Steward Healthcare refusing to pay €36.5 million tax bill

Steward Healthcare, the American company running three state hospitals, is refusing to pay €36.5 million in unpaid taxes.

Court filings show Steward is challening the Inland Revenue Department bill, after it was served with a notice to pay €36.5 million in outstanding VAT dues, fines and other penalties.  

The total amount of €36.8 million is owed for the period starting May 2016, to June 2021, and includes €32.9 million in tax owed, €3.48 million in interest, and €384,000 in penalties.

In its court application, Steward said its audit of the Vitals management accounts found “serious anomalies”, with Vitals’ original owners – the Bluestone network of offshore companies – having declared less output tax to claim more VAT credits in its favour, when it actually owned money to the VAT department.

Steward said it was the hospitals’ new management that approached the IRD to explain what it had found in terms of Vitals’ dues on VAT.

Steward said the IRD was ready to negotiate the VAT bill, with an agreement reached in July 2021. Yet, an execution of this negotiated amount was never signed by the Tax Commissioner.

“The tax statement is therefore surprising and unexpected, considering the discussions that were taking place with the Tax Commissioner which resulted in a final, yet unsigned, agreement,” Steward’s lawyers said.

A copy of the VAT dues listed by the Tax Commissioner in its letter to Steward

Steward will call in witnesses from the government and senior tax officials as part of its case. 

The court case has temporarily paused separate legal action which the tax department planned on taking against Steward later this year, after the company failed to pay taxes for four years.

Steward Healthcare runs Karin Grech, St Luke’s and Gozo General hospitals as part of a multi-million deal it took over from the original concessionaires, Vitals Global Healthcare (VGH). 

The Maltese government is currently in a stalemate in negotiations on the future of the maligned hospitals privatisation contract.

The Labour administration – despite voting in an additional multi-million budgetary spend on staff resources for the American company’s operations – is refusing an €80 million exit request for Steward.

Instead, it is awaiting the outcome on a court case filed by Nationalist MP Adrian Delia, the former Opposition leader, calling for the rescission of the Steward concession.

With a magisterial inquiry into the original Vitals Global Healthcare concession now even embroiling former prime minister Joseph Muscat, Steward officials could face the prospect of being dragged further into the ongoing investigation.

Steward is running three State hospitals, Gozo, Karin Grech and St Luke’s, as part of the 2014 deal crafted by the Muscat administration with the unknown Vitals Global Healthcare to run the hospitals on behalf of the State.

The big mystery: If nobody benefits, why did Mizzi give Steward €100m exit penalty?

€100 million exit price

Adrian Delia, who as Opposition leader filed a case against the Maltese government as well as Steward Healthcare to request the rescission of the hospitals’ privatisation, thinks Steward’s endgame is a bid for a €100 million penalty secretly inked by former minister Konrad Mizzi in a 2019 side-letter.

MaltaToday revealed the existence of the side letter in March 2020, showing how the Maltese government was exposed to a hefty bill should the concession ever be rescinded.

The agreement was hammered out in August 2019 when Mizzi gave Steward an “escape clause”, that turns any termination of its concession into a government default.

The wording was part of an agreement in which the government acknowledged a €28 million loan from Bank of Valletta to Steward as “lender’s debt”.

But the agreement laid down that should the hospitals’ concession be terminated by a court of law – for whatever reason, and even if Steward is in breach of contract – such an event would be a government default.

And that would mean that all debts incurred by Steward would be passed on to the government, with the American company eligible for a €100 million contractual pay-out for its equity.

Government insiders baulked at the agreement, claiming the loan facility and Mizzi’s commitment to Steward was unknown to Cabinet colleagues.

Apart from placing the hospital lands under Steward’s control as guarantees for the debt, the agreement gave Steward unprecedented generosity by accepting that should the concession be rescinded by any law, public order or decision, judgement or decree – effectively any government or court decision – such an event will be “a non-rectifiable government of Malta event or default.”

Delia and ‘fraud’ admission

Steward is also embroiled in another court case, challenging a former Vitals Global Healthcare investor, Ambrish Gupta, of expectations of a €6 million payout.

But the concessionaire is claiming the original Vitals concession was obtained fraudulently.

Delia insists this admission means the hospitals privatisation contract has to be rescinded.

That would mean that a court decision upholding his request would also attack Steward’s claim for its €100 million payout.

Budgetary outlay to Steward

Despite the negotiations between the Maltese government and Steward, an additional €40 million was allocated to the health budget for Steward, over and above €50 million first allocated to the company in last year’s 2021 Budget.

The health concession agreements for the Gozo and Karin Grech hospitals, where the State pays Steward Healthcare for the labour resources that work at the state hospitals, were in 2021 costed at €35.6 million and €13.6 million respectively.

These budgets have now been increased by €26.5 million, and €13.9 million, respectively.

The supplementary allocation brings the total payment advanced to Steward in 2021 to €89 million.

The financial vote was approved in the House on the same day a damning National Audit Office excoriated the procurement methods employed in selecting the now-defunct Vitals Global Healthcare.