Taxation and morality

There is no doubt that the political class has to be transparent and assure their constituencies that they adhered with Malta’s tax laws.

Cartoon by Mark Scicluna
Cartoon by Mark Scicluna

Michael Falzon’s public admission of having held some €465,000 in undeclared monies in a Swiss bank account – money he later repatriated to the country – reveals more about some of the alleged standard we exact of public officials, than about the reality of undeclared foreign bank accounts.

The esteemed political commentator, who writes on various newspapers – MaltaToday has proudly hosted the former minister for years now – yesterday issued a pre-emptive media statement on the origins of the money, a Swiss architectural project which required him to travel to the country; its passage through bank accounts, one of them being the HSBC Banque Privée in Geneve currently in the news; and that he repatriated the money some time before 2008 under one of the government schemes that levied a no-questions-asked final withholding tax on the cash.

Falzon, an architect by profession, explained that he had legitimately earned the monies deposited in this account well before his appointment as minister in the 1987 Eddie Fenech Adami administration.

MaltaToday understands that Opposition leader Simon Busuttil took a very bold and confident stand after Michael Falzon’s announcement to resign the PN executive; he also warned that anyone with undeclared cash in overseas accounts should ‘take full responsibility’ for such tax avoidance and that he would push for their suspension from the party.

In politics, such brave statements are not made without the necessary guarantees that no further embarrassment will be incurred by the party. Indeed, party insiders contacted by MaltaToday were quick to note that shadow ministers were forewarned about whether they held undeclared cash overseas. Falzon, it seems, was not given this opportunity. 

It is left to the more seasoned of political and financial observers whether the list of individuals who parked their undeclared cash in the HSBC private bank in Geneva have any connections, past or present, to his party’s ranks or perhaps to legal firms connected to his MPs.

Surely, if these account holders had repatriated the funds and can explain the origin of these funds, there is no reason why anyone should overreact. After all, it was successive Nationalist and now Labour governments, that encouraged Maltese account holders hiding their cash overseas, to pay a final tax on their repatriated funds so as not to risk being prosecuted for tax evasion – especially now with international financial information sharing.

Like thousands at the time, Falzon held his funds overseas over fears of ex officio tax assessments during the Mintoff years in the 1980s.

Having said as much, there is no doubt that the political class has to be transparent and assure their constituencies that they adhered with Malta’s tax laws.

Beyond the apparent curiosity that such revelations cause, it has to be said that we must draw a line somewhere, especially if the origin of funds can be explained and the funds in question have been repatriated.  The real focus should be with those individuals who have failed to declare funds and who cannot justify their source.

Perhaps excessively, Busuttil conflates the Swissleaks revelations with Falzon’s admission: at the time of going to print, this newspaper is unaware whether Falzon is one of the names on the Hervé Falciani list that was leaked to the ICIJ and other European newspapers.

Still, the Opposition leader has taken an important stand on tax evasion.

Whether his principled stand also extends beyond the thin line of banking and accounting gymnastics, to the world of tax avoidance is another matter altogether. 

MaltaToday is interested in knowing whether political leaders who take such principled stands should also be supportive of the Maltese tax regime that allows international companies to avoid taxation regimes back home. Multinationals abroad park their profits generated from business in their home country, by setting up holding companies in Malta. Thanks to the ‘Maltese sandwich’ system of setting up trading and holding companies, multinationals pay effective tax rates of just 5% in Malta so that they don’t pay full corporate tax rates at home.

This newspaper asks whether politicians should keep supporting tax avoidance structures in Malta so blindly, when it is clear that foreign businesses are using Malta to avoid paying millions in taxation somewhere else in Europe. 

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