A landmark court decision in favour of Apple

Author: George Mangion
Published on Malta Independent 20 July 2020

It is not every day that we hear of landmark decisions that go in favour of taxpayers. The EU’s general court in Luxembourg decided this week that the Commission did not prove that the Irish government had given Apple, a tax advantage. This follows an appeal from a tax penalty of €13bn plus interest charged by the Commission on Apple Inc. for its trading activities in Ireland.

The case is highly sensitive for Ireland, a global hub for hundreds of multinationals attracted by its low 12.5% corporate tax rate and EU market access. In a similar tax case in 2019, the Luxembourg court annulled a decision by the Commission ordering the Netherlands to recover up to €30m in back taxes relating to tax affairs of Starbucks but, it upheld a decision that Fiat had received tax advantages that broke European state aid laws.

This time, the Commission alleged that Apple was given state-aid when it signed so-called “sweetheart deals” for its two companies headquartered in Cork, Ireland. The Commission charged that a selective treatment allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003, down to 0.005% in 2014.

The EU’s “state-aid” investigation concluded that almost all Apple profits recorded by the company’s Irish incorporated entities were internally transferred to a so-called head office that existed only on paper. The profit transfer to the “head office” had no “factual or economic justification”. The tax scheme worked out that a small fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland.

The remaining majority of profits generated in various European sales offices were allocated to the “head office” where they were considered non-resident and therefore remained untaxed. The Commission accused Ireland of striking deals with Apple in 1991 and 2007 that amounted to state aid, which is illegal under EU regulations.

The Irish government and Apple decided to appeal the commission’s decision, with the company arguing the order to repay taxes “defies reality and common sense”.  The Commission now has two months to decide if they want to appeal the latest ruling and potentially take it to the EU’s highest tribunal.

The Irish government said it has always been clear “that there was no special treatment provided to the two Apple companies” and that “the correct amount of Irish tax was charged in line with normal Irish taxation rules”.

How does this landmark ruling affect us in Malta as we are constantly under the microscope of the Commission over domestic tax concessions that have been in place and approved ever since we joined the EU in 2004. Such tax rules help us to attract FDI over the years which sustain thousands of jobs in bona-fide business activities. The country, located in the periphery of the Med., does not have natural resources such as oil, minerals, etc. to sustain its growing population. It cannot sustain any large manufacturing bases run by multi-national companies due to its size limitation.

Ever since the base erosion and profit shifting rules started to probe various small jurisdictions, Malta started to attract attention even though we have never availed ourselves of aggressive tax schemes to attract multi-national companies.

Our manufacturing base is not expanding due to COVID-19 restrictions and we face heavy competition from non-EU countries which offer lower wage costs and suffer no state-aid rules. Another aspect is the passport scheme. This was criticised at the European level where media sources reported on the adverse comments by the chairman of the PANA Committee who claimed that the IIP should be stopped. Alex Muscat, the parliamentary secretary responsible for MIIP, has announced that the original version is being “scrapped”.

Malta tries in many ways to attract niche markets. It promoted new initiatives to attract business from Europe. For example, two years ago it risked funds in building a comprehensive legislation and hosted international mega conferences to label itself as a “Blockchain island” but alas the vim seems to have died down.

Due to heavy scrutiny by the European Central Bank (in the shadow of the disgraced Iranian Pilatus bank) no local bank dares open an account for such crypto business. This has resulted in entrepreneurs seeking other shelters such as in Estonia, which has a friendly touch to the sector. The post-COVID-19 recession makes it paramount that as an EU member it is given a light touch regulation especially now that, starting from 1 October, all FDI from outside the EU (including Britain) falling under certain protected category will be screened and possibly excluded from investing locally.

More pressure came from Jeep Kofod, a PANA Report rapporteur. He recently called for the introduction of a minimum corporate tax rate, in his words to stop “the sick race to the bottom on taxation and regulation”.  In his opinion, countries that exploit tax inequalities for their own profit may be adversely affected by a law which aims to close this loophole.

George Mangion


Author: George Mangion
Published on Malta Independent 20 July 2020
Get in touch: info@pkfmalta.com

Bright ideas needed to help business recover

Author: George Mangion
Published on Malta Independent 15 July 2020

Reading through the weekend press, one notes how critics wax lyrical on the drop in business both retail and otherwise notwithstanding a lot of hype by the government saying it saved 90,000 jobs.

Statistics are cheap nowadays; for example, one wonders how 90,000 jobs were saved when around €20m a month was paid in job supplements. Each job supplement reaches €800 (10% FSS) and therefore this equates to a smaller number of jobs saved each month. A new gimmick is an issue, this week, of the €100 cash vouchers with an expiry date of three months that are distributed free to 440,000 residents.

This was a brainchild of Malta Enterprise, partly to compensate that it shall scale down on the wage supplements for the next three months. The populist idea to give plebs “bread and circuses” carries a short fuse. Some of the cash may temporarily quench the thirst of low domestic demand while other vouchers may be frittered away on non-essentials. Shops may fall into the temptation to raise their prices, accelerating inflation.

The alternative solution would have been a drop in VAT, so as to reduce the cost of living. Both the German and the UK governments recently took the plunge and reduced VAT on hospitality and food services to 5%. Obviously, reducing VAT without taking adequate measures to ensure shop and food prices are reduced is penny wise, pound foolish. Studies in Ireland have discovered that when VAT was reduced; most of the benefits were not passed to consumers. In Hungary, last year they tightened on VAT evasion by making each and every cash register linked electronically to a central system. This will facilitate remote monitoring of daily transactions and with careful analysis throw out the tax evaders.

In Malta, tax evasion on VAT (including hotels and restaurants) is high so if better supervision is introduced the drop in revenue following a rate cut can be partially recouped by better compliance. The following schedule shows how Malta’s COVID rate of 18% on food services is the highest in Europe.

