European Union regulators are examining corporate tax loopholes across Europe that allow companies to cut their tax bills, to see if they are anticompetitive, the EU’s antitrust chief said this week.
However, sources said that Malta was unlikely to be targeted.
“In the first place, Malta’s tax regime was already cleared by the EU and there were no state aid issues. Secondly, although the effective rate is low, when capital is repatriated companies could be liable to additional tax – even in countries with which Malta has a double taxation agreement,” the sources said.
“Thirdly, in December, Malta also signed an agreement with the OECD on the multilateral exchange of information, supplementing the exchange already provided for in many of the tax treaties.”
European Competition Commissioner Joaquin Almunia’s comments come amid growing criticism of schemes used by Starbucks, Apple, Amazon and others operating within the law to minimise their taxes by shifting their profits into tax havens.
US internet companies have been especially effective at cutting their overseas tax bills, because weaknesses in European tax rules mean it can be hard for tax authorities there to claim the right to tax online sales revenues.
The Group of 20 leading economies has launched a drive to tackle profit shifting.
Almunia said he was concerned about such aggressive tax planning.
“In those cases where national laws or tax-administration decisions permit or encourage these practices, there might be a state aid component involved and I intend to go to the bottom of it,” he told a conference.
“This is why in the last few months we have been sending requests for information to some member states where we have doubts about the consistency of some aspects of their legal framework or of their administrative practices,” he said.
Local operators are adamant that Malta has been able to build up its reputation as a financial centre without resorting to lower taxes.
“Maltese practitioners and governmental authorities share a common view that favours quality over quantity,” Priscilla Mifsud-Parker of Chetcuti-Cauchi Advocates said.
“Viewing Malta as an offshore tax haven just because Malta is an island is a glaring mistake. Malta is chosen as a location less on account of its benign tax system and more for its capable and hard-working workforce, its strategic geographical location, its sound legal and regulatory framework and, not least, the sun and sea factors.
“In the field of e-commerce, the choice of Malta as a location is often based on the established internet infrastructure and the attractiveness to international staff to work for online companies from a jurisdiction of their choice. This has resulted in significant job creation for the island and contradicts speculation about Maltese companies being used as brass-plate companies.”
Bernice Dimech, an associate at John Huber and Associates, concurred: “Malta’s tax system has already been scrutinised and approved under State Aid and Code of Conduct in 2006. Having the endorsement and approval of the Commission on Malta’s tax regime I am confident that Commisisoner Almunia is probably referring to other jurisdictions than Malta in making this statement. What the Commission has to appreciate is that some countries have to retain certain incentives because of their disadvantages, like Malta being on the edge of Europe and our size.”
The chairman of Finance Malta, Kenneth Farrugia, said that there are a number of key success factors contributing to Malta’s growth – and that being a tax haven is certainly not one of them.
“Just to mention a few I firmly believe that within the context of the economic turmoil that has gripped the European market, Malta’s political and economic stability has been an overarching reason that has attracted international business to Malta.
“Equally important is my view that the resilience of the banking sector, the presence of a comprehensive legal and regulatory framework, a single regulatory body and a highly skilled labour force with a strong work ethic have collectively contributed to the growth of the industry.
“In this respect, the 2013-14 Global Competitiveness Report issued by the World Economic Forum ranked Malta among the top tier of a total of 148 nations with regards to issues related to soundness of its banking institutions (14th), the regulation of Securities Exchanges (17th) and the strength and reporting standards (13th).
“Equally, in the last edition of Ernst and Young’s Attractiveness Survey for Malta, where 91 majority foreign owned companies were surveyed, respondents put forward a number of favourable comments on, among others, its political stability, economic and social environment and relatively highly competitive operational costs.
“The adaptability and education of the local workforce and the well regulated and good reputation that it enjoys were also considered to be plus points leading to 88 per cent of financial services respondents to believe Malta is attractive for FDI.”