Malta, Greece and Cyprus use smart tax legislation to attract the registration of yachts in their jurisdiction. Put simply, wealthy yacht owners often opt to lease new yachts they eventually buy at a fraction of the price they would have cost when new. In this way, they end up paying VAT at the reduced rates that are chargeable for the provision of services. Leasing a yacht is considered as a provision of a service.

This tactic may all be above board but the European Commission is taking the view that Malta, like Cyprus and Greece, is going against the spirit of EU fiscal rectitude when it allows wealthy yacht owners to get away with paying less VAT on vessels they lease on paper but end up owning. Brussels has put Malta, Greece and Cyprus on notice of infringement proceedings for not levying the correct amount of VAT on the provision of yachts.

Pierre Moscovici, the French European Commissioner for Economic and Financial Affairs, Taxations and Customs Union, argues that to achieve fair taxation the EU needs to take action wherever necessary to combat VAT evasion. In his opinion, Malta’s treatment of yacht leases and the VAT they attract distorts competition in the maritime sector. He is equating tax avoidance through shrewd tailor-made legislation to tax evasion.

The fact that it is wealthy people that benefit most through these clever fiscal stratagems does not endear Malta to other EU countries because the harmonisation of tax practices is considered as one of the economic strategies to promote economic growth throughout the Union. This perceived unfairness can only stoke the anger of populist politicians who try to exploit the wrath of the unemployed and of those who feel the EU is not doing enough to improve their economic and social plight.

It is understandable that Maltese politicians will continue to defend Malta’s right to decide on fiscal matters without interference from Brussels. Nationalist MEP David Casa argued that, in 2015, when Mr Moskovici was a minister of the French government, his country had allowed a 50 per cent reduction on VAT on the total rental time in case of pleasure craft. What is good for the goose is good for the gander, Mr Casa seemed to be saying.

Entities involved in the yachting industry in Malta have also objected to Brussels’ move, deeming it discriminatory.

Malta will continue to sail in troubled fiscal waters as Brussels continues to harmonise fiscal practices and Maltese politicians will equally continue to defend the island’s right to decide on fiscal matters. There is no doubt that Malta’s attractive fiscal legislation is one of the main key success factors that have attracted massive direct foreign investment to the economy.

The social climate in the EU has changed over the past several years as significant sections of the electorate focus their support on populist parties that openly criticise Brussels of being weak when confronting issues of tax avoidance. The next EU presidency is likely to keep insisting that the spirit of fiscal legislation is respected by all member states.

Maltese politicians and stakeholders will continue to cry foul but building on alternative success factors, like the enhancement of workers’ skills, will, in the long term, ensure our economy can sail in calm waters.

This is a Times of Malta print editorial