The business community will be shocked to learn there will be no amnesty on shareholders’ loans, after government decided it would not extend its registration scheme ahead of the Euro changeover on company profits which were declared as loans.
It is believed thousands of small businesses will now be liable to pay millions in taxes to the government on profits which they had redirected into shareholders’ loans.
A spokesman for the government, who insisted on not being named, said Prime Minister Lawrence Gonzi is adamant not to give an amnesty for shareholders’ loans, just days before the 31 July deadline for individuals to declare any black money ahead of the Euro changeover.
“We are aware this could be a winner from an electoral point of view… but it is a loser when considering all those who honestly declared their takings and pay tax on their income,” the spokesperson said.
The request enjoyed the firm support of the Chamber of SMEs (GRTU), whose affiliated building contractors and developers had asked government for the amnesty on undeclared income to cover their undeclared funds, booked as shareholder loans.
These funds are estimated at Lm100 million of reinvested, undeclared income.
The GRTU is now arguing there should be no difference made between individuals who are hoarding their personal incomes, and a company which redirects its profits back into the company as a loan made by its shareholder.
The government spokesman said the amnesty would have led to massive discrepancies with audit trails and auditing of accounts – something government deemed unacceptable.
The spokesman added the original scheme targeted individuals who had undeclared money stacked away, with the aim of linking it to the introduction of the Euro.
“We wanted to send the message that undeclared monies should not be siphoned into property. But extending the amnesty on these profits would have resulted in heating up the property market further.”
The spokesperson insisted that government had the backing of Malta’s leading audit firms on its stand on refusing an amnesty for shareholders’ loans.
The GRTU’s Building Contractors and Developers section president Sandro Chetcuti had even stated back in April to sister newspaper Business Today that he had been informed that “government had accepted that shareholders’ loans which had previously been undeclared will now be eligible to qualify under the scheme.”
With an estimated Lm250 million in undeclared cash in hand ahead of Malta’s formal adoption of the Euro, government announced a registration scheme, which will end on July 31, to encourage a gradual and orderly surrender of undeclared money, and facilitate its integration into the formal economy.
Registration of Maltese Lira or Euro notes is currently subject to the one-time payment fee of 4 per cent of the registered amount, while registration of Maltese Lira and Euro deposits with local banks will be subject to a 6 per cent fee.
Around Lm4 million a month was being exchanged for euros on the streets, with a serious risk of having the market flooded with counterfeit euro notes to the detriment of numerous lifetime savers.
The Currency and Banks Deposit Registration Scheme is intended to invite individuals to regularise their position regarding their holdings of eligible assets in those cases where the associated income has not been declared for the purposes of the Income Tax Act.
The scheme does not exempt any person from complying with the requirements of the Prevention of Money Laundering Act and related regulations. Under the scheme, the owner of the assets is exempted from retrospective action by the government.
Applicants have to sign a declaration stating their assets do not represent proceeds from money laundering activities or from any other crime.