EC welcomes abolition of state aid schemes

The European Commission welcomed a recent notification by the Maltese government that it has accepted to gradually abolish the current aid schemes providing selective fiscal advantages to International Trading Companies (ITC) and Companies with Foreign Income (CFI). In a statement issued in Brussels, the Commission said Malta's acceptance renders the abolition of the schemes legally binding and will put an end to these long-lasting preferential regimes.

Last March the Commission announced that it had found that the Maltese schemes violated the EC treaty's ban on state aid liable to distort competition.

According to the Commission, Malta's acceptance means that the existing ITC and CFI schemes will be effectively abolished by January 1, 2007 at the latest and that by the same date, a new refundable tax credit system may be enacted by Malta provided that it does not favour foreign-owned companies over locally owned firms.

Accordingly, the tax status of ITCs is prohibited to any new company registered in Malta after December 31, 2006 and the existing ITCs shall benefit from the current system only until December 31, 2010. The number of newly created ITCs between the date of acceptance of the measures and December 31, 2006 will be limited to the yearly average number of ITCs set up in the last five years.

The Commission had formally requested these changes last March. Following this request, Parliamentary Secretary Tonio Fenech had told The Times that the government was already taking steps to comply with the Commission's request.

Mr Fenech had then said that these changes would form part of a whole revision exercise of Malta's taxation system which is currently underway by the tax reform commission, nominated by the government.