The Bin Laden tax

As spokesman for the opposition on maritime affairs, I have had occasion to stress the point that our ship registration industry is steadily losing ground. Statistics show that over the last two years we have lost almost 15 per cent of our workload and this is alarming indeed.

The government must therefore do its utmost to reverse this trend since this important niche is proving indispensable for our volatile economy.

One area on which the minister concerned should focus is with regards to trying to reactivate a double taxation agreement we had with the United States, a treaty that persisted until the mid-1990s and whose abrogation is having a negative effect on ship registration in Malta.

The agreement was entered into in the late 1980s and indirectly proved to be very beneficial to our maritime activities.

In the early 1990s, our government introduced the MIBA Act that aimed to promote Malta as a financial hub. Under that Act, offshore companies were liable to pay only five per cent tax. This unfortunately portrayed Malta as a tax haven, thereby prompting the Americans to unilaterally revoke the treaty.

As an afterthought, it might have proved wiser had the government then embarked on a restructuring plan with regard to taxation to be paid by commercial companies. For example, it could have introduced a flat rate of, say, 20 per cent to be paid by all companies whether foreign-owned or owned by Maltese shareholders. This would have had the double effect of encouraging local commercial activity and acting as an incentive for foreign companies to register in Malta. Such an attitude might have persuaded the Americans not to pull out of the treaty.

Once the double taxation agreement was abrogated, ships bearing a Maltese flag became, so to speak, exposed and subject to American freight tax. Fortunately, however, there was an exchange of notes between the US and Malta in this regard and for a while, Maltese registered ships remained exempt from this particular tax. This notwithstanding, the exchange of notes verbal is not construed as having the validity of a treaty and could, given new circumstances, be ignored by one of the parties. And this is precisely what happened.

After the terrorist attack on the Twin Towers in 2003, the American authorities became far more rigid in such matters and this was to our detriment. It seems they took the opportunity to introduce a two per cent freight tax on those mercantile vessels which would not disclose their beneficiary owners, a tax that would be paid on all the charter hire. This tax is referred to in maritime circles as the Ben Laden Tax, due to its connection with the September 11 attacks.

Undoubtedly, this new tax puts an undue financial burden on ship owners, since it runs up their costs considerably.

Worse still, Greece, which could be regarded as one of our competitors, still enjoys a similar tax agreement with America and, therefore, Greek ships are not faced with this added tax, making the Greek registry more competitive than ours.

The matter has been raised in parliament not only by myself but also by members of the government. The Foreign Affairs Minister gives the impression that this issue is undoubtedly preoccupying even the government, which is endeavoring through diplomatic channels to try and arrive at some sort of arrangement with the American authorities.

I must, however, add that to date all the government's efforts have proven to be of no avail. Stronger diplomatic action is required.

The Foreign and European Affairs Committee has been invited to form part of a parliamentary delegation to the US this week. Being a member of the committee, I will be forming part of the delegation. Surely our trip to the US will give us the opportunity to bring up this issue with our American counterparts. This will, hopefully, give more impetus to our country's initiatives in this regard.

Though it can be said that it is extremely rare for the US to enter into such treaties with European countries, the fact remains that one such arrangement still persists with one of our competitors.

The fact that Malta previously enjoyed such arrangements could serve as a basis for future negotiations which, hopefully, will finally bear fruit.

Dr Herrera is a Labour Member of Parliament.