Malta is adopting a very “cautious” approach on a proposal by the European Commission for a common system to calculate the tax base of businesses operating in the EU, according to Finance Minister Tonio Fenech.
The island fears such a system could see the island lose millions of euros in income from large foreign companies that have set up shop in Malta over the years due to a favourable tax system.
On the other hand, large member states, such as Germany and France, have been harping on the need of a level taxation playing field to lure more income.
This is the second time in three years the Commission is trying to push this initiative, technically known as Common Consolidated Corporate Tax Base (CCCTB), among the 27 member states.
A similar initiative moved in 2006 was abandoned two years later as some member states, including Malta, Ireland and the UK, opposed it fearing it was the first step towards introducing harmonised corporate tax rates in the EU, which falls within the competence of individual member states.
Although the new proposal is considered to be similar to the 2006 one, bar some exceptions, Mr Fenech said while Malta would be flexible in its approach it would only be possible for it to give the green light if the initiative was “revenue neutral”. This means Malta would not lose out of any of its current taxation revenue from foreign companies.
“We are always open to discussion but we have already made it clear we won’t be able to support a proposal which, at the end of the day, means less revenue for the Maltese Exchequer,” Mr Fenech said.
International taxation experts told The Times that Malta was taking “the right approach” to defend its national interest, although they had doubts on whether it was possible for such a system to be revenue neutral.
Ireland, which also has low levels of corporate taxation, enabling foreign companies to set up shop there, has already declared it would continue opposing the Commission’s proposal.
New Irish Taoiseach (Prime Minister) Enda Kenny said: “We won’t let the EU introduce harmonised corporate taxation rates through the back door.”
Taxation Commissioner Algirdas Semeta insisted his proposal was “not a first step towards harmonisation of tax rates”. Rather, it aimed to significantly reduce the administrative burden, compliance costs and legal uncertainties that businesses in the EU face to comply with up to 27 different national systems to determine their taxable profits.
According to the Commission, the proposal means companies would benefit from a one-stop shop system to file their tax returns and be able to consolidate all the profits and losses incurred across the EU.
Commission estimates show that, every year, the CCCTB would save businesses across the EU €700 million in lower compliance costs and €1.3 billion through consolidation. In addition, businesses looking at cross-border expansion would benefit from up to €1 billion in savings a year. The CCCTB would also make the EU a much more attractive market for foreign investors, Brussels says.
The proposal will now be discussed by the 27 member states following the opinion of the European Parliament. All member states have to agree before the proposal can become law.
All about the CCCTB
The Common Consolidated Corporate Tax Base is a single set of rules that companies operating within the EU could use to calculate taxable profits.
In other words, companies would have to comply with just one EU system for computing taxable income rather than face different rules in each member state they operate in.
In addition, under the proposal, companies active in more than one member state will only have to file a single tax return for all their activity in the EU.
The CCCTB would make it possible for companies to consolidate all profits and losses across the EU, thereby recognising their cross-border activity.
The proposed directive sets out clear procedural rules on how companies should opt in to the CCCTB system, how they should submit their tax returns, how relevant forms should be harmonised and how audits should be coordinated.
For each company or group, the tax return for all their activities within the EU would be filed through the tax authorities in their principal member state and this same country would be responsible for coordinating the appropriate checks and follow up on the return.