The Chamber of SMEs has been very active, pleading with the government to introduce a recovery plan. There has been a number of suggestions such as subsidised rents but a one-time offer of €2,500 was considered too late and too little. Another suggestion was a revision of income tax brackets so small traders reporting income not exceeding €100,000 in profits are taxed up to 20% (the current rate is 35%). This was rejected.

The conversion of the existing Microinvest tax credits into cash grants to inject liquidity into businesses was a step in the right direction. This long introduction needs to be read in the light of Malta running an economy, which prior to the onset of the pandemic, was the envy of all EU states.

The IMF’s latest report on Malta was mildly optimistic saying that this year the economy will shrink by 2.8% before rebounding into a strong 7% growth next year. Unemployment is also expected to rise to 5% this year, the IMF said, before falling slightly to 4.4% in 2021. In reality, the actual number of jobless is closer to 20,000 and will probably increase after September, when the job supplement scheme is stopped. Upon reflection, we seem to have forgotten the golden pre-COVID days when living was easy and workers were hard to find. Reminiscent of such days, one can attribute the bonanza to a multi-million euro property market that flourished under Joseph Muscat’s baton.

The GDP growth doubled in seven years as the island had never seen such grandiose building projects and full employment (major building sites were recruiting Turkish workers). No feathers were ruffled at Miles End, when public land worth millions, was granted to selected hoteliers at fire-sale prices to encourage the promotion of upmarket tourism. Such affluence came with wanton greed for the erection of soulless concrete structures that sent the average rents sky-high.

During the so-styled L-Aqwa Zmien, money was no problem and the economy flourished resulting in an acute shortage of workers which was partly solved by engaging third-country migrants. In fact, thanks to Muscat’s populist administration, the economy turned the corner unleashing a feel-good factor that saw the nation throwing caution to the wind. Vices were camouflaged as virtues and state propaganda hailed the economic breakthroughs of VGH’s billion-dollar hospital deal, the Zonqor Point plan to host an American University, the India mega ITC project signed with Enemalta of €85m, a wind farm in Montenegro and the wonderful conversion of electricity generation to LNG. This was achieved by partnering with Socar – the opaque financial arm of the Azeri. Accolades were showered on the Muscat administration which turned a chronic deficit budget into a surplus.

Party apologists and other cronies, with snouts deep in the trough, previously told us to celebrate our fortune while migrants clean our streets and foreigners serve us in hotels and restaurants. An artificial sense of profligate living made us believe the party will never stop, but unfortunately, it did with the detection last December of a lethal virus in Hubei, China. So, one may ask what is the fly in the ointment of the proverbial isle of milk and honey? Do we deserve such misfortune?

Perhaps history repeats itself and human nature tends to score its own auto goals. The Bible story of the seven years of bounty to be followed by another seven years of famine rings familiar. Notice, how during the three months of lockdown, all schools, university, hotels, restaurants, gyms, shops, cinemas, bars, and places of worship were shut as if the Martians had landed and scared everyone to stay indoors. International business, so crucial to an open economy mainly based on services, is temporary on the rocks.

In conclusion, apart from internal problems mentioned above, one is conscious of the Damocles sword over our heads as the constituted bodies and banks fear that a negative conclusion of the Moneyval inspection will rank the island into a grey list.

George Mangion


Author: George Mangion
Published on Malta Independent 15 July 2020
Get in touch: info@pkfmalta.com

Cashing in the €20 free vouchers

Author: George Mangion
Published on Malta BusinessToday 18 June 2020

The spectre of rising rents and licenses makes one doubt if the landlord is earning more than the catering operator who risks so much time and energy to meet all the health and safety requirements.

In their quest to recoup losses faced during the three-month lockdown, operators let a sigh of relief when Hon Robert Abela, the prime minister announced an easing of regulations to allow restaurants to open under certain conditions.

The announcement of the fourth mini-budget is welcome. This is offering inter alia a cash injection of €34 million by way of €100 vouchers (five coupons of €20 each distributed free to residents over 16 years of age) to be spent in catering, hotels, and certain shops.

This announcement has caught the imagination of a number of operators such that the Malta Tourism Authority promptly reported to the press that it had received some 860 calls mostly from those within the hospitality sector.

Last month, a number of restauranteurs called to ask about various aspects of the protocols and what they need to do to become fully compliant in the shortest possible timeframe. The Chamber of Commerce insisted that businesses should be given a clear and safe direction on the way forward in a “responsible and structured manner”.

In its own words, the Chamber remarked that “At the same time the country ought to continue to give due weight to the nation’s economic needs as well as the physical and mental health of our people”. In plain words, the conditions imposed for restaurants and cafeterias to open varies for indoor and outside catering. For indoor dining, there has to be a reduction in covers such that the maximum number of diners will be one for every four square meter with a minimum distance between seatings of two meters.

This condition will reduce risks regarding the transmission of infection but of course, reduces the number of covers by half. Tables have to be limited to groups of not more than six diners from the same household.

Other conditions include the disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets. For outdoor dining (which is the preferred option) again, the same conditions for distance and family groups apply and no smoking is allowed. No doubt, restaurateurs typically queried details of the protocols and what they need to do to comply with inspections by MTA to certify the 2100 eateries that accepted the conditions to start operations.

Certainly, state TV was lauding this as a triumph for common sense hoping that the chance to recoup part of the income forfeited in the past three months, will encourage more restaurant owners to accept to restart operations. MTA hoped this will encourage all restaurants and cafeterias to join in the scheme.

One should wait to see how profitable is the new scheme given that most probably due to reduced covers, the operational costs will be higher, while most expect the spending power of some diners to be subdued. The injection of cash vouchers may see the whole country throwing caution to the wind and indulge in celebrating “Imnarja” traditional feast by dining out. Certainly, the heavily reduced number of patrons (especially as no tourists) may render the operation non-viable unless menu prices reflect a hefty markup.

