Malta employs US lobbyist to avoid Senate blacklist
€12 million tax credit to Commonwealth Bank subsidiary in Sliema raises eyebrows in Australia
David Darmanin The financial services authority (MFSA) has employed a top US law firm to “polish Malta’s image” with the US government because the island risks blacklisting in an upcoming law in the US Senate on tax haven abuse.
Lawyers and lobbyists Sonnenschein Nath & Rosenthal were commissioned to press Malta’s case for exclusion from a list of 34 tax jurisdictions, even if the firm itself has expressed its doubts on Malta’s chance to succeed. In 2009, the US firm was paid €69,875 in consultancy fees.
If the MFSA loses its case, the ‘Stop Tax Haven Abuse Act’ will authorise the US government to use “special measures against foreign jurisdictions, financial institutions, and others that impede US tax enforcement”. Furthermore, a double-taxation agreement that Malta signed with the US government last year could also be jeopardised.
Carl Levin, the co-sponsor of the proposed law is a close ally of US President Barack Obama and has also led the Senate investigation of Swiss banking giant UBS.
Levin said earlier this year that the 34 countries, including Malta, peddle “secrecy in the way other countries advertise high-quality services… That secrecy is used to cloak tax evasion and other misconduct.”
In the foreign media, Sonnenschein director Ron Platt was quoted as saying: “Malta feared the proposed legislation could jeopardise ratification by the Senate of a tax treaty with the US, which was signed last year. The country also believed it should not be on the blacklist anyway.”
Platt said Malta was therefore seeking to have the treaty ratified before the end of the year or, failing that, convincing lawmakers to support rival legislation that did not include a blacklist.
“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,” Platt said. “President Obama is close to Levin, so he won’t want to see him embarrassed on the floor.”
€12m tax credit Malta’s ongoing struggle with its “tax haven” image has more recently featured in a report carried by The Australian – Australia’s best selling newspaper – which said Malta’s tax laws could engage a subsidiary of Australia’s largest bank, based in Sliema, in “aggressive tax minimisation”.
The news came as Commonwealth Bank of Australia (CBA) booked in its annual financial statements a €38.9 million benefit from lower offshore tax rates.
The benefit was almost double that of its rivals (NAB, ANZ and Westpac – also listed among the four largest banks in Australia), “suggesting that the structure set up by CBA in the Mediterranean island nation is generating tens of millions of dollars in tax benefits.”
Newport – the CBA subsidiary registered in Malta – controls CommBank Europe, which holds a banking license issued by the MFSA in 2005. Although CommBank’s office at the Strand Towers employs just six members of staff (including clerks and executives), Newport has a balance sheet of almost €3.1 billion.
Newport and CommBank director Chris Millett, the Malta company’s head of tax, told The Australian that the overseas operation “is believed to have been pronounced technically sound by the Australian Taxation Office (ATO).”
But senior bank sources told The Australian newspaper that “the structure has not enhanced the bank’s reputation with the ATO…
“Newport’s recently released financial reports record a pre-tax profit of €169 million, or a net profit of €181 million after a tax credit of almost €12 million – signalling a much higher profit for the six-man show than that of Malta’s largest local banks.”
The press reports said the Maltese operation attracted a lot of attention among senior bankers in Australia, “some of whom see it as entirely tax-driven…
“The argument that its business purpose is a launching pad into the EU is very thin,’’ an unnamed senior banking source was quoted as saying.
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