Matthew Vella
President-elect Barack Obama’s plan to crack down on international tax havens just weeks of taking power, will include Malta in a hit-list of 33 jurisdictions, despite the USA having a double tax agreement with Malta.
Obama is planning to raise $50 billion in lost US tax revenues by pushing a law that will identify ‘offshore secrecy jurisdictions’ that “unreasonably restrict US tax authorities from obtaining needed information”.
The measures will lift the veil of the super-rich, who move their money from one country to an other to escape high taxes back home. He has singled out Switzlerland’s UBS as one of the banks who helped ‘tax cheats’.
Despite Malta’s double tax agreement with the USA, signed in February 2008, the Obama-backed bill against tax havens still lists Malta.
The Bill is expected to anger lawmakers who reformed Malta’s laws to clear its reputation as a tax haven.
Back in January 2008, laws were passed to give tax authorities access to bank information for the purpose of exchanging it with countries with whom there are double taxation agreements.
And in 2000, then finance minister John Dalli informed the Organisation of Economic Cooperation and Development (OECD) that Malta would be committing itself to a programme of effective exchange of information in tax matters.
A tax haven maintains tax secrecy laws that make it very difficult for other countries to find out whether their citizens are cheating on their taxes. The secrecy actually cloaks tax evasion.
From offshore to ITC
Malta’s offshore regime, for long a financial mainstay for the island, came under attack due to its incompatibility with European Union law.
But the introduction of international trading companies (ITCs) as a way of phasing out offshore companies did little to allay EU concerns over foreign companies relocating to Malta.
ITCs are corporate vehicles which trade overseas, or which provide back-office services to companies abroad. While ITCs are taxed at the normal company tax of 35%, non-resident shareholders are given tax advantages amounting to an effective tax rate on profits of 4.2%.
Although perfectly legal, in 2006 the European Commission formally requested Malta to abolish the tax regime for ITCs by 2010.
Over the past decade, Malta reformed its laws in line with international best practice, becoming one of the first countries to reach an advanced accord with the OECD, to exchange information to help tax authorities determine a taxpayer’s correct tax liability.
As a result of this agreement, Malta is not considered as a tax haven.
But in 2005, the Parmalat scandal caused new doubts to resurface. Malta was one of many fiscal paradises like the Cayman Islands, the Dutch Antilles, Luxembourg, British Virgin Islands, Ireland and Uruguay in which Parmalat owners funnelled company profits to make it disappear.
Parmalat Capital Finance Ltd, a company registered in Malta, was at the centre of the scandal, from where it acted as a distribution centre of Parmalat’s liquidity.
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