Departure tax was one instance where Malta was operating contrary to EU law, and now we hear that even the government’s decision to write off debts owed by Malta Shipyards is being scrutinized, as the EU has never agreed to anything of the sort. The EU had cases where member states pumped more money into state-owned companies without its permission, but it has never had a case where a member state struck off what was owed by state-owned companies.
So now the EU is consulting its legal experts to check if such a decision can be taken by Malta without prior authorisation from Brussels, and I am sure that they will discover that the EU laws have a loophole here as they only cater for pumping more state aid and not for writing off monies due to the state.
The government may get this right with Brussels, but there are issues where the government will sooner or later be in trouble with Brussels. One of these cases concerns tax deductions in the case of school fees.
The government rightly declared that school fees spent on private schools are to be deducted from income tax. This includes fees spent on a facilitator. But this deduction applies only to children attending private schools in Malta, and is restricted to Malta without applying to all the EU member states.
This is contrary to EU law and I still have not deciphered how the EU system of enforcement works. When I recently had the occasion to discuss this with the EU’s representation in Malta, I was told that the EU expects citizens to lodge a complaint and does not take action ex officio. I do not agree with this line of reasoning and I expect the representation’s office in each member state to vet the legislation of each member state in order to ensure that it complies with EU law.
Article 14B of the Malta Income Tax Act gives this tax deduction to schools named by the Minister of Finance, and the Ministry has issued a legal notice (LN 77 of 2002) stating that the schools are to exist in Malta only. The Minister knows what the EU law says, and I never expected him to play cat and mouse with Brussels, blessing each day that passes without being warned by the EU Commission to change the law.
In the decision given by the European Court of Justice on 11 September 2007 in Schwarz v Germany (Case C-76-05), the court ordered Germany to give the deduction to the Schwarz family although their children were sent to a Scottish and not to a German private school. The court ruled that the decision by Germany to allow a 30% tax deduction in school fees to those schools recognized by the German authorities went against the freedom to provide services (Art.49 of the EU law), the free movement of workers (Art 39) and freedom of establishment (Art. 43).
The system of enforcement in Brussels leaves much to be desired, as it is very unfair for the present practice to continue where action is only taken when and if the citizen complains. With due respect, action has to be taken when the infringement occurs, and not when the infringement hurts an EU citizen. Brussels has the manpower and money to monitor member states, and it is unfair to expect the citizen to do the work of those who are paid to ensure that EU laws are respected and observed.
But this is not the only case where Malta is in trouble with the EU. Malta is also in trouble regarding loss of relief provisions. Our Income Tax Act allows for group relief provisions but limits the applicability of this relief to companies resident in Malta when the EU says that there cannot be any distinction between companies resident in Malta, and companies resident in any member other state.
The tax gurus know that Malta is in trouble here and that it has to amend Articles 14(1)(g) and 16 of the Income Tax Act. But again, the government is waiting for any company that is hit by such discrimination to take it to court in Luxembourg, where the European Court of Justice is situated, thus wasting more money from the taxpayers’ coffers.
The government knows that it has to amend these provisions in the Income Tax Act to bring them in line with EU law, especially in the light of the Marks & Spencer case which is considered a landmark decision (decided on 13 December 2005).
I am sure that we are not the only country flouting EU laws but this should not be the case. We are either in the club or out, and once we have decided to be part of the EU club we cannot keep juggling with its regulations and picking and choosing what we like, in the hope that these infringements will go unnoticed by Brussels. Even Brussels must change the way it treats EU laws and regulations: it must start by obliging every member state of send a copy of each legislation and regulations that it publishes and it is Brussels’ duty to monitor each member state so as to ensure that the EU citizens are treated equally by all member states.
It is unfair to continue to expect the citizen to do this on the EU’s behalf: first of all, because the citizen will not be reimbursed for damages sustained when paying more than the citizens of those member states; and secondly because until the member state changes the law, the citizen will continue to suffer the illegality.
Brussels must be proactive and not passive before these illegalities, and it must take action now if it wants to gain the respect of the EU citizens. Otherwise it will be sending the message that it is all right to flout EU law and to hell with the EU citizen!
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The EU had cases where member states pumped more money into state-owned companies without its permission, but it has never had a case where a member state struck off what was owed by state-owned companies.