One may argue that having a soft opening is better than total closure of the business since chefs and the support staff can at least become active. No study has been announced by the authorities to guide restaurant owners whether it pays to accept the conditions for a partial opening and guide them on the cost of health insurance against the incidence of risks of infection from catering staff or diners.

On a positive note, Malta Enterprise stated that in a spirit of support for the hospitality sector it will continue to pay the wage supplement (albeit at a reduced rate) to next September. This is welcome news, but as far as the viability of the industry is concerned it is a stop-gap solution, and unless seat availability improves then it is certainly a critical time for restaurant owners. Why does a simple meal of a gourmet pizza, a glass of foreign wine, and an espresso cost more than €20?

A major issue is the cost of food which has gone up since the outbreak of Covid 19. Quoting, Eurostat Malta experienced the highest monthly increase in inflation across the EU last April. Inflation went up by 2.9% in April when compared to March. The government preferred an immediate solution so rather than reduce tax, it opted to issue cash vouchers (a stop-gap measure).

A fair solution is to achieve parity in vat rates by reducing them to match those charged in other Med countries. This article explains how taxation of catering establishments (whether it is fast food or silver service) can be improved by lowering vat to 7%. One hopes it will result in cheaper meals. This will match the lower rates charged by our competitors in the Med.

It is no secret to note Luxembourg charges only 3% on food. Another novelty is Greece. At the peak of the Greek financial crisis, in September 2011, the VAT rate for non-alcoholic restaurant sales increased from 13% to 23%, yet following pressure from the sector, the government was persuaded to reduce it to 13% in August 2013 for a two-year experimental basis during which it transpired that more taxes were collected.

Catering in all-inclusive hotels in Malta is charged at a composite vat rate of 7%. In a nutshell, restaurants located in prime sites are facing increasing rents, now linked to a drastic reduction in the seating capacity as stated earlier and increased food costs. These combined factors push owners to either hike up menus as the alternative to remain tax compliant results in losses after the supplement stops. Some face failure as when the airport and ports reopen there will not be any stampede of cash-laden tourists.

The spectre of rising rents and licenses makes one doubt if the landlord is earning more than the catering operator who risks so much time and energy to meet all the health and safety requirements. Now due to Covid19 regulations they are facing reduced revenue but no reduction in fixed overheads. A reduction in vat on catering will encourage more patronage during these difficult times and reduce the cost of living – which is silently spiraling out of control.

George Mangion


Author: George Mangion
Published on Malta BusinessToday 18 June 2020
Get in touch: info@pkfmalta.com

Blockchain in Latvia

Author: Lauma Lubane – Economist Intern

Blockchain is a fast-growing technology that is believed to change the everyday life of many industries starting from cryptocurrencies and gaming to banking systems and even curbing shadow economies. Although the concept of blockchain was first used in 1991 by Stuart Haber and W. Scott Stornetta, it was conceptualized only 17 years later by Satoshi Nakamoto, the developer of bitcoin.

The use of blockchain started to grow rapidly after 2016 expanding in new industries like gaming and banking. Blockchain is described as a distributed ledger transaction or more simply a transparent, secure, and incontestable log of transactions that can be accessed by downloading the ledger. Although blockchain technologies are mainly linked to cryptocurrencies (especially bitcoin), they can be widely used in other industries as well.

Today, in 2020, Baltics are one of the leading countries in the development of blockchain. Although Estonia and Lithuania outstand remarkably from the rest of the countries in the Eastern European region, Latvia does not fall far behind its neighbors and has invested an immense amount of resources to develop blockchain technology. And it seems that the hard work has finally been starting to pay off.

In 2017 all three Baltic countries signed a Memorandum of Understanding to support blockchain initiatives. As a part of the memorandum, in the same year, Latvia’s parliament passed a one of a kind startup law with a special flat tax regime for startups. Another government’s initiative is a startup visa to encourage the creation of startups that in turn would trigger blockchain and crypto-based projects. The Financial and Capital Market Commission (FKTK) helps new investors and businessmen by consulting them on the needed licenses in the blockchain industry.

It seems that the attractive tax regulation and support from the government has been successful because in the first five months of 2018 Latvian startups had raised over 28 million euros in organizing ICOs (initial coin offering) which was a huge improvement when compared to 37 million euros raised throughout all of 2017. The biggest contributors were a digital bank “Forty Seven Bank” (10.84M EUR), a global bitcoin exchange platform “Globitex” (9.7M EUR), and a platform allowing to invest in scientists’ intellectual property rights “Aeternum” (3.05M EUR).

Another Latvian based company using blockchain technology is Latvia’s national airline company “airBaltic”. In July 2014 the company announced that it would accept bitcoin payments for flight bookings. “airBaltic” was the first airline in the world to take such a step. Although in the beginning, the initiative did not get much interest, later the company’s representatives revealed that the number of payments in the cryptocurrency has increased.

Latvia is also known in the blockchain industry by hosting the largest blockchain event in the Baltics in November 2017– the “Baltic HoneyBadger” Bitcoin Conference. The conference was one of the most important events on blockchain in the industry as it hosted numerous well known and respected speakers as Elizabeth Stark, the leader of the “Lightning Network” initiative and Pavol Rusnak, the creator of “Trezor”. The conference was well received and earned a great deal of popularity across the industry. The event was continued by another “Baltic HoneyBadger” conference two years later in 2019, again in Riga.

The blockchain industry has evolved in Latvia not only in the private sector but in the public sector as well. At the beginning of 2019 Economic Ministry of Latvia introduced two pilot projects to boost the efficiency of the services offered by the state.

The first one would ease the process of acquiring the status of a limited liability company (SIA) in Enterprise Register (UR). Currently, the Commercial Law stipulates that the board of Ltd is obliged to keep the register of participants with each owner or other changes in relation to the owners, as well as the board must submit the current version of the register of participants to the ER within three days of the change. The use of blockchain technology would reduce the information flow time between the entrepreneur and the ER and ease the process of registering changes for both sides.

