft get associated with tenuous, unsubstantiated links to incipient crime. Worse, a bias against smaller states and their commercial institutions is palpable. So, the experience of Pilatus Bank in Malta is highlighted. That of Deutsche Bank in Germany, though of much greater concern, is ignored. Meanwhile, financial services professionals are considered like criminals in waiting.”

Sant said the discourse of the report follows an agenda that promotes tax harmonisation. “This disregards the fact that tax flexibility is the only remaining competitive tool for small peripheral economies in the single market. Obviously, the report had to take political considerations into account. Here however they have been pushed close to the limit of tax populism. I repeat: this report is fundamentally flawed.”