Malta still listed in US Congress bill against tax havens

Michigan senator Carl Levin has introduced his Stop Tax Haven Abuse bill to the US Congress for the fifth time, arguing that the US will claw back $100 billion by authorising the Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that impede US tax enforcement.

Malta still features in the list of 34 “tax havens” identified by Levin’s bill.

In 2009, the Malta Financial Services Authority appointed Washington attorneys SNR Denton to advise on the legal intricacies involved with the passage of a double tax treaty through the US Senate. At the same time, Malta is still listed as an offshore tax haven for Americans by Levin.

According to SNR Denton director Ron Platt, Malta feared the proposed legislation could jeopardise ratification by the Senate of a tax treaty with the US, which was signed last year. “[Malta] believed it should not be on the blacklist anyway… If it was a straight-out vote on Levin, I think it would be tight, but if there’s an alternative that the Treasury Department doesn’t object to, then that would prevail.”

Levin had released a 330-page reportexposing how dictators like former Gabon ruler Omar Bongo used the services of US lawyers and escrow agents to enhance his illicit funds. In one case dated 2006, Bongo wired a total of €14 million in funds from Gabon to the bank account of a US lobbyist, who secured permission from the US government to buy C-130 military cargo planes from Saudi Arabia. But when the cargo plane deal fell through, the lobbyist €7 million of the funds to a foreign account held in the name of President Omar Bongo – not in Gabon – but in Malta. The transfer was paid into a Fimbank account under the name ‘The Gabonese Republic (H. E. Omar Bongo Ondimba)’, whose contact was Francois Meyer – Bongo’s personal lawyer in France.

Levin’s Stop Tax Haven Abuse bill aims at taxing US dollars and other assets that are supposedly kept offshore by foreign subsidiaries of US corporations but in reality, are deposited into accounts physically located in the United States. The bill would deem the funds deposited into US accounts as taxable distributions by the foreign subsidiaries to their US parents. 

Malta has a favourable tax regime for foreign companies but is often criticised for acting as a tax haven. The island levies a 35 per cent corporate tax on the income of Maltese companies, but the tax paid to the inland revenue department is allowed to be marked down as a credit to the shareholders who receive dividends. So when dividends are paid to shareholders, they can claim as much as 85 per cent in refund from that tax.

For example, if a company’s subsidiary in Malta makes €100 million in profits and is taxed at 35 per cent, leaving €65 million, shareholders get six-sevenths of the tax – €30 million – refunded: effectively leaving €95 million for the parent company.

The influential Der Spiegel of Germany says that Malta was used as a tax haven by major German corporations like Lufthansa and BASF. The newspaper The Australian also revealed that the Commonwealth Bank of Australia (CBA) had clawed back €38.9 million from its offshore tax rate in Malta.

Using its Malta-based subsidiary Newport, which controls CommBank Europe, CBA employed just six members of staff and recorded a net profit of €181 million after a tax credit of almost €12 million.