The second pilot project involves the implementation of the cash register reform that would strengthen the supervisory capacity of the State Revenue Service (VID) and provide a proportionate financial and administrative burden for businesses to ensure compliance with the requirements set for them, thus reducing shadow economy. One possible solution would be to create a system or use blockchain to transfer trade data to the SRS online. A special 48-hour tax blockchain hackathon was set up to find a technical solution in April 2019. Just in two days, a winner team called “Z Book” created a solution by using QR code as a signature-based on blockchain technology.

Although Latvia cannot be considered as one of the leading countries in blockchain technology, it has achieved immense progress in the last three years by creating an attractive law system and fertile ground for startups based on blockchain. Moreover, Latvia’s government has also shown its 21st-century side by initiating the use of blockchain in the public sector as well. And the fruits of such actions can already be enjoyed: more and more startups are created every year and blockchain technology is becoming more known and used in Latvia. Hopefully, this trend will go up and create more and more success stories in the coming years.

Author: Lauma Lubane – Economist Intern

Medical Cannabis in Latvia

Author: Lauma Lubane – Economist Intern

Cannabis and marijuana made from it are one of the most famous and widely used intoxicating substances. Although it is common to link the use of cannabis and marijuana to intoxication for entertainment purposes, medical cannabis is widely administered in medicine to relieve pain and alleviate symptoms of serious illnesses like cancer. However, Latvia’s legislation does not authorize the use, cultivation, or distribution of cannabis punishing the offenders with a several hundred euro fine.

Despite these restrictions, appeals of cannabis decriminalization or legalization appear from time to time in local media, creating a great fuss among experts and society. These appeals are in line with practices existing in other European countries e.g. Georgia and Luxembourg and their actions. The latest commotion was observed in 2019 when Latvia’s neighbor country Lithuania decided to allow the use of medicine containing medical cannabis for treatment purposes. In response to the decisions taken by Lithuania, some Latvian activists prepared a petition for decriminalization and legalization of medical cannabis.

The former received around 500 signatures, while the latter gathered twice that number of signatures. In the past 10 years, several similar campaigns were initiated to advocate the use of cannabis, the biggest of them being a petition in March 2015 for the decriminalization of cannabis which was signed by more than 10 000 members of society and submitted to the Parliament. Despite the effort, the proposal was rejected in September using the old and worn-out argument of drug damage. To smooth things out, some officials appealed (and still do) that it is necessary to continue discussions about this matter, but the initiative should come from the doctors and experts.

However, it seems that there is a certain disagreement between the ‘experts’ themselves. While oncologists and pain doctors see benefits of allowing administration of cannabis in the treatment of patients, other doctors are more cautious and scrutinize the decriminalization or legalization of cannabis claiming that after all cannabis and marijuana are and will remain a narcotic substance. A small group of experts point the fingers to society and argue that society is not ready for such a dubious and controversial step.

It may as well be true because the society is quite divided (although not that much as doctors) in regard to the use of cannabis in medicine. 2018 survey carried out by the research center SKDS revealed the negative sentiment of the society on the subject. Around 78% of respondents think that cannabis should not be legalized, while only 15% supported the idea. Although the proportion of those advocating the use of cannabis has grown in the past 10 years, fluctuating from 7% to 15%, this group is still relatively small and weak to make a bigger change.

The society’s negative attitude towards cannabis might be a result of Soviet heritage. The USSR prohibited the use of cannabis in 1974. After the collapse of the USSR, less than 2% of the population used cannabis, though in a short time the use of cannabis and marijuana skyrocketed to the levels of Western Europe, although these substances were acquired illegally. This might be the reason why Latvians almost 30 years later still look at the use of medical cannabis with suspicion and doubt.

Even though the use of cannabis and marijuana is illegal in Latvia, it is the most widely used narcotic drug. EMCDDA data suggests that in 2017, around 10% of adults in age from 15 to 34 used cannabis while cannabis resin and herbal cannabis were top 2 seized substances. In the same year state police seized 50 marijuana farms while in 2016 this number reached 49 farms.

Although the illegal acquisition of cannabis and marijuana is mostly for entertainment purposes, some use it as a medical treatment and face legal consequences. Therefore, legalizing the use of cannabis for medical purposes might take off some patient’s pressure and decrease the acquisition of illegal cannabis. On the other hand, officials fear that such a decision might alleviate getting cannabis and marijuana for the use of non-medical purposes.

Despite all the drawbacks and critiques, the cultivation of cannabis could become a fast-growing, million-euro industry in Latvia’s economy. Although it is not legal to grow cannabis, several local farmers and food companies have considered the benefits of such business. Food producing company “Getliņi Eco” assumes that with the right investments, the cultivation of cannabis would be more profitable than the cultivation of tomatoes and cucumbers which are the company’s current main two products.

Exporting cannabis would bring millions of euro back to the country with added value and would also improve research and development on medical cannabis in local universities, institutes, and companies producing medicinal products.

In spite of persisting commotions and the potential of it becoming a million-euro worth industry, the use of medical cannabis is still quite controversial in Latvia and it seems that it will not change any way soon. However, everyone can agree on one thing: this is a discussion worth having.

Author: Lauma Lubane – Economist Intern

Unicorns seek nourishment in the AI trough

Author: George Mangion
Published on Malta BusinessToday 28th May 2020

Unicorns seek nourishment in the AI troughTaking a break from the ravages of the economic devastation by the Corona pandemic that is shaking the global economies, one may at least thank heavens for the blessing that humanity will reap from the benign qualities of AI.

