Wishy washy yester-thinking

Labour's partnership option is once again being conveniently morphed into the ultimate solution for putting Malta on top of the world - this time the financial world. According to the anti-EU misinformation spin doctors, banking secrecy and low tax will make of non-EU Malta the private banking centre of the day - yes, agreed, of yester-day.

"Finally, the EU had to accept that Switzerland can permanently adopt the withholding tax concept without any concessions on full disclosure." Such is the power of the (pie in the sky) partnership option according to Alfred Mifsud. Yesterday's wisdom!

"Switzerland grants exchange of information on request for all criminal or civil cases of fraud or similar misbehaviour on the part of taxpayers," was conveniently left out from Mr Mifsud's contribution.

In the Ecofin document released yesterday one finds that while "Austria, Belgium and Luxembourg will implement automatic exchange of information if and when the EC enters into an agreement with Switzerland... to exchange of information upon request..." and "(on) the entry into force of that agreement, Austria, Belgium and Luxembourg will cease to apply a withholding tax with revenue sharing". "The 35 per cent withholding rate will remain also after Switzerland has adopted exchange of information on the OECD standard". Is Switzerland faring better in the deal?

What Switzerland has agreed to do away with is the myth that one state, and a strong state at that, can carve out a reality for itself that outmanoeuvres that which the world's most powerful economic blocs chart out for themselves. By establishing a 35 per cent withholding tax for non-residents, Switzerland has given away its completive edge and French and German citizens are unlikely to be driving down the road to Switzerland to save tax on their savings.

Switzerland will be acting as tax collector for the EU member states and will hand over 75 per cent (and a bigger percentage in the future) of tax collected on non-residents. Mr Mifsud too now takes that as read. But he has not given up. He opines that we can do a lot if we retain a quarter of the 35 per cent.

Poor consolation! So the French and the Germans will now be falling over themselves to catch the first "free" flight to Malta where they can bask in a 35 per cent tax rate beyond the doorstep of the EU. Ah no, they won't even be stopping over in Switzerland, not unless they wish to risk being turned in for fraud or similar misbehaviour. "Switzerland grants exchange of information on request for all criminal or civil cases of fraud or similar misbehaviour on the part of tax payers." No it's not John Dalli saying it this time... it's Ecofin!

And Switzerland is not off the hook. "The 35 per cent withholding rate will remain also after Switzerland has adopted exchange of information on the OECD standard." Also, "The Council asked the Commission, in extension of its conclusions of June 4, 2002, to continue negotiations, in close conjunction with the presidency of the Council, with Switzerland and the other third countries, and to press for the exchange of information as the EU's ultimate objective and to report back to the Council before 2007."

Are our interests safeguarded in pursuing a temporary situation in this sector?

No. Malta's plan as an international financial centre is based on serious stuff.

Malta was 10 years ahead of times when it dumped its offshore regime and replaced it with a tax system that is the envy of our hardened competitors. Malta was again three years ahead in realising the implications of OECD, EU and other international initiatives aimed at establishing tax information sharing on a worldwide equal footing. And Malta is again showing the right kind of foresight and flexibility in positioning itself as a successful financial centre in the EU.

Yes, we will move into fund administration and fund management and we will go for insurance and trust management as well. The demand for outsourcing is out there, in Dublin and in Luxembourg as in other more likely places. Our cost structures are right and our people are among the most capable you will find. We have big advantages over most other candidate countries - languages, model-standard legislation and a top professional class. Give us a passport into the EU for our products and providers and leave the free flights to fancy.

Mr Dalli is Minister of Finance.