The Audit Office requests a disciplinary investigation from the Ministry of Finance regarding the misleading, as it characterises, statements made by officials of the ministry to the Parliament when discussing a 2019 bill proposal by DISY for deferred taxation.
According to the Audit Office, a specific banking institution benefited from the legislation (not named in the Audit’s report for the Tax Department) causing substantial loss of revenue to the state.
Based on the 2022 report for the Tax Department, Members of Parliament received incorrect information from officials of the Ministry of Finance during the bill’s discussion.
The report emphasises that the incorrect statements by competent officials of the Ministry resulted in the state losing millions in revenue.
Additionally, the Audit believes that Parliament was not adequately informed and was misled by the Ministry of Finance regarding the financial impact on public finances from amending the main law.
There were also implications from converting accumulated losses into credits amounting to €417 million in favour of bank “A”, a cost to the state.
Parliament was also not informed about the payment of a guarantee fee of approximately €6.25 million to the state (loss of revenue for the state).
As stated in the Audit Office’s report, the then Tax Commissioner had informed Parliament that no revenue losses were expected.
Additionally, the Ministry of Finance spokesperson stated that the proposed regulations would have no fiscal impact.
The Audit Office has called on the Minister of Finance to initiate an administrative investigation to determine which officials were responsible for the positions expressed by the Ministry’s General Directorate and, for those officials found to have acted negligently or negligently contributed to these positions, to conduct a disciplinary investigation.
Background of the decision
In March 2019, a bill was approved allowing the deferred tax obligation arising from accumulated losses of a credit institution that has been restructured to be converted into a tax credit under certain conditions.
According to the legislation, the framework’s duration is 15 years, starting in 2013. Additionally, the acquired credit institution pays an annual guarantee fee (1.5%) to the Republic from 2018 onwards.
The European Commission’s Directorate-General for Competition, a few days later, called on the Republic to increase the guarantee fee, leading Parliament to amend the law again, which provides for increased annual guarantee payments until 2028 to the state.
Consequently, the related tax credits for the period 2018-2021 amounted to €151.6 million, used by the bank “A” group, a total amount of €67 million for settling various taxes, leaving a balance as of 31.12.2022 of €84.5 million as a clearable refundable amount from the Republic to the credit institution.
Finally, it is noted that if these specific tax losses are not utilised/settled with profits in the coming years from 2022 to 2028, they will then create a tax credit amounting to €265.3 million in favour of credit institution “A”.
