13 October 2004

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PM promises tax report on Malta House Brussels at first PAC hearing

• Property bought was not in original list
• Taxes on commercial floors still unclear
• Refurbishment includes asbestos removal

At the first Public Accounts Committee hearing on the purchase of Malta’s Brussels embassy, held on Monday, the question of whether taxes will have to be paid on the parts of prominent building that are to be leased to commercial companies remained unanswered by the prime minister, who said he was awaiting further advice.
Answering questions put forward by the Parliament Accounts Committee, Prime Minister Lawrence Gonzi said the government would not lose tax exemptions on the entire property if it commercialised part of it, but it was still unclear whether tax would have to be paid on the floors earmarked for commercial activities.
Prime Minister Lawrence Gonzi has promised, however, to pass on a report indicating the tax position related to Malta House in Brussels to the Public Accounts Committee (PAC), according to the minutes of Monday’s meeting.
Gonzi said that in the coming weeks he would take a decision on whether government entities such as the Malta Tourism Authority and Air Malta would be housed in the same building, depending on whether leasing the space to private companies would make more commercial sense.
Former Foreign Minister Joe Borg was the first to be summoned by the committee at 3pm on Monday. His hearing lasted almost two hours.
Prime Minister Lawrence Gonzi was the second in line and was questioned for about 75 minutes, followed by EU Representative Richard Cachia Caruana, who was questioned for almost two hours.
Gonzi confirmed that the refurbishment of the property included the removal of asbestos, and declared for the first time that he had ordered that the budget of Lm2.5 million for the refurbishment of the Lm6.5 million property was capped, which included construction works, furniture, IT and security.
Gonzi said that after the 2003 election, the foreign minister and Richard Cachia Caruana – then personal assistant to former Prime Minister Eddie Fenech Adami – were entrusted with studying the minimum number of staff needed at the Permanent Representation, which eventually was decided to be 62.
He asked the committee to refer most of the specific questions about the property scouting to Mimcol and presented a report signed by Albert Mizzi, Ivan Falzon, Peter Caruana Galizia and Martin Xuereb on 9 February 2004 giving the background behind the decision process and its signatories’ opinion why the building at 25, Rue Archimede was the best buy. The property selected was not one of the 16 buildings listed originally. Later, Cachia Caruana confirmed that the property selected was not among the original 16, nor did 11 Rue Schumann (another short-listed property from the final three buildings) as Mimcol had identified them independently afterwards.
“As minister of finance I asked for all the information and I reached the conclusion to endorse the negotiating team’s conclusion,” Gonzi said.
The prime minister said that the final decision to buy 25 in Rue Archimede was taken unanimously by Cabinet on 17 May this year, after he had presented a memorandum to his ministers.
“The responsibility rests with all the ministers of Cabinet,” Gonzi said.
Cachia Caruana later admitted that the memorandum was incorrect insofar as it did not specify that 11 Rue Schumann was not in the original list of 16 properties.
Gonzi was specifically asked whether Mimcol had acted independently or with the interference of Richard Cachia Caruana – a question he laughed off.
“I am satisfied with the independent manner with which Mimcol operated,” he said, “although the final decision was taken by the Cabinet.”
When asked about the profit made by the property seller, Cofinimmo, Gonzi said the company had declared profits of EUR1 million, although he believed it was possibly less because of taxes.
Labour MP Leo Brincat asked Gonzi whether he could deny allegations circulating “in court among Nationalist lawyers” that Cofinimmo had a nominee company with Maltese interests. The prime minister chided Brincat for “throwing rumours” irresponsibly and said that this never resulted from the information he had.
Asked why Albert Mizzi was involved in the negotiations, Gonzi said he had already been involved in the purchase of Malta House in the UK and had excellent negotiating skills. Mizzi was asked by Dalli for his opinion after the final three properties had been short listed, and then intervened on behalf of the government to negotiate with Cofinimmo.
Cachia Caruana said that in May last year he had a meeting with the prime minister, the finance minister and the permanent secretary at the foreign ministry. Walter Mallia, a Brussels embassy official, was appointed to meet estate agents in Brussels and scout for premises. He contacted five major property agents and drew up a list of 16 buildings.
Cachia Caruana said former Finance Minister John Dalli had decided to involve Mimcol in the process and so he met the chairman and chief executive of Mimcol.
Mimcol representatives visited Brussels five days later to view the properties, with Dr Peter Caruana Galizia and three foreigners helping them.
Cachia Caruana saw the properties himself at 25 Rue Archimede and 11 Rue Schumann on 22 September, after which he met Dalli and agreed that the former was the best buy. Dalli then decided that Albert Mizzi should negotiate the final agreement of sale with Cofinimmo.