How can this help humanity fight the scourges of the latest pandemic? The answer is that its ability to analyse large volumes of scientific data involved in the research by medical staff in their quest to combat the COVID-19 strain is vastly improved by using AI facilities. This resource can be of great value, especially in biotech, molecular experiments, and its accessory components of ubiquitous data, high-speed connections, and autonomous robots.

Undoubtedly, AI is fast becoming a major technological tool for prescriptive analytics, the step beyond predictive analytics that helps us determine how to implement and/or optimise optimal decisions.  In business applications, it can assess future risks, quantify probabilities and in so doing, give us insights how to improve market penetration, customer satisfaction, security analysis, trade execution, fraud detection, and prevention, while proving indispensable in land and air traffic control, national security and medical health.

This is not to mention a host of healthcare applications such as patient-specific treatments for infectious diseases and illnesses.  To mention a few examples of the rapid progress made by research and development co-funded by multi-national firms, one may start by mentioning Google.

The giant search engine firm is a pioneer in the field of artificial intelligence, developing self-driving automobiles, smartphone assistants, and other examples of machine learning. Equally important was the prediction five years ago by the late Prof Hawking who said the primitive forms of artificial intelligence developed so far have already proved very useful, but he fears the consequences of creating something that can match or surpass humans.

Large supercomputers are forging paths into natural language learning, realtime surgical procedures, climate change, molecular dynamics, cures for disease, and astrophysical simulation.  Take the example of Microsoft.  It has constructed a supercomputer designed for machine learning applications as part of its Azure cloud infrastructure service.  It should be one of the most powerful computers on the planet and it goes without saying that supercomputing may slowly migrate entirely to the cloud.

The supercomputer was developed for OpenAI, the organization working to build “safe artificial general intelligence” assuming such a thing is possible. The new, OpenAI-co-designed machine is massive.  It contains over 285,000 processor cores, 10,000 graphics cards, and 400 gigabits per second of connectivity for each graphics card server.

It was designed to train single massive AI models, which are models that learn from ingesting billions of pages of text from self-published books, instruction manuals, history lessons, human resources guidelines, and other publicly available sources.

The infrastructure hosted by the Microsoft-OpenAI supercomputer places it within the top five super computers in the world.  However, even more, remarkable is the fact that this super computer is optimized for AI workloads.  When it comes to the use of artificial intelligence in powering complex robotics, one cannot ignore the worst fears of prominent technologists and scientists like Elon Musk, the late Stephen Hawking, and Bill Gates.  Solemnly, they have all voiced alarm over the possible emergence of self-aware machines which unless harnessed, may in the future, be out to do harm to the human race.

A cohort of venture capitalists are funding this expensive research in the private sector and they are constantly poised to look out for talented persons in their ongoing recruiting outreach. Masayoshi Son is a Japanese investor who created Softbank (now with version 2) which he wants to mimic a “virtual Silicon Valley”, meaning a platform on which unicorns (start-ups that turned to become a billion-dollar marvel) can offer each other contacts and advice, buy goods and services from each other, and even join forces.

Son told CNBC that people should brace themselves for the proliferation of artificial intelligence as it will change the way we live within three decades. Son, who founded SoftBank in the 1980s, has grand visions of what technological advancements the future holds.

SoftBank’s subsidiaries are pushing the frontiers of technology in areas such as the “Internet of Things”, artificial intelligence and deep learning.  It hatched the unique “Vision Fund“ with an initial $100 billion war chest looking to invest in start-ups with operational experience, and technical background.  For this purpose, in the US, the Vision Fund is aggressively competing with traditional technology investors in Silicon Valley in a no-holds-barred fight for talent.

Son believes he has a unique ability to predict future technology trends, and gallantly states he is ready for the gamble.  SoftBank is synonymous with its charismatic founder that is reshaping global tech with its colossal treasure box.  It is shaking up the cosy world of Silicon Valley venture capital.

Enter the start-up Behavox, a US data operating platform that enables companies to aggregate, analyse, and act on their entire organization’s data, which was funded $100m by SoftBank Vision Fund 2.  This start-up company leverages machine learning and advanced analytics in a quest to provide a Data Operating Platform that enables organizations to aggregate, analyse and act on their internal data enable organizations to mitigate compliance, cyber and conduct risk while identifying revenue opportunities in large volumes of communications data.

In passing, one may feel that the disruptive path of this new technology constantly needs more champions armed with an aggressive investment appetite to nurture innovative ventures. Readers appreciate this disruptive technology has a benign purpose and is helping in many ways such as: to link various civilizations, improve crop yields, scan persons for the trace of infection in airports, schools, etc, accelerate COVID-19 vaccine research.

Artificial intelligence in machines is designed to carry medical assessments during epidemics when over-worked doctors are busy tending the sick. Imagine how in modern times, there are robots that are efficient and devoid of emotions as they quietly supervise hundreds of complex factory operations possibly during the temporary absence of workers cordoned off under an extended quarantine mandated during COVID-19 pandemic.

Again, one lauds the collective drive of Unicorns employing top scientists and researchers in their noble quest to discover an effective vaccine fit to eradicate the COVID-19 curse.

George Mangion


Author: George Mangion
Published on Malta BusinessToday 28th May 2020
Get in touch: info@pkfmalta.com

Will transfer market rules make it to Malta?

Author: George Mangion
Published on Malta BusinessToday 14th May 2020

#doubletaxation #tax #audit #transferpricing #ArmsLengthPrinciple #OECD #Malta #pkfmalta #pkfDuring the Covid-19 lockdown, it is obvious that state coffers are not exactly brimming with revenue so attempts by tax authorities to tighten the TM rules on cross border transactions become popular.  So far in Maltese law, there is no legislation on transfer pricing rules pertaining to OECD guidelines. Yet, why is transfer pricing so important for cross border taxation? The answer is international pressure to deal with perceived tax avoidance by multinational groups, a desire for increased access to information that enables the audit of the full value chain and the pressure to increase tax revenues by often exploiting intra-group transactions’ audits.

