Malta faces a fresh battle in Brussels after the European Commission unveiled proposals aimed at streamlining corporate taxation and cracking down on tax avoidance.
Local tax experts told the Times of Malta yesterday the proposals were definitely not in Malta’s interests and expected the government to mount pressure on the Commission to block them.
“This is not the first time the Commission has come out with such proposals and countries like Malta and Luxembourg have always opposed them,” they said.
“If the proposals go through, it will be the beginning of the end of the major part of Malta’s financial services industry. You can just imagine what that will mean for Malta’s economy,” the experts said.
Asked for a reaction to the new proposals yesterday, no comments were forthcoming from a spokesman for Finance Minister Edward Scicluna.
You can just imagine what that will mean for Malta’s economy
French European commissioner Pierre Moscovici on Wednesday unveiled the consolidated corporate tax base (CCCTB). The aim is to oblige companies operating within the EU to complete only one tax declaration in a single tax jurisdiction, no matter how many countries they operate in.
Besides cutting red tape, the proposal is also meant to close some legal loopholes and stop firms from shifting profits to low-tax regimes like Malta’s, as taxes will be shared among the jurisdictions where the companies operate and generate profits.
Malta’s financial services regime is based on incentives given to foreign companies that can use the island’s taxation systems to their advantage while operating within the EU’s legal framework.
“The new rules will wipe off Malta’s advantages in this area and this, from our point of view, will surely give our industry a big blow,” a tax expert from one of the big-four tax advisory services audit firms said.
“As usual, this is coming from the large member states, mostly Germany and France, which are not happy with taxation jurisdictions like Malta, Luxembourg, the Netherlands and the UK taking away taxes from them. The difference this time is that the UK will not be on the negotiations table anymore. That might be a disadvantage for us,” another expert said.
Still, Malta will have the unanimity safeguard, because such proposals need the agreement of all the EU member states to get through.
The EU executive already tried to introduce a similar proposal in 2011, but its effort was resisted by some member states, including Malta, on the basis that taxation fell within the competence of each country, according to EU treaties.
The 2011 version was officially ditched with the presentation of the new proposal, which, according to the Commission, is a watered-down version. However, many experts still consider this to be a clear attempt by the large member states to tap into an area where they should not tread.
To make the proposal more palatable, the Commission is stating that agreement should be reached in two phases. First, on common rules dealing with the calculation of taxable profits and later by a decision on where the profits should be taxed.