Interview | Wednesday, 01 July 2009

Ensuring fairness and equity in tax law

Italian lawyer Pasquale Pistone is a lecturer at the Institute for Austrian and International Tax law. He spoke to CHARLOT ZAHRA about the importance of international tax law in everyday lives as well as the importance of a simple and fair taxation process

Pistone lectures both in Austria as well as in his Italian homeland. He says the reason for having to split his life between the two countries is that “in Austria there is the largest research centre in Europe.”
I am a full-time academic and Professor at the University of Salerno, where I’m heading the LL.M. in European and International Tax Law.
My main areas of interest are international tax law and European tax law, in both cases involving tax treaties. I focus a lot on the relations between the EU and third countries.
I am a full-time academic, but I am a lawyer myself. I studied law some years ago and I actually finished my studies in 1990. I then went for a doctorate.
I have been practicing as a lawyer for a while. I am very active in Europe but also in Latin America and Russia - where I visit on a regular basis. I also participate in a number of international conferences.

What led you to specialise in an area such as comparative tax law?
When I finished my course at university, I was undecided between doing European law and tax law, mainly because I found these two domains extremely different. Tax law stays at a very national level, where one observes the mighty and powerful state interact with the poor taxpayers. On the other hand, back in 1990, European tax law was really picking up, so I decided to do something new and try and combine both subjects. This meant applying European law on individual taxpayers, an idea that was really charming and challenging for me. Then I came across international tax law, because once you are dealing with super-national tax issues, you automatically enter into international tax law.
I wanted to find my own way to show that rights are rights, even when the state is involved as a counterpart.

How do you find comparative tax law interesting?
I must say that comparative tax law comes as a package. No one is simply interested in pure comparisons in the tax system if not for a specific purpose.
In an era of globalisation, you have to see it from a tax perspective. It’s not just about how much you tax a person, but also about repatriating income.
Even if a government makes a sacrifice and lowers taxes in a purely domestic situation, it is the international implications that matter.
So if a country makes a sacrifice with respect to its own tax policy and the rates of taxes, then the effect of this sacrifice might be offset by a countermeasure taken by another state.
Comparative tax law is not only needed to see how we can improve the structure within our own system, but also from the perspective of seeing how two systems may interact.
If you’re making a particular tax policy decision, one can see what repercussions this will have on an international level.
Comparative tax law is also strictly linked to how each individual system interacts with another, and this adds a flavour, turning it into a more interesting domain.

As an expert in international tax law, how do you compare the taxation system used in Malta with the taxation system used in other European Member States?
This is an extremely complex question to answer. Let me just give you an overview. One of the good things you’ve been doing in Malta is to work on a lot of tax treaties, because this is important when seeing the impact on other states.
I think your corporate tax rate is fine. Having a low corporate tax rate in Europe right now is not a problem. The system of 35 per cent tax with refunds paid on dividends is fine.
It used to be a problem in the past when corporate tax rate used to be high, but now it’s something that has been accepted. I think the future is about the exchange of information through tax treaties.
Malta currently has around 40 tax treaties in place, which means that you’re competitive. This is also extremely important because when you have a multinational deciding what country to operate from, this is an extremely important factor when deciding the location.
There are other issues about which one might think for the future. Few countries have remained with an imputation system but this should operate within the European Union on a non-discriminatory basis.
If you integrate domestically, you also integrate cross-border. This has become quite expensive.
There have been decisions of the European Court of Justice to support this non-discriminatory entitlement to integration to cross-border situations in Europe.
So many countries have moved out of the integration system into some kind of scheduled integration or into an exemption. The United Kingdom is an example of this.

What concrete measures should Maltese authorities take to improve the Maltese taxation system?
I would be a little bit more curious into knowing how and to what extent Maltese tax authorities exchange information. The fact that you have an exchange of information provision is, of course, a must in international taxation nowadays.
I would also read with great interest the kind of information that is requested by and to tax authorities in Malta and how information is exchanged between different tax authorities.
This kind of information is extremely important at a moment in which countries like Switzerland are giving up their traditional approach.
The OECD recently announced that Luxembourg had officially informed its willingness to be cooperative with respect to the effective exchange of information.
You do have a good treaty network which allows Malta to be a good hub in international taxation. Now it is also a matter of how effectively these rights and obligations are enforced. This is definitely one of the challenges of the future.
I previously mentioned South America. This is a geographical area which needs to have access to Europe, and if you really also want to be a hub, long-haul flights to this area should considered.
I know that Brazil was one of the countries visited by your envoy Francis Vassallo in his trip to South America.
I also stress the importance of doing something with respect to countries such as Russia, which normally operates through your competitor, Cyprus.
The fact that the tax treaty with Russia has been stuck in parliament for a number of years is negative - because of the image that you had in the past.
To be an international tax hub, you also have to be present at selected international tax conferences.
This statement on Malta’s tax reform was presented at an international tax conference in Russia and this has now been translated into Russian and published in the Russian Yearbook. Solving such problems will expand your long haul perspective as an international hub.
Moreover, the amount of education in international tax law that I have seen over here is quite satisfactory.

What are the main problems facing taxation systems, both across Europe as well as across the world, especially at this time of global recession?
One of the problems is the complexity of the tax system, which may be good for tax advisors but not good for taxpayers.
On the other hand, tax advisors have an important role in making rights effective. One of the speakers during the international tax conference held recently in Malta mentioned the Eco-Contribution Tax of 2008. In my view, this was the total opposite of what a user-friendly tax system should be.
I’m talking about rights, not just the ones on paper but also about effective rights. There have been cases decided at European Courts of Justice (ECJ) level on turnover taxes and their compatibility with the Sixth Framework VAT Directive.
Now these cases did not have the same features of your environmental tax, but apparently a Court of Appeal – a Court of Last Instance in Malta – decided the case against the taxpayer by invoking two precedents of the ECJ on turnover taxes which however were not on the same features of that.
Of course the IRAP case (called Banca Popolare di Cremona) and Kögaz case on Hungarian turnover tax has got nothing to do with this environmental tax feature.
So this is really not a user-friendly tax system; this is really a protection of rights on paper rather than an effective protection of rights.
Courts have an extremely important role to play in this respect. Tax Treaty negotiators have played their role, they did what they had to do. Tax authorities will for sure commit to do that, but tax courts and courts in general have to play their role.
Now a Court of Last Instance that interprets the compatibility of a Directive on a domain which is harmonised is not the job of that court – that’s the job of the ECJ, not of a National Court.
I think that taxpayers in a case like that should be entitled to a self-standing action for the purpose of claiming the financial liability of the Republic of Malta for depriving taxpayers of access to effective justice.
This is on the basis of a well-known decision of the ECJ (Köbler decision).
Time will heal and generate better educated people who can stand up for the rights of taxpayers.

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01 July 2009

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