One needs to assess whether prices are genuine having regard to all relevant facts and circumstances.

During the Covid-19 lockdown, it is obvious that state coffers are not exactly brimming with revenue so attempts by tax authorities to tighten the TM rules on cross border transactions become popular. In Malta, which relies heavily on international trade, we are not completely shielded from this rule because in accordance with Article 5 (6) of the ITMA this gives the discretion to the Commissioner to determine the transfer price following the OECD guidelines.

In this regard, the Regulations provide that for the purposes of calculating the tax liability of a taxpayer, an arrangement or a series of arrangements can be ignored where it has been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law and is not genuine having regard to all relevant facts and circumstances.

One may also find a reference to transfer pricing in the recently published Patent Box Regime (Deduction) Rules, 2019. Here, there is a specific reference made to the fact that the determination of income or gains shall be made on the basis of a transfer pricing method in terms of OECD’s Transfer Pricing Guidelines. Taxpayers have so far been spared the rigours of transfer pricing exercises even though there are embedded in the law.

The arsenal includes general anti-avoidance provisions and brief references to transactions at arm’s length. There is an unwritten rule that regulates transactions between residents and non-residents which must adhere to the arm’s length principle. This means that prices quoted between parties ought to reflect the commercial rates usually charged by non-related parties.

Having said that, so far there are no fixed rules to establish how such prices can be determined. Furthermore, the new anti-tax avoidance (ATAD) provisions recently introduced in Maltese tax law re-emphasise the general anti-abuse rule already existent in Maltese tax legislation. In this regard, the law provides that for the purposes of calculating the tax liability of a taxpayer, an arrangement or a series of arrangements can be ignored where it has been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law.

The spirit of the law that regulates transfer pricing under OECD rules is therefore somewhat mimicked in our legislation. Effectively, it argues that any arrangement can be regarded as non-genuine to the extent that it is not put into place for valid commercial reasons that reflect economic reality. At this stage, let us give some background on the journey that took us to adopt ATAD. It was on 12 July 2016, that the Council of the EU unanimously adopted the Council Directive. Later, ATAD 2 was introduced which builds on the provisions of ATAD 1.

Another important rule requires Malta to apply the arm’s length principle in cross-border transfer pricing issues. This can be found in the Associated Enterprises Article of the OECD Model Tax Convention, which Malta accepted in its double taxation treaties. One may venture to comment, how indirectly transfer pricing rules do creep in our legislation.

A typical case is the right of a country that is a party to a tax treaty to adjust the taxable profits arising from transactions between related parties and binds the other country to make corresponding adjustments to avoid double taxation. Here comes the rub. Such adjustments must be made on the basis of the arm’s length principle that again refers us back to the OECD standard. The latter regulates how transfer prices for tax purposes can be computed.

As can be imagined, in similar circumstances there may arise disputes in the interpretation of how such prices are determined. In such instances, OECD rules allow for disputes to be referred to arbitration. This follows in terms of the EU Arbitration Convention, of which Malta is a party. Another remedy is provided by the Directive on Dispute Resolution Mechanism – this was transposed to Maltese law this year. As can be expected, Malta has so far not been subjected to such dispute resolution since transfer pricing rules are not applicable.

For most member states, such disputes can be common and arise when exercises are carried by respective countries to ascertain the arms-length – ie the true commercial price. In practice, this means that to prevent double taxation, a primary (upward) adjustment by one tax administration should be followed by a corresponding (downward) adjustment by the other. Needless to say, no administration takes lightly to a reduction of its tax base. That said, it is clear that in the field of transfer pricing, a sincere form of collaboration is paramount. Therefore, it would be expedient to recognise that it is in everyone’s interest to avoid double taxation and double non-taxation hence the reason to invoke the arm’s length principle.

To assist in reaching consensus, OECD highly recommends for parties to agree to a joint audit. The findings of such an audit should be incorporated in a concluding report. To the extent possible, tax administrations should endeavour to arrive at a common interpretation of how the arm’s length principle applies to the findings of a specific audit based on a scientific analysis of all the facts and circumstances.

Such an agreed outcome would give an undertaking that the audit does not result in double taxation. Only thus, can tax authorities reach a common understanding of how a true and fair arm’s length exercise works? Once agreement is reached then the necessary adjustment is passed in the countries’ respective domestic tax assessments. In the situation, where no agreement is reached then it is advised that a final report should still include all relevant facts and circumstances with a clear reference to the points on which the tax administrations managed to agree. One observes that a final report on a coordinated transfer pricing control does not have a legal value per-se, unless it is specifically empowered via national legislation.

It may also transpire that the facts subject to the audit result in an assessment under the arm’s length principle which does not alter the position during the tax periods before or after the respective audit period.

In conclusion, one cannot relax that the full burden of transfer pricing rules is not yet activated in Malta. How such rules will affect Malta and its financial sector in the future is too early to assess. What is important is that practitioners avoid taking an ostrich head-in-sand attitude.

George Mangion


Author: George Mangion
Published on Malta BusinessToday 14th May 2020
Get in touch: info@pkfmalta.com

COVID-19 lockdown: Will Brexit end without a trade deal?

Author: George Mangion
Published on Malta BusinessToday 30 April 2020

Will Brexit end without a trade dealWithout wanting to sound biased in favour of the EU, one must admit that London’s role as a world finance leader could also be in jeopardy. We hail the recovery of UK prime minister Boris Johnson, who was recently released from hospital after a three-week convalescing period following his Corona virus infection. He proudly resumed meetings with top ministers and advisers at 10 Downing Street while thousands of UK citizens were facing the brunt of being locked down during the past eight weeks of the pandemic.

The UK’s economy was badly hit by the lockdown and its health authorities are battling the consequences of infections, amid even stricter orders for citizens to maintain social distancing. Measures were taken not only to protect the health of the most vulnerable communities, but also their quality of life more broadly – including their financial security, mental health, access to resources, and social relationships. Even so, the economic and social disruption is clearly visible.

