Last week’s decision by the European Commission to ask Ireland to demand the payment of €13 billion from Apple Inc. for unpaid taxes was the subject of conversation also here in Malta.

Many persons operating in the financial services sector started asking themselves whether the Commission would one day ask Malta to demand payment for unpaid taxes from a number of companies domiciled in our country.

As if that were not enough, the Austrian Chancellor was quoted saying that Malta’s tax regime lacks solidarity with the European economy. As an aside we could even get paranoiac about it and start wondering whether certain EU member states have something against us. Was the incident involving the French journalist who sought to board a cruise ship here in Malta with a toy gun in his bag, and then claiming there was a security breach, a mere coincidence or part of a bigger conspiracy?

However, let us get back to the substance of the matter. Will our taxation system that has helped to attract a number of foreign investors come under attack from certain EU quarters? Last Sunday the Prime Minister stated that taxation matters are a sovereign matter of the member state and not the Commission. That appears to be very much like a red line, which is not to be crossed.

We can even go further and make that line bolder. When Malta became a member of the European Union in 2004 under a Nationalist government, there was full knowledge on the part of the Commission of our taxation legislation and so asking for a change now is unacceptable. On this point there is certainly national consensus.

The European Commission lays down rules by agreement among member states on the level of the fiscal deficit but it cannot determine what the rate of taxation should be

The European Commission lays down rules by agreement among member states on the level of the fiscal deficit but it cannot determine what the rate of taxation should be. In fact, some countries have a much higher rate than others because they choose to do so.

Since the EU cannot enforce a common rate of tax among its member states, neither does it enforce common rules on the components of public expenditure.

One very practical issue is pensions. The maximum State pension in Malta is lower than the minimum pension established in some countries. That is our choice as much as it is in these other countries. Another two examples are the retirement age and the length of the working week. If a country wishes to have a working week of 35 hours, it is its choice.

We have made the choice to stick to our 40-hour week. That has implications on the economy and the tax burden.

So a common tax rate across the EU will of necessity bring about common rules on a number of other matters, which will only make the citizen more sceptical of the EU.

The Commission justified its decision on Apple by making recourse to state aid rules. It claimed that, “giving a specific tax treatment to a particular company gives that company a benefit just as surely as if it had been handed a bundle of cash. So the state aid rules apply to tax exemption just as much as to any other type of aid”.

Again quoting the Austrian Chancellor, he stated that: “Every Viennese café, every sausage stand pays more tax in Austria than a multinational corporation.”

It is admitted that some rules of taxation in certain countries may appear to favour multinational companies.

They use mismatches in tax rates to lower their tax burden. On the other hand, it also needs to be admitted that the Irish model of charging a corporate tax rate of 12.5 per cent has brought it massive foreign investment and generated wealth in that country.

In Malta we have experienced the same thing. This has meant that over time, Ireland and Malta have become less of a burden on the coffers of the EU, releasing resources that could be channelled to other countries.

So the issue that may have to be addressed by each member state is whether they have a fair tax system for its economy. Before governments of certain EU member states start to protest about the immorality of low tax rates, they need to address the immorality of wasteful public expenditure.

Possibly the most important fallout from the EU decision concerning Apple and Ireland is whether governments should reshape their tax system and public expenditure for the future to make them more fare.