Brussels was an easier alternative

Author: George Mangion
Published on Malta Today, 22 April 2016

brusselsThe current controversy about the revelation by a PN party blogger that the PL deputy leader for party affairs and the Chief of Staff at Castille had secretly engaged Nexia BT as consultants to advise them to register a New Zealand trust with a Panama subsidiary was a precursor to the shocking news of the Panama Papers, which triggered a motion proposed by the Opposition to pass a vote of no-confidence in the government.

This did not pass but a lot of opprobrium has been generated among the party faithful. Spreading division and uncertainty at this crucial mid-term stage in the political life of a Labour administration takes us back to the best forgotten feisty days of the early eighties. Nevertheless the advice given by consultants was sternly described by the prime minister as “naive and politically insensitive”.

The hullabaloo was followed by a declaration from the two politically exposed persons that they are clean and straightaway Dr Mizzi offered to be audited by the tax authorities. Dr Mizzi said he would liquidate the shell company in Panama.

But with hindsight did the consultants have to go all the way to engage Mossfon, a law firm in Central America, to obtain a cozy tax shelter to protect family fortunes. The answer is simply no. Brussels is an easier alternative, closer albeit more sophisticated.

Three months ago came the revelation that the EU is investigating Belgium for the cosy tax secret deals it signed with dozens of multinationals. A recent EU ruling forces Belgium to reclaim millions of undercover deals on tax avoidance signed with mega business in many other countries. The European Commission has concluded that selective tax advantages granted by Belgium for the past 15 years under its “excess profit” tax scheme are illegal under EU state aid rules.

The scheme has benefitted at least 35 multinationals mainly from the EU, who must now return €700 million in unpaid taxes to Belgium. The hybrid scheme made use of a twisted logic to assume that a taxpayer being a multinational generates an “excess profit” so it redeems this factor by slashing its tax charge. Critics of the scheme argue that even if in fact a multinational does have a Midas touch then the benefits should be shared between its group companies in a way that reflects economic reality.

Back home, we may ask how SMEs can survive when facing blatant abuse of rules and regulations where for instance property barons with unstoppable clout clinch favourable deals with the government. Typically we may stop to reflect how the Gaffarena episode concerning alleged illicit property deals and collusion with officials in the Lands department acted as a harbinger of the difficult times which SMEs face when vying for public tenders – particularly for professional services.

In the Gaffarena case, the government took cognizance of a damning National Audit Office investigation and has sternly blocked the property transfer .The prime minister is currently suing Gafferena in court to reclaim the excess monies paid and property swaps that underpinned such allegedly illicit deals. So perhaps amid this wave of commercial volatility, one cannot omit to notice how last year saw a number of established consultancy and audit firms feel the temperature being too hot in the kitchen.

Some faced a dilemma and after some deliberation engaged brokers to find them a larger partner to merge their business, thereby hoping to consolidate their position in the market. This is not a trend that is unique to Malta since we read about a number of take- overs in the EU among smaller firms which due to the complexity of the market bite the bullet to merge with other mega firms – with the intention of not losing their identity and at best, improve market share.

A number of mergers come to mind particularly in the ICT, audit, legal and advisory services. Definitely this merger activity warrants a business environment complemented with a better understanding of the basic rules of good governance and transparency. Here one notes how recently CSB advocates has merged with legacy law firm GVTH and Ecubed Limited, a specialist consultancy firm managed by the well-known economist Dr Gordon Cordina (who inter alia conducted the Gozo subsea tunnel feasibility) joined the accountancy firm Nexia BT (a firm allegedly representing Monfoss in Malta).

Dr Cordina has recently resigned as partner of Nexia BT, quoting difficulties of credibility arising out of the Panama affair. Other regroupings and mergers among law firms will continue during 2016 as tougher EU directives and dispositions will be transposed in the domestic law. Natural justice leads us to believe that transparency needs to be manifested and be seen to be applied in public procurement for all types of services. Certainly many examples can be cited to show how SMEs try hard to win government tenders and even after they fail they toil to remain competitive and technically competent – hoping to be eligible for the next opportunity.

It goes without saying that prejudice against newcomers on the market is ingrained in the establishment – this is traditionally cornered by established forms / consultancies in various sectors. In this context, one reads about never ending directives at EU level, some of which aim to overhaul public procurement rules and set out common standards on contracts to boost good governance, fair competition, reduce distortion in the market and ensure best value for money by introducing new award criteria.

It is hoped that these rules will also make it easier for small and medium-sized firms to bid. All this brings me to the crux of this article as it refers to a fruitful trip by a delegation from PKF which visited the head of international relations at Massachusetts Institute of Technology (MIT) in Boston, USA to explore links to promote Malta as a potential ICT and/or Life Sciences hub for investors, inventors and entrepreneurs.

Such an unsponsored visit was jointly undertaken with co-operation from a technical representative of Malta Enterprise – although each party catered for its own expenses. The government has endorsed the initiative taken by PKF as it wishes that the island will become a centre of excellence in scientific breakthroughs and attract more bio technology and oncology clinical research and development.

Readers who may not be familiar with MIT may ask what is so special about this institution. The answer is MIT is rated as the world’s best university in chemistry, economics, linguistics, materials sciences, and physics and astronomy. Needless to say this impressive learning institution is the pride of the American intelligentsia and many countries are trying to emulate its success.

Taken to its logical conclusion one finds that support for similar ventures undertaken by practitioners ought to be encouraged and fully supported as even though full employment has been reached in Malta, we still need to explore new niches. A policy to maintain a level playing field, particularly for professional services, is sine qua non and in spite of unfair competition many SMEs wait in the eternally re-generating queue to enter the Pearly Gates of accredited firms.

In conclusion, while the island is making respectable economic progress on a number of important sectors (having achieved the highest GDP growth in Eurozone this year) the general public waits with bated breath for the publication of 42 local account holders shrouded in secrecy in the notorious Panama Papers.

George Mangion is a senior partner of an audit and consultancy firm, and has over twenty five experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island.

Author: George Mangion
Published on Malta Today, 22 April 2016
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