The streets of London, so ever fully populated by Londoners and tourists alike – are now bare and gloomy. Elderly citizens and other vulnerable persons are cocooned at home with only limited scope for venturing out except for buying essential goods or visits to doctors. All airports are closed except for airlines delivering essential cargo and many fear the slowdown will proceed to become a full-blown recession unless a vaccine is quickly developed. Scientists, all predict that a fully tested vaccine which can be produced by the millions and distributed globally will take another year to surface.

This unexpected calamity has exasperated the country with a double whammy of a recession combined with the possibility of a no-deal Brexit. Brexit will undoubtedly bring long-term systemic changes to the UK economy, politics and society, and there continues to be uncertainty about how leaving the EU might affect the lives of the UK’s inhabitants. Ideally, a full equalities impact assessment is conducted examining the potential legal and socioeconomic effects of Brexit on different groups of people.

The concern seems to be that the economic costs of abruptly withdrawing from the European Union without a trade deal might be buried by Boris Johnson beneath the damage wreaked by the coronavirus. Can this strategy be resisted and normality maintained since it goes without saying that vulnerable groups will be affected?  Undoubtedly, there will be unintended consequences. The poisoned cocktail of Brexit and the coronavirus in the UK will probably affect badly the lower working classes and the disadvantaged, albeit to a different extent. Indeed, Brexit without a trade deal is likely to exacerbate some of the deleterious effects of the virus. It can be argued that leaving the EU without a deal will make it more difficult to fight the aftermath of a pandemic.

The UK left the European Union on 31 January 2020. However, after three and a half years of debate since the 2016 referendum, there remains a lack of clarity about the UK’s future relationship with the EU. Some observers predict that at the end of negotiations it will obtain a Canada-style FTA, plus side deals on fisheries, data, judicial cooperation, transport, and energy. Back to the virus syndrome, it is noted that the UK will not seek to maintain membership of the European Centre for Disease Prevention and Control (ECDP), which oversees the surveillance of communicable diseases, including coronaviruses. Also departed is the European Medical Agency being relocated in Europe.

It boasts a centralised procedure for licensing new drugs; or the EU Clinical Trials Register which is another casualty under Brexit. The UK left the EU at the end of January and is now excluded from EU decision-making – and any collective support packages, for instance, the EU’s Coronavirus Response Investment Initiative – on the pandemic. The British government has stated that it does not plan to take the option to extend the transition period by up to two years. To keep to its promise, the government announced that negotiations on the future UK-EU relationship will continue, but they would be conducted online due to the coronavirus.

One cannot but lament the loss of some EU nationals working in the health and social care sector since Brexit, at a time when they are most needed. Readers may ask – why is there so much fuss about the UK leaving without a deal? For a start, the consequences of an economic divorce will most probably leave some disadvantaged people with less financial and social resilience, therefore, more vulnerable to both Brexit and the coronavirus.

Time will tell if the Chancellor’s financial package to fight the outbreak will be sufficient to meet people’s core needs. Last week, the European Union’s chief negotiator, Michel Barnier, said progress in four areas of discussion had been “disappointing”, while a British statement said, “limited progress was made in bridging the gaps between us and the E.U”. One can never be fooled that having eight months till the end of the year is sufficient time to reach a trade deal on complex issues which took over 40 years in the making.  To be realistic, it is pushing it when Boris Johnson reiterates that there will be no extension beyond the end of the year.

There are complex matters to be negotiated starting on the critical issues of aviation to fisheries, new customs posts at the border and a new immigration system. Little can be more vexatious than agreeing on how best to set up new border checks for both exports and imports. This could result in higher prices, border backlogs and delays, and even shortages of staples, such as food and medicine. When the prospect of a no-deal arose last year, some British companies and citizens began stockpiling goods. Thankfully, one major hurdle was solved that in case of a no-deal this will not lead to a so-called hard border between Northern Ireland and the Republic of Ireland, but rather to customs checks on goods traversing the Irish Sea.

Last year, saw several international firms which shifted their investments from the UK to elsewhere in the EU. Aerospace giant Airbus is a prominent example, pointing towards a policy of directing funds and jobs away from the UK if there is no trade deal. Such moves could put tens of thousands of British jobs at risk. Without wanting to sound biased in favour of the EU, one must admit that London’s role as a world finance leader could also be in jeopardy. Previously, as a full EU member, the UK’s financial services provided 11 per cent of tax revenue; 44 per cent of exports go to the EU.

If the majority of economic forecasts are correct and the UK’s economy suffers post-a no-deal Brexit, the negative effect will have an impact on all those groups represented in the low-income bracket (i.e. ethnic minorities, the disabled, refugees and asylum seekers, people who are precarious workers) who rely more on public services and benefits and have less disposable income and spending power. For those living in poverty or homeless, or suffering job losses, these impacts will also be deeply felt.

One augurs that Boris Johnson takes the bull by the horns and prioritizes the immediate damages inflicted by the pandemic and in a pragmatic manner seeks an extension so as to be adequately poised to resolve the tangled web of Brexit.

George Mangion


Author: George Mangion
Published on Malta BusinessToday 30 April 2020
Get in touch: info@pkfmalta.com

Wanted – a butterfly of hope

Author: George Mangion
Published on 
Malta Independent 28th April 2020

Wanted - a butterfly of hope

Governments are understandably desperate for anything that would forestall the deaths, closures, and quarantines resulting from COVID-19. Hope for a speedy resolution for discovering and manufacturing a vaccine for millions of users were quashed when experts were warned that a vaccine could be more than a year away. The waiting time is usually attributed to extensive clinical trials needed to ensure it is safe on human test subjects before distributing it to the wider public. Hot on the heels of such a topic comes World Health Organisation Chief Tedros Adhanom Ghebreyesus. Last month he cautioned that the struggle is far from over. Quoting his words “make no mistake: we have a long way to go”.

