Cities Entertainment got VAT penalties’ refund despite expiry of remittance scheme

Cities Entertainment Limited, the leaseholders of the iconic Café Premier in Valletta, benefited from an 80% reduction on their VAT arrears, but the Auditor General has reservations about the way it claimed the reduction.

The VAT department effectively allowed CE shareholder Mario Camilleri to claim the €32,000 remittance under a budget scheme, two months after the expiry of a November 2013 deadline.

Cities Entertainment was paid €4.2 million by the Labour government in a controversial decision to buy back their 65-year lease on the Café Premier, having cancelled court action against the company for defaulting on over €200,000 in rental arrears.

The money was used to pay the State back some €1.5 million in tax, rent and energy bills, but also €2.5 million in commercial Banif loans and a €210,000 brokerage fee for Mario Camilleri, a shareholder in CE who is also a director on national lottery operator Maltco.

Prime Minister Joseph Muscat has been under fire from the Opposition for his personal role in accommodating Mario Camilleri’s request to sell his lease back to the State when he could have forged ahead with court action. Muscat says he wanted to extinguish unnecessary and lengthy court action to take the property back as fast as possible.

The subject of a National Audit Office investigation, the Auditor General raised questions on the basis upon which the VAT Department remitted €32,071 of a €40,000 in interest and administrative penalties charged to CE.

CE had €226,000 in outstanding VAT dues in 2013, but it could not benefit from a Budget remittance scheme on VAT interest and penalties unless it paid a lump sum of €95,809 in accrued VAT from November 2011 to date, by 30 November 2013.

As it turns out, the VAT Commissioner acceded to Camilleri’s request for the remittance on 24 January 2014, just days before the signing of CE’s agreement with the government.

Although the rules state that Cities Entertainment should have paid the lump sum of €95,809 by November 2013, the VAT department invoked provisions allowing anyone to qualify for the remittance “where in the Commissioner’s opinion, the failure on the part of that person to qualify for remittance was due to a reasonable excuse.”

Camilleri managed to obtain this refund, citing “lack of funds”.

The NAO’s investigations found that although approval for his remittance came in January 2014, his request for the remittance was dated 26 September 2013, and then received by the VAT Department on 14 November 2013 – two weeks prior to the scheme’s deadline.

It was clear that the VAT Department had told the Government Property Department by email on 7 November 2013, that no remittance would be paid after the deadline expires.

But asked to provide an explanation as to why the VAT department backtracked on its original advice, the VAT office’s debt management director said that by 30 November 2013, a VAT-registered person only had to “request to participate” in the scheme, and need not have effected payment.

The director told the NAO that there had been some form of misunderstanding on the precise understanding of Article 11, which lays down the deadline for the remittance application.

“At first this was understood as meaning that all returns due after 15 October 2011 were to be paid by the 30 November 2013 deadline. However, at some point after the email sent on 7 November 2013, this article was understood as implying that a request for participation in the remittance scheme had to be submitted by the 30 November 2013 deadline, and therefore full payment of relevant VAT returns due by this date was not necessary.”

Ultimately, on 24 January 2014, the VAT department told the Government Property Department that CE had to pay back €95,809 on tax declared and not paid on returns due from November 2011 to date; €124,500 as the remaining balance up to 14 January 2014; and €6,354 for legal fees. 


Adding insult to injury, the VAT Department on 6 March 2014 gave Cities Entertainment four options of how it could pay the VAT in installments – the selection of which would determine the amount remitted.

“Understandably, the shorter the period within which full settlement was achieved, the greater the reduction in interest and administrative penalties, which in this case varied from a reduction of €32,071 (in the case of immediate settlement) to a remittance of €20,044 (in the case of settlement over an 11 month period),” the NAO said.

But as the Auditor General noted, the letter was nothing more than a formality, as the full payment of the balance due had already been effected on 29 January 2014, 
 on the signing of the €4.2 milllion agreement with government, and therefore the total remitted was that of €32,071.

The Auditor General said his office had reservations about the way the VAT Department’s had interpreted the law on the 30 November 2013. “The provisions stipulated in Article 11 [are] ambiguous, as a VAT registered person may be considered as qualifying for the Scheme when submitting the relevant application form, or equally so, when approval by the Commissioner is granted. Finally, the possibility of applying the least favourable rate of remittance (50 per cent) in cases that extend beyond the 30 November 2013 deadline should be considered by the VAT Department.