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Malta Leaks

Playing the Shell Game in the Mediterranean

Malta poses as a model member of the European Union, but it makes its living off of large European companies seeking to avoid higher tax rates back home. DER SPIEGEL went to the island nation to investigate, and found a lot of empty offices and empty words.

Wednesday, 5/24/2017   06:51 PM

As night falls over St. Julian's, the wind soft and warm after a summer-like day in May, it slowly begins to become clear, while standing on a balcony overlooking the harbor, why Malta does what Malta does. Why this small island has become a tax haven that sucks up the revenues from other countries, even though that money comes from partner nations in the European Union.

From above the waterfront promenade, one can hear the boisterous voices and laughter of the young men and women below, mixed in with a booming bass. It is the noise of northern European youth enjoying a night of Mediterranean partying, singing loudly in their hoarse, off-tune voices.

At such a moment, one can imagine what motivates the Maltese during the workweek: the idea that Europe must have more to offer than just the hordes of partying teenagers who anesthetize themselves in the nightlife quarter of St. Julian's on the strength of drink deals offering 60 shots for just 19.90 euros. The idea that Malta, poor in natural resources but rich in shrewd, hardworking people, somehow has a moral right to try to lure companies from the north to their country -- and to benefit from a small portion of the vast tax revenues that would otherwise remain in places like France, Britain and Germany. In the middle of the night, all of that seems to make some sense.

But it remains unclear why the best-known German industrial giants and the most successful of Germany's mid-sized firms take part. It isn't obvious what their moral justification might be -- why huge companies like BASF, BMW, K+S and Sixt, why smaller firms like Würth and Tchibo, or a well-known German television personality like Johannes B. Kerner, why a few thousand other companies on the Malta list assembled by the European Investigative Collaborations (EIC), are all apparently seeking to wring every last cent out of their revenues.

Why would they go so far to risk their good reputations -- and, in some cases, much more than that? A SPIEGEL investigative project in Malta shows that even global corporations are happy to share a single buzzer with three other companies on the island even as they and their subsidiaries aren't listed in the phone book. They are "unfortunately" unreachable "at the moment," nor are they available a short time later either. With their presence on Malta, the companies may be seeking to reduce their German tax bills -- but to do so, they have to be able to prove that they are in fact doing business in Malta.

Appalling Chutzpah

To find answers to these questions, it is necessary to speak with those highly respected companies, the pillars of the German economy. It is, however, also helpful to talk with lesser known people, the men and women who create such shell companies in Malta. And, particularly since Malta holds the rotating European Council presidency until the end of June, it is important to speak with Maltese officials and their opponents in the European Parliament, who are appalled by the chutzpah Malta displays in defending its tax model even as it leads one of the EU's key institutions.

And there is plenty to talk about: About the tricks used by German companies; about billionaires who scrimped on nothing when it came to their superyachts, except on sales tax, which is so much lower for ships registered in Malta; and about Maltese politicians, who are apparently used to thinking of themselves first when it comes to money.

"Malta's secrets are waiting to be discovered," reads a postcard that visitors are given before they fly home from the island nation, population 435,000. It probably isn't referring to the secrets of tax evasion, but there is certainly much to discover on the topic. The first address of interest: St. Julian's, Ross Street 7. It is an office building called "The Whispers," which is apt. This was the home of Robert Bosch Holding Malta Ltd., Robert Bosch Finance Malta Ltd. and -- because imagination seems to have been in short supply -- Robert Bosch IC Financing Malta Ltd.

Ltd., of course, stands for Limited, meaning limited liability, and it is the favorite corporate structure in Malta. The abbreviation can be found on thousands of mailboxes and buzzers -- and sometimes a half-dozen Ltd. names are stuck beneath the same letter slot. Founding a limited company is simple and requires an initial deposit of just 1,200 euros. Maltese officials brag that they sometimes don't need more than 24 hours to complete the formalities.

The words "Finance" and "Holding" are also popular elements in the names of Maltese subsidiaries of international corporations. After all, the focus is squarely on money -- money that is pushed back and forth between the parent company and its subsidiaries, often for one reason only: to reduce the amount subject to taxation back home, in Germany for example. One simple way of doing so is to show high costs back home while booking profits in Malta. The Mediterranean country may have a relatively high rate of taxation, at 35 percent, but foreign owners of Maltese-based companies, such as German parent companies, are refunded up to 30 percent by the Maltese tax authorities. Which leaves a tax rate of just over 5 percent.

That is enough to make the business model attractive to Malta -- better 5 percent than nothing at all. And it is fantastic for the companies -- 5 percent instead of closer to 30 percent in Germany. But it isn't such a good deal for the German tax office. According to calculations undertaken by the newspaper Malta Today, 2015 company profits worth around 4 billion euros flowed through Malta that would otherwise have been taxed in other countries, a sum 10 times higher than in 2006. Malta held on to just 250 million euros of that, with the companies in question holding on to the rest.

