Updated - See government reaction below - The Finance Ministry is resisting a bid by the Office of the Prime Minister to replace the head of the Tax Compliance Unit, which is investigating Konrad Mizzi and Keith Schembri over revelations about their offshore companies, The Sunday Times of Malta has learnt.

According to senior government officials, the Office of the Prime Minister – where Dr Mizzi is a minister and Mr Schembri the chief of staff – wants to take advantage of the fact that the three-year contract of the current head of the TCU, Tarcisio Scicluna, is up for renewal.

However, the Finance Ministry is resisting pressure to replace him as it does not want to compromise the investigations into the suspicions of tax evasion emerging from the Panama leaks, the officials said on condition of anonymity. They said the ministry has full trust in Mr Scicluna and believes he has done a good job. The ministry argues he should have his contract renewed as has been the practice in the past.

“At this point there is no valid reason to change the current head of the TCU as he has performed very well,” one ministry official said.

“Also, it does not make sense to make such a change when the TCU is in the midst of one of the largest ever tax evasion probes. The OPM’s demands are being interpreted as direct interference in the course of the investigations and an attempt to slow down the work.”

The OPM’s demands are being interpreted as direct interference

Mr Scicluna was appointed head of the TCU in 2011. Following the termination of his first contract in 2014, the government had issued a new call for the post, as is customary.

However, none of the applicants were considered suitable for the post and Mr Scicluna was retained as the head of the TCU with his contract being renewed every few months.

Another call was issued soon after evidence from the Panama Papers started to emerge that Dr Mizzi and Mr Schembri both owned a trust in New Zealand associated with companies in Panama.

The sources say that Castille is backing one of the applicants – known for his open support of Labour – to take up the post but that the Finance Ministry is resisting the pressure and has not approved the appointment.

Asked whether it was true that Mr Scicluna was to be replaced by this person, a spokeswoman for the Finance Ministry did not reply.

She said: “It is standard practice that a call for applications is reissued when headship positions in the public service come up for renewal.” She also refused to comment when asked whether the OPM was insisting on a new appointment.

The TCU is currently investigating a number of alleged cases of tax evasion through companies based in Panama and the British Virgin Islands and owned by Maltese beneficiaries.

These also include Mr Schembri and Dr Mizzi, who is today a Minister in the Office of the Prime Minister.

The Times of Malta had revealed that both Mr Schembri and Dr Mizzi had breached income tax rules after failing to register their trusts with the Inland Revenue Department as they are obliged to do by law.

They are facing a fine for this breach and have been placed under investigation by the TCU and the Inland Revenue Commissioner.

GOVERNMENT REACTION

In a reaction, the Office of the Prime Minister described the above story as  "an outright lie."

"The Head-TCU position is a headship position with a regular 3 year definite contract, due to expire in this case in November 2016. The process follows the Public Administration Act and the Public Service Commission procedures which have been in place for years. This is a regular process which everyone in a headship position (Director upwards) undergoes regularly."

The OPM said the newspaper did not in any way seek comments from the Office of the Prime Minister. It claimed that the newspaper "resorts to unnamed sources to perpetrate a conjecture. This only continues to undermine the credibility of the story."

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