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Australian Banks Look To Malta

by Mary Swire, Tax-News.com, Hong Kong

05 September 2007


The Australian banking industry is reportedly looking to Malta with growing interest as a place to conduct business within the European Union, but at a lower cost in terms of taxation.

According to a report in The Australian, the Commonwealth Bank of Australia is one of the first Australian banks to take advantage of the opportunities presented by Malta, with its CommBank Europe Ltd unit, holder of a Maltese banking licence since August 2005, now one of the island's largest financial institutions. CommBank Europe now has $1.3 billion in capital and had $4.7 billion in assets in 2006.

The Maltese banking sector has until recently remained largely a domestic affair, with only a small number of foreign banks establishing themselves on the island, for a combination of reasons. But given Malta's recent entry into the European Union, the arrival of institutions such as HSBC, and the growth of mutual fund listings on the Stock Exchange, it is expected that more international banking activity will take place in Malta in the near future.

For the Australian banks however, it is the existence of the favourable double tax treaty between Malta and Australia that is a major cause of their interest in the jurisdiction. The Australian reported that CommBank Europe's Maltese operation, in combination with lower tax rates in New Zealand, Singapore and Britain, contributed to a 150 basis-point reduction in the effective tax rate for CBA's banking operations to 26.7%. Tax paid in Malta was $2.3 million - equivalent to a rate of 7.3%, although top-up tax was paid in Australia under that country's controlled foreign country rules, the report stated.

One senior banker told the paper that his bank was also considering a similar structure, although a degree of uncertainty hangs in the air concerning the Australian Tax Office's view on such methods of tax minimisation.

"If this is OK, maybe we should be doing it too," he was quoted as suggesting.

While Malta is supposedly designated a "tax haven" by the Australian tax authorities, its rules and regulations have changed substantially with entry into the EU, and with the drive to 'clean up' offshore financial centres by the OECD in the early part of the decade. Incoming banks are now licensed only under the Banking Act 1994, and with abolition of exchange controls, there now remains little distinction between 'international' and 'local' banks, or between 'offshore' or 'onshore' banks. Foreign banks, which may operate through branches, remain subject to supervision by the Malta Financial Services Authority.

A comprehensive report in our Intelligence Report series examining offshore banking jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report3.asp

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