Selfish Rather than Smart

How, though, is it possible to divert profits to Malta? One vehicle involves companies transferring proprietary patents and licenses to their subsidiary on the island. Other branches of the company located in countries with higher tax rates must then pay significant amounts of money to the Malta-based subsidiary to use those patents and licenses. Another model envisions Germany-based branches borrowing money from the Malta subsidiary at high rates of interest.

Bosch, though, does none of those things because Bosch no longer has a subsidiary on the island. A woman in the real estate office on the ground floor confirms that the company used to have a subsidiary there but it had moved. She wasn't sure to where, saying it was odd that she couldn't find the new address. Perhaps, she said, her co-worker Nadia knew more, but she wouldn't be back until the next day. But it wasn't necessary to call back: Bosch decided to leave Malta in 2016, with the branches returning to Germany and the Netherlands. By January, all Malta-based Bosch branches had ceased to exist.

But why? Might it have to do with the fact that the Panama Papers were published just three months prior? The documents resulted in a massive change in perspective: Suddenly, those companies that routed their profits through a tax haven were seen as being selfish rather than smart. After all, such activity makes less money available for schools and roads -- for benefits the company takes advantage of back home while doing their best to avoid paying their fair share. Since the Panama Papers, companies with tax-friendly subsidiaries in Malta have been confronted with the question as to whether it is worth it.

Bosch has remained silent regarding its decision to leave Malta. The company would only say that it adheres to "the principles of best business practices" and that profits were taxed in the country where they were generated. Period. Whatever the case, the Bosch situation was the exception. Most companies with Maltese addresses hadn't chosen to depart by the time we visited them.

The route to the next address of interest leads past an historical arch bearing the inscription "Deus nobis haec otia fecit," "God has granted us this peace." Then, we are standing in front of Lufthansa, which isn't happy about the peace being disturbed. Lufthansa has 17 subsidiaries in the Aragon office building, including Lufthansa Malta Pension Holding, LSI Malta Pension and DLH Malta Pension. All of them, of course, have the Ltd. suffix.

Unfortunately, Malta-based manager Markus Pawlik doesn't have any time for journalists at the moment because he has to prepare for a meeting. He can only spare five minutes to tell us that Lufthansa employs more than 500 technicians who conduct maintenance on the company's planes in Malta. But why is the entire company's retirement fund and its leasing company based in Malta and not in Germany, where the company employs 67,000 more people than it does in the Mediterranean island nation?

A Bit Confused

Pawlik says he isn't authorized to discuss the issue and suggests calling the press office in Germany. There, one learns that the location of a subsidiary depends on many factors, including taxes. The company owes it to its shareholders, after all. And one is told that it is all legal and that German tax officials are aware of it.

A few streets over is the Mayfair Business Centre, a highlight of any company tour in Malta. A company called Jacobs Management Limited is located on the top floor. Does it perhaps belong to the German coffee giant Jacobs? Two women look a bit confused when we ask to talk to Mr. Jacobs. They ask us to wait outside and the door closes. A couple of minutes later, a man emerges. He looks to be about 50 years old and his hair is heavily gelled -- and of a length that distinguishes the self-made businessman from his employees.

He declines to provide his name and isn't interested in saying much else, either. He does, however, tell us that he has been in Malta since the country joined the EU in 2004 and that he helps German companies establish themselves here. Everything, he insists, is of course legal. "No shell companies." And he says that he has nothing to do with the coffee family Jacobs.

Which is true. The man's name isn't Jacobs, it is Braun, Peter Braun. Together with his brother, he establishes companies in Malta, and he sometimes lists himself as CEO, which is advantageous for his clients. His company Jacobs Management Ltd. is under the control of a company called Jacobs Capital Ltd., which is based in the British Virgin Islands in the Caribbean -- a place that plays host to thousands of companies with names like Jacobs Capital. The man, in other words, has plenty of experience -- apparently also with shell companies.

There are four companies registered to the floor just below him, all of them well-known in Germany. BASF Finance Malta is one of them. There are also two Limited firms belonging to the farm of poultry baron Erich Wesjohann, whose brother Paul-Heinz is the head of the poultry giant Wiesenhof. Sixt is also there, with a company called Sixt Financial Services GmbH, though the word "Financial" was exchanged for "International" in March. They all share a single buzzer, which is rather odd for three companies of that size. Searching the internet for an email address or telephone number for the companies is a fruitless endeavor. And a phone call to Deutsche Telekom in the search for a phone number doesn't help either: "Unfortunately, they aren't listed," we are told.

A man emerges in a denim shirt and casualwear and claims to be from BASF. But he says he has nothing to tell us, suggesting instead that we call the press office in Germany. His reserve is hardly surprising. When it comes to Malta, BASF is rather notorious.

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