Prime Minister Joseph Muscat’s own political family at the European Parliament has taken aim at tax systems like Malta’s which allow foreign-owned companies to legally reduce their tax burden.
In a policy document launched ahead of the European Parliament elections in May, the Socialists and Democrats (S&D) are proposing a minimum effective tax rate of 18% on corporate profits.
While Malta’s headline corporate tax rate is 35%, foreign-owned companies can apply for refunds which can potentially reduce their tax burden to just 5%.
Without naming specific countries, the S&D fair tax report notes that tax havens are no longer only “palm-fringed islands with zero taxes”.
“As shown once again in Paradise Papers, the most recent leak from the ICIJ, companies and individuals are able to exploit the differences between national tax systems to reduce their overall tax contributions,” the report says.
This is not the first time that the S&D has taken aim at Malta’s tax system.
In December 2017, the country narrowly avoided being labelled as a tax haven upon a proposal by the S&D in a report about the Panama Papers drawn up by the European Parliament.
Malta still retains veto power over these proposals
The Socialists and Democrats’ ambitious policy document also calls for the removal of the unanimity in council required on certain tax issues to ensure that “no single member state can veto much needed tax reform to its own benefit”.
Replying to questions by Times of Malta, Labour MEPs Alfred Sant and Miriam Dalli expressed their opposition to the socialists’ proposals.
“As my colleagues at S&D well know, I am completely against the ideas that have been launched in the S&D ‘fair tax’ study that they have commissioned and just published,” Dr Sant said.
“My position is well known inside the group and outside it. Were I a French or German MEP, I would have perhaps been in favour. But as a Maltese MEP I am definitely against the proposals being made.
“I fully agree that there should be full transparency in tax matters across Europe and that tough and reasonable steps should be taken to ensure that all taxes due are being paid in the jurisdictions where they fall due.”
Dr Dalli expressed her belief that taxation should remain the full competence of member states.
“As an MEP, I have defended and will continue to defend forcefully the need for unanimity on all decisions related to tax. The Maltese electorate can also rest assured that, if re-elected, I will strongly oppose all proposals that can hinder Malta’s competitiveness.
“Our tax system, which does not promote secrecy in any way, is a system that works and fully compliant with EU current rules and I will continue to promote it in all fora that I am and will be participant,” she said.
Questions sent to MEP Marlene Mizzi, who is not seeking re-election, were not answered by the time of writing.
A Brussels-based source told Times of Malta that although these tax proposals will be one of the main planks on which the S&D platforms during the upcoming elections, the likelihood of their proposals ever being adopted were remote.
“You need unanimity to change how decisions that need unanimity are taken, so Malta still retains veto power over these proposals,” the source said.