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Maltese tax haven

September 5, 2009

Maltese Finance Minister Tonio Fenech vehemently dismissed a German press report that the Mediterranean island was being used as a tax haven by major German corporations like Lufthansa and BASF.

Marsaxlokk in Malta
Malta rejects claims that German firms hid money thereImage: picture-alliance / dpa

An article appearing in the latest edition of news magazine Der Spiegel claims that multinational German companies are exploiting loopholes in EU tax law and the double taxation agreement between Germany and Malta in order to avoid paying huge amounts of tax in Germany.

Speaking to The Times of Malta newspaper on Saturday, Fenech called the report "sensationalism," adding, "This is all above board and according to EU laws. We have never had any negative reaction by the German government on this front."

German Finance Minister Peer Steinbrueck
Steinbrueck is accused of turning a blind eyeImage: AP

By establishing a subsidiary on the island, shareholders of major German are allowed to claim back six sevenths of their Maltese income tax, reducing their taxable income in Germany. The result is a tax saving of 23.6 million euros ($33.7 million) for every 100 million euros of profit.

Steinbrueck turns a blind eye

Der Spiegel claims that the small Mediterranean country has become one of German industry's preferred locations ever since it joined the EU in 2004.

The magazine goes on to accuse German Finance Minister Peer Steinbrueck of ignoring the problem even though the Finance Ministry has long been aware of it.

According to the magazine, the German embassy in Malta is also culpable for the huge loss of revenue, since it actively encourages German companies to take advantage of the law and invest in Malta.

Deutsche Bank ponders a move into Malta.
Deutsche Bank is considering opening a subsidiary in Malta.Image: nc_cc_mattingham

One of the magazine's sources, from an accounting firm based in Malta, confirmed that there had been a marked increase in the number of German companies with representation on the island in the last few years. In addition to BASF, Lufthansa and Puma, who already have Maltese branches, Deutsche Bank is also said to be considering opening a subsidiary on the island.

Fenech acknowledged this recent surge in investment, but insisted that it was well-known, and that all transactions were above board. "German investment in Malta has been present for a long time and the double taxation agreement with Germany is there to facilitate taxation between the two countries and promote investment," he said.

Closing the loopholes

In May this year, Steinbrueck presented a bill to the German parliament meant to crack down on German companies exploiting foreign tax havens, and caused a diplomatic row after accusing neighboring countries Luxembourg, Liechtenstein and Switzerland of aiding tax-dodging German companies. The finance minister estimates that Germany loses 100 billion euros of revenue through tax havens every year.


Editor: Nick Amies