Setting a precedent in international finance

Finance Minister John Dalli yesterday explained that the had taken its toll on smaller countries with limited resources and on operators in the areas affected but that Malta has still made considerable progress in the area. However, changes to certain adjustments must still be made to Malta’s legislation in order to upgrade its profile and to honour agreements made with the Organisation for Economic Co-operation and Development.

Mr Dalli’s comments came while he was addressing at the Third Meeting of the Global Forum Working Group on Effective Exchange of Information, which is due to concentrate mainly on the continuation of the development of a legal instrument for effective exchange of information.
Mr Dalli explains that the recent initiative by the OECD on harmful tax practices has resulted in a substantial increase in work and expense has had a large impact on smaller countries with limited resources.
Furthermore, Mr Dalli explained that such adjustments have also created certain problems in terms of concerns of those operating in the sectors affected.
Speaking on the progress made so far in area, Mr Dalli explains that Malta recognises that it still needs to adjust its legislation in certain areas to upgrade its profile and to honour the commitments that were made, "We are already working very actively in developing the required legislation although we are not obliged to implement before 2005. A meeting has also been held in Malta with OECD officials with a view to discussing some details regarding Maltese legislation relating to the commitment that Malta has given."
In this sphere, he adds that it is essential that the OECD recognise the efforts made by the Advance Commitment jurisdictions, while keeping them constantly abreast with all developments in the project’s progress.
Mr Dalli also referred to information in circulation to the effect that pressure may be building which could result in a rethinking on some aspects of the OECD project on harmful tax competition.
He comments, "In fact, the original timetable established by the OECD has been changed. Moreover, it is not very evident to non-OECD member countries whether or not there will be consensus by all OECD member countries on effective exchange of information.
"Certainty is very important in this area and non-member countries need to know what the actual position is since transparency is essential for the ultimate success of this project. I must stress, that any implementation plan by committed jurisdictions should be conditioned to an assurance that they will be competing on a level playing field with all other respectable jurisdictions and their dependencies."
Mr Dalli also reminisced how, in July 1998, Malta had received a first notification from the OECD’s Chairman of the Committee on Fiscal Affairs, that they had created a ‘Forum on Harmful Tax Practices’ that might examine Malta’s jurisdiction under the criteria set out in the OECD Report on Harmful Tax Competition.
He comments, "The first spontaneous reaction was one of exasperation. We were told that the Committee had targeted jurisdictions whose names appear frequently on published lists of tax havens. We did not really understand this rationale considering that we were not told what these publications were and that the Maltese authorities did not have any control on such publications.
"Moreover, it was Malta's policy not to project itself as a tax haven, particularly in view of the fact that our systems are modelled on and have clear parallels with those found in other respectable European tax jurisdictions."
In a letter that had been sent by the Chairman of the Committee on Fiscal Affairs, it had been specifically asked what measures Malta had taken to offset any harmful effects that our tax regime may have on other countries.
Mr Dalli adds, "In our view, Malta had set a precedent in the world of international finance by unilaterally taking corrective action and introducing legislation way back in 1994. This legislation ended the offshore regime in Malta and established an orderly phasing out of all the existing offshore companies by 2004. This exercise developed a comprehensive set of laws for the financial services sector that totally integrated into the total legal framework in Malta. It achieved our purpose to establish a comprehensive legal package that would provide a solid basis for Malta to establish itself as a reputable financial centre.
"The complexity of the exercise can be gauged from the fact that about 14 pieces of legislation were enacted that ranged from the enactment of totally new laws to enhancement, amendment and consolidation of existing legislation at the time. The legislation that was approved unanimously by the Maltese Parliament in 1994 follows general internationally accepted practice and conforms largely to EU standards."
Although Malta had not fully agreed with the OECD’s original approach with non-member countries, Mr Dalli explains that Malta had not seen any reason why it should not co-operate fully with the process that had been commenced - once Malta's regulatory and tax legislation was already very much in line with that of other European jurisdictions.