Luxury Real Estate

Courtesy of Carl Peralta of 77 Great Estates

Malta has denied “sensational” reports in a German publication suggesting the island was being used as a tax haven by German multinationals.

While admitting there was a recent surge in German investment in Malta, Finance Minister Tonio Fenech said “this is all above board and according to EU laws”.

“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. We have never had any negative reaction by the German government on this front… This is just sensationalism,” Mr Fenech said.

Describing Malta as “a new tax haven Mecca” for large German multinationals, Germany’s most popular news magazine Der Spiegel gave details of how large German companies were avoiding tax through the island.

The magazine, which sells more than a million copies around Europe every week, accused Germany’s Finance Minister Peer Steinbruck of turning a blind eye to what had become a known “tax loophole” used by Germany’s top companies to “optimise their tax structure” through Malta.

According to an investigation carried out by the magazine, renowned companies like Lufthansa, Puma, BASF, K+S and Fraport were all allegedly using Malta’s taxation system to avoid paying all their dues to the German tax authorities.

They were doing this by forming subsidiary companies in Malta to take advantage of loopholes in the EU taxation system and the double taxation agreement between the two countries to reduce their taxable incomes, the magazine claimed.

The report said this had been going on since Malta joined the EU and despite the German authorities knowing what was happening they did not seem to have the power to do anything to stop it. At the same time the magazine admitted there was nothing illegal in the system being adopted.

“In the global game of financial Monopoly, the small Mediterranean country has become one of German industry’s preferred locations in the time since it joined the EU in 2004,” Der Spiegel wrote.

“German companies have their offices in the town of St Julians, near the Stiletto Gentleman’s Club, and the pubs where foreign language students drink themselves into oblivion. The offices of the BMW Malta Group are near the casino in the upscale Portomaso waterfront development,” the magazine commented sarcastically.

Other German big names, such as Deutsche Bank would also be investing in the island, the magazine reported.

Quoting a partner in an accounting firm in Malta, the report said the number of German companies in Malta was growing rapidly and gave details of how the “tax avoidance system” worked.

Der Spiegel said that, although companies in Malta paid 35 per cent tax on their profits, a rate higher than Germany’s, shareholders could then apply for a refund of the bulk of these taxes. On balance, profit distribution in the form of dividends was taxed at only five per cent. The magazine affirmed that, after taxation, the net dividends were returned to the coffers of the German parent companies, 95 per cent tax-exempt.

Directly criticising the German government for allowing such a system to go on, the magazine charged that “No one (in Germany) seems to be troubled by the fact that this loophole deprives the German Treasury of massive amounts of revenue”.

The magazine also pointed a finger at the German Embassy in Malta saying it was encouraging other German companies to use this system and invest in Malta.

A spokesman for the Foreign Office in Berlin said, when contacted, that the ministry was aware of the article but had no comment to make.