The Maltese government has reacted angrily after a German state's finance minister called the EU island state "Europe's Panama." Now officials are hunting down Germans allegedly using Malta to dodge the taxman.
Norbert Walter-Borjans has been busy turning himself into the public scourge of German tax cheats and foreign tax havens. Having already riled Switzerland by buying CDs with stolen bank account data - and then accusing the Alpine state of spying on his tax offices - North Rhine-Westphalia's finance minister criticized Malta as a haven for tax-evading offshore companies.
"For a long time there have been indications that there is a kind of Panama in Europe," Walter-Borjans said Wednesday in Berlin. He was in the German capital to announce that tax investigation authorities in the western city of Wuppertal had received a USB stick from an anonymous whistleblower containing information on 60,000 to 70,000 companies based in Malta, whose owners were taxpayers in places off the island. Between 1,700 and 2,000 companies had connections with German firms and investors, Walter-Borjans said.
The small island state responded immediately by questioning the minister's claim altogether. "Pull another one," Finance Minister Edward Scicluna wrote on Twitter. "Since when the whole Maltese company register of Maltese registered companies becomes foreign, offshore and German?"
In a series of tweets, Scicluna went on to say Malta's register of companies is publicly accessible, and it currently only contains a total of 50,000 companies. He added that Malta does not keep a register of offshore companies. "It is, therefore, clear that whoever is making such claims is grossly misinformed," the minister wrote.
International tax lawyer Lars Kelterborn said he wasn't surprised by the revelations, though he was surprised by the number of companies allegedly registered in Malta. He added that he didn't expect the revelations of wrongdoing to have as large an impact as the tax CDs bought from Swiss bank insiders.
"With the Panama Papers, the actual cases of tax evasion - at least in our experience - were fewer than was the case in Switzerland, Liechtenstein, and Luxembourg," he told DW. "It's a very different situation. In Malta, it's about investing in firms that are based there, which is allowed. The question is whether the shareholders have reported to the German authorities the fact that they have these shares."
Malta has a standard corporate tax rate of 35 percent, but when dividends are distributed, shareholders are entitled to a series of tax refunds that leaves an effective tax rate of just 5 percent.
Maltese government officials have consistently defended this system, arguing that fiscal sovereignty is the remit of individual EU member states and that Malta complies with all EU and OECD directives.
But Walter-Borjans' tax investigators said in a statement that they "continually find company models that have been created specifically for the purpose of avoiding corporate taxes in Germany."
The city of Wuppertal recently sent investigators to Malta to learn more, examining a company whose data was found on the USB stick.
"The investigations finally confirmed the suspicion that company was being used to evade taxes," the statement said. "The state government will send the data from the 'Malta list' that concerns foreign citizens or companies to the relevant countries."
But catching tax evaders is only one element of the equation, as far as Walter-Borjans is concerned. The minister also reiterated his call for governments to "make life significantly more difficult for global fraudsters." Those measures would include tougher rules on reporting foreign companies and higher fines.
"At the moment, not reporting a Maltese company results in a fine of just 5,000 euros ($5,440)," the state Finance Ministry said. "At the moment only 270 German companies have been properly registered on Malta."
Some governments are already taking steps to implement better international financial oversight. In 2018, over 100 countries will bring in the "Automatic Exchange of Information" (AEOI), which forces banks to send the account details and investment returns automatically to the country where the account holder pays tax.
But Walter-Borjans said this rule had its own loopholes - for instance, it would only oblige Malta to report details of German companies to Germany - not of companies registered in Malta.
"With foreign company structures the EU automatic data exchange agreement (AIA) that currently exists often leads nowhere," he said. "The AIA does not include obligations to report in the EU if you invest in a foreign company - that isn't anything special to Malta."