Financial services providers, and their customers, have to balance the need to abide by new data protection regulations and financial rules that require data aimed at preventing financial crime, which has rightly become the focus of international institutions and regulators. Lack of information about changes in the various regulators’ data requirements could give rise to misinformed interpretation as to why changes are made from time to time.

An article in this newspaper highlighted how, from next year, investment services providers would be legally required under 2008 legislation to pass on information to the tax authorities regarding investments income that is charged tax at source.

As things stand now, these service providers are only obliged to submit to the tax authorities personal details of customers who opt not to pay withholding tax. Lack of timely communication by the Ministry of Finance gave rise to an interpretation that such a change went against the practice of investment services providers not having to provide details about their customers’ income on which final withholding tax has been charged. Many had repatriated previously-undeclared money to Malta under one of the various capital repatriation schemes introduced by this and previous administrations.

The Ministry of Finance denied that the change in the way personal data of clients who are charged final withholding tax on their investment income was done “by stealth”. It argued that recent regulatory obligations, including the Markets and Financial Instruments Directive as well as the Anti-Money Laundering Directive and the Foreign Account Tax Compliance Act, make it mandatory for various regulators to collect customer data that previously may not have been considered necessary.

These various regulations aim to discourage financial crime. Moreover, the tax authorities have a legal obligation to ensure that final withholding tax paid by investors to their service providers is effectively paid to the inland revenue authorities by the investment services providers.

The Ministry of Finance insists that discussions on this issue of personal data requirements relating to final withholding tax payers were held at various levels both in Brussels and in Malta. Some stockbrokers that spoke to this newspaper however claim they were not aware of the extent of the changes in the handling of withholding tax data.

The fight against financial crime is one that most people would support. This newspaper has often insisted on the need to intensify this fight both at the local and international level. Schemes encouraging the repatriation of undeclared capital against payment of a relatively small fine will always be a controversial subject.

Many argue that the repetition of these programmes encourages moral hazard as those who try to avoid being caught on the radar of the tax authorities and anti-financial crime regulators will wait for yet another scheme to sanitise their illegal position. Equally important, law-abiding citizens expect their data, especially about their legitimate wealth, to be safeguarded by the authorities that hold such information.

The Ministry of Finance, and also autonomous regulators, should pre-empt misinformed interpretations as to why specific data requirements change from time to time by making public announcements explaining why such changes are necessary. As in most other issues relating to taxpayers’ money, full transparency, clarity and timeliness of information helps the cause of good governance.

This is a Times of Malta print editorial


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