In Malta, the number of infected persons seems to go down to single figures on a daily basis but the health authorities warn us not to relax and keep maintaining social distancing. Elderly people over 65 years and other vulnerable persons are strongly advised to stay at home. It is now almost seven weeks that a partial lockdown has paralysed the economy as all hotels, bars, gyms, shops, schools, university, the international airport, and the central court are closed. One speculates that the apex of jobless totals will be reached by October this year unless some relaxation of the lockdown is ordered by the health authorities.

The bleak situation hits aggressively a number of sectors (not on Annex A), which are not covered by an €800 monthly grant by Malta Enterprise. In fact, all professionals like accountants, auditors, consultants, lawyers, notaries, engineers, fund advisers, and estate agents are branded as persons with deep pockets and consequently need no subsidy. One hopes a reality check hits the political team in Castille. The truth is that soon there will be multiple redundancies if the partial lockdown is not lifted by the end of next month.

Still, it is not all doom and gloom since Malta succeeded to persuade the Commission to grant €5.3m to help kickstart local research into a vaccine against COVID-19. How effective this sum is, is somewhat doubtful, since Malta is one of the countries with the lowest amount invested in innovation and applied research. Ideally, a sum not less than €200m annually is the extra amount urgently needed to reach the standard rate of 2% of GDP as recommended by the EU.

The more good news follows announcements that as infections in Europe gradually decline, countries are slowly lifting restrictions. Principally we notice how Germany has permitted small retail spaces to open while Poland has made parks and forests accessible to the public again. Lucky for children in Norway, they can now return to kindergarten, while it is encouraging to hear that open markets in the Czech Republic will be permitted to trade.

The race for a vaccine has been triggered and the president of the European Commission, Ursula von der Leyen, suggested that regulatory approval for an eventual vaccine might be expedited. The question follows that as the world is gripped in this pandemic and close to two million persons are infected, many ask: what is hindering laboratories in their quest to launch a successful vaccine? Let us talk a bit about what it takes to produce an effective vaccine that can be produced in sufficient numbers to be distributed globally. Normally, a vaccine is developed in the lab before being tested on animals. If it proves safe and generates a promising immune response in this pre-clinical phase, it enters human or clinical trials. These are divided into three phases, each of which takes longer and involves more people than the previous one. Phase 1 establishes the vaccine’s safety in a small group of healthy individuals, with the goal of ruling out debilitating side effects. Phases 2 and 3 test efficacy, and in an outbreak like the present one, they are conducted in places where the disease is prevalent. The mystery thickens when various medical experts caution us to be patient since there is no scope in rushing to produce a defective cure.

Governments, who fund such expensive research ask… Can people who have recovered from the disease catch it again? Still, there have been encouraging signs coming from different countries. The beginning of March saw a major news item about Israel’s major technology breakthrough. Enter Teva, one of the mega medical and drug companies in Israel. One of its recent discoveries is the hydroxychloroquine sulphate tablet drug. For readers with a medical background, one can add that according to Professor Didier Raoult, director of France’s Institut Hospitalo-Universitaire, the hydroxychloroquine molecule could indeed have an effect on the elimination of the Coronavirus. The tablet was originally approved by the US Food and Drug Administration (FDA) for the treatment of malaria, lupus erythematosus, and rheumatoid arthritis but not in the use for the treatment of COVID-19. Only this month, we received more good news that the FDA approved the use of chloroquine phosphate and hydroxychloroquine for emergency treatment of COVID-19 patients. The FDA is recommending only controlled clinical trials to test the drugs’ effectiveness in treating COVID-19 but is allowing doctors to give to patients in cases in which they cannot participate in such a trial.

Equally promising are other giant research firms that joined in the race. A typical contender is the British pharma giant GlaxoSmithKline currently in collaboration with Vir Biotechnology. It hopes this antibody testing will be completed within the next three to five months. Another strong contender is Modena Therapeutics, a company based in Cambridge, Boston, which has successfully developed a potential shortcut to a laborious process that could shorten the time it takes to develop vaccines against the current Coronavirus. Last, but not least is Inovio, a company funded by Bill Gates. Inovio claims it has been well ahead of other pharmaceutical companies with regard to getting a Coronavirus vaccine into worldwide circulation.

In conclusion, as many persons are cooped up at home, trying to maintain their sanity and work offline, one appreciates that our health authorities are doing a sterling job by controlling the spread of the infection. On the other hand, as warm weather is approaching there is a natural drive for islanders to go out and enjoy a long-awaited moment of liberation. Pray that the butterfly of deliverance will soon grace our balconies and windows.

George Mangion


Author: George Mangion
Published on Malta Independent 28th April 2020
Get in touch: info@pkfmalta.com

Covid-19 Measures – Follow the latest Government updates and measures

Covid-19 Measures - Follow the latest Government updates and measures

Covid-19 Government Measures
In light of the global health crisis the world is facing, the Maltese Government has introduced a number of measures aimed at alleviating the unprecedented difficulties which are being faced by private businesses and households alike. To assist you in understanding how these measures can be of benefit to you and your business, we briefly highlight the most notable measures in our official summary document. Follow the latest Government updates and measures: here

Malta Gaming Authority
We have updated our Covid-19 Measures document with the latest updates from the Malta Gaming Authority.
Read the document in the link below: https://issuu.com/pkfmalta4/docs/covid_19_measures

PKF Malta
In view of the COVID-19 virus outbreak, kindly be informed that as from Monday 16th of March 2020, our offices will be temporarily closed. Our staff will be working remotely and can be reached via email. Our company services will continue as normal to limit unnecessary disruption. This is in order to safeguard the health and well-being of the staff, clients, and any third parties. #stopthespread