Malta is the only EU member state stopping a tax loophole costing billions of euros being closed, after Sweden dropped its opposition to a EU finance ministers' agreement to stop multinational companies exploiting hybrid loan arrangements to pay little or no tax, according to the EU specialist website euractiv.com.

It said the European Commission reassured Swedish diplomats last week that the deal on the revised Parent-Subsidiary Directive would not prevent foreign investment into a model of investment company used by national champions such as Volvo and Eriksson.

But Malta will not support the agreement, which was brokered by the Greek Presidency of the European Union.

All EU-level tax law requires unanimous support from all member states.

Malta argues that the wording of the compromise will compel member states to levy taxation on the basis of the revised Parent-Subsidiary Directive, which infringes on its sovereignty over tax decisions.

The Greek compromise, which is not public, states that countries should tax certain profits. The Commission’s original proposal said member states should not tax profits if they were not deductible by a subsidiary company.

The European Commission has identified hybrid loan arrangements, a combination of debt and equity, as a tax planning tool. Some countries classify profits from hybrid loan arrangements as tax-deductible debt. Others don't, creating a mismatch in national legislation that is being exploited by multinational companies. They plan their cross-border intergroup payment to pay little or no tax.

Maltese diplomats stressed that Malta supported the closing of the hybrid loan loophole, but said the wording was a “point of principle” as it strayed into national competences. Agreeing to the deal could also set a precedent for future legislation, which Malta is keen to avoid.