It is a fundamental principle of EU governance that member states have sole discretion on fiscal strategy. This rule is increasingly being challenged as a result of a perception that certain states are attracting investment not only by offering very low taxation but also by closing an eye to financial crime like tax evasion, money laundering and other practices that deprive other states from their fair share of tax on economic activities carried out within their territory.

Malta is the smallest EU state and its tax competitiveness strategy is attracting considerable attention from other member states and political parties. There is broad political consensus that we should not give up our right to hold on to our fiscal sovereignty. Our competitive advantage in attracting investment is based partly on an efficient tax regime that is attractive to direct foreign investors. Direct foreign investment in financial services, electronic gaming and other services has helped the Maltese economy, deprived of natural mineral resources, to flourish in the last two decades.

Yet, the European Greens are warning that Malta is a tax haven, which, between 2012 and 2015, deprived other EU states of €14 billion in tax thanks to Malta’s full imputation tax system that helps most investors pay an effective tax rate of five per cent. The Greens argue that, during Malta’s presidency of the European Council, important work needs to be done in earnest to promote various fiscal changes that, if finally enacted into EU legislation, will erode the island’s taxation attractiveness.

Finance Minister Edward Scicluna says “we should stop feeling guilty about tax competitiveness”. He believes that labelling Malta as a tax haven misinterprets the nature of the country’s tax regime.

But in the context of more political attention being given by US and EU regulators to alleged tax avoidance and evasion as well as money laundering, the Greens report on Malta’s tax system suggests that if European countries were also to be screened for inclusion in an eventual EU list of non-cooperative jurisdictions, Malta could fail to pass the test itself.

The Greens believe it is in the ‘fair taxation’ criteria that Malta is more likely to fail. This party believes that the presence of preferential tax measures could be regarded as harmful and facilitating offshore structures aimed at attracting profits that do not reflect real economic activity in the country.

It is more than likely that the war against money laundering will be intensified and there are attempts for the EU Anti-Money-Laundering Directive to be revised.

This could be a sore point for Malta as evidenced by the recent decisions of most US banks to stop corresponding banking relationships with Maltese banks party as a result of the alleged widespread activities of some electronic gaming companies that may be used to launder money in other countries.

The ongoing saga of politically-exposed persons close to the present local administration involving the opening of accounts in Panama and the never-ending investigations that have, so far, not seen the light of day are doing nothing to dispel the image of Malta as a tax haven. Only recently, sections of the Italian media carried out investigations that allege that an imprisoned political crony of Rome mayor Virgina Raggi is using Malta to hide his wealth from Italian tax and anti-financial crime authorities.

While Malta needs to defend its fiscal sovereignty, it must also ensure it does not become a magnate for the spoils of financial crime.