Cachia Caruana said he had agreed to Ivan Falzon’s suggestion of choosing Martin Xuereb as architect, adding that he had declared to Falzon that Xuereb had done some personal work for him. He said he was the contact point between Mimcol and the government and insisted emphatically that Mimcol never reported to him but kept him informed. Mimcol, he said, was responsible to recommend the buildings that could be bought by the government. He also flatly denied having influenced the choice of consultants or properties, insisting that he only agreed with Mimcol’s opinion.
Also, he said he had never seen the final contract signed by the government. He also declared that it was Dalli who decided to buy the property, in line with the government’s policy of buying as opposed to renting embassy buildings.
Asked whether it was ever considered to build a penthouse on the property, Cachia Caruana confirmed that further rooms on the roof were planned to be built but these discarded because of financial and structural reasons.
Former Foreign Minister Joe Borg said that after negotiations with the EU were concluded in December 2002, he had a meeting with then Prime Minister Eddie Fenech Adami, former Finance Minister John Dalli and Richard Cachia Caruana – then personal assistant to the prime minister and former chief negotiator with the EU.
“The first decision we took was that the current embassy space was not enough to hold the minimum number of staff required working in our Permanent Representation to the EU,” he said, the minimum being between 55 and 60 persons.
“We decided to start searching for premises and the prime minister gave the responsibility to Richard Cachia Caruana to go into it; to check what’s available on the market so that we could make a choice.”
Borg said that during his years in office, his ministry had adopted a policy of buying embassy property “whenever it made sense” to do so. The government had already bought the embassy in Berlin, the property housing the High Commission in Canberra and the annexe to the embassy in Libya. Asked later whether there was any policy document stating this Borg said the ministry decided on a cases by case basis with the finance ministry.
Borg said he was not personally involved in the scouting for properties. Cachia Caruana used to correspond with the permanent secretary and keep Borg informed verbally about the progress.
“Mallia had drawn up a list of 16 to 17 properties,” Borg said, while in the meantime the finance minister had nominated MIMCOL to lead the process of acquisition of property.
When asked later, Borg said MIMCOL was responsible for setting up the negotiating team and that Albert Mizzi was involved at a later stage, around October 2003.
“MIMCOL and Cachia Caruana then identified three buildings which they felt were adequate for our needs,” Borg said.
These were situated at 1 and 25 Rue Archimede, and 11Rue Schumann. In mid 2003 it was decide that it was better to buy then to rent the property, Borg said.
He said nr, 1 in Rue Archimede was the preferred option initially but this had to be discarded because of a planned extension to the Brussels metro network underneath it. On the other hand, nr 25 turned out to be a suitable building because it was capable to house an increased staff complement whenever the need arose. The property at Rue Schumann was being offered for Euro 24 million – deemed to high for the Maltese government – and was also discarded by the government.
He said that the Cabinet and Parliament was not involved in the process of scouting for the property, as they were never involved on previous occasions when other embassy buildings were being sought.
“Maybe I was mistaken but it didn’t seem to me that I had to come to Parliament,” to discuss the acquisition, Borg said. “It was a government decision.”
On other occasions, it was the resident ambassador himself who was entrusted with finding the best property on behalf of the government but the former Ambassador to Brussels, Victor Camilleri, had asked to be redeployed to New York.
Borg said the Cabinet was presented with a report that also went into the different taxes that would be levied charged on the property if rented or bought, and also on the taxes charged if parts of it are leased commercially although the report “is not crystal clear on tax”.
Referring to statements made by the prime minister in the press about a report about the different taxes to be paid that he was still waiting for, Borg said: “I don’t know which report the prime minister was referring to. … The report was a general one and not by KPMG. … I think a more satisfactory report about tax implications still has to be finalised.”
Parliamentary Secretary Tonio Fenech said the government opted to buy instead of leasing the property as in doing so it was saving over thousands over a period of 27 years.
He said he would have preferred to get a deposit paid this year and then pay the full amount next year because of budget purposes but the owners did not accept this. Government had to pay from the consolidated fund, he said, because if any other model of funding was used the government would lose tax benefits, given the Belgian government’s complex tax regime.

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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