The European Socialists’ proposal to impose an EU-wide corporate tax of 18 per cent would be a direct hit to Malta’s competitiveness because it erodes our ability to make up for our natural disadvantages when compared to mainland Europe.
Germany and France, like most of our European partners, have business advantages we can only dream of. From road and rail networks leading to virtually all European cities to prime raw materials and millions of eager consumers at close hand. Malta has none of that.
We need to make up for our structural deficiencies with our smart approach to business taxation. This is the argument I have long been making in Brussels in informal chats with foreign colleagues, politicians and journalists where the discussion invariably falls on Malta’s prized five per cent tax regime for foreign companies.
The Socialists’ proposal brushes off the structural deficiencies faced by islands like Malta and proposes a supposed level playing field across the board. We need to come up with sound arguments to fend off this proposal should it gain ground as a battle cry of the Socialists across the continent in the upcoming European elections.
First of all, an important caveat. Government representatives have recently pointed out the readiness to use Malta’s veto to block any such moves. We should be very careful not to rely exclusively on a Maltese veto as some sort of magic antidote to the European call for tax harmonisation. Our veto will not protect us forever on this. Suffice it to say that, in line with the Lisbon Treaty, nine or more member states may proceed with an initiative on their own in a field where other member states are opposing progress through a veto.
This so called ‘enhanced cooperation’ has already been deployed in such areas like the European patent and the European public prosecutor’s office. In the case of the European patent, Spanish opposition blocked a European law for years until the Lisbon Treaty provided the way out, with a European-enhanced cooperation including 26 member states, without the Spaniards.
Taking the patent as an example, the Spaniards insisted on keeping their own patent regime separate from the European one in a bid to save the use of Castellano as a scientific language. A few years down the line we see that Spanish companies are finding themselves applying more and more for a European unitary patent rather than just the Spanish one. The European patent office received an all-time high of 1,600 patent applications for Spanish inventions in 2017.
We need to make up for our structural deficiencies with our smart approach to business taxation
What’s the moral of the Spanish inventors’ story? That with the veto one can fend off European encroachment in one’s territory but European harmonisation will eventually engulf one’s own business model.
The moral is not irrelevant to our own tax regime. There is already a procedure en route for an enhanced cooperation for a financial transaction tax involving 10 member states including Germany, France and Italy proposing to tax transactions on shares and bonds at 0.1 per cent and derivative products at 0.01 per cent.
The radical 18 per cent proposal by the European Socialists could become another candidate for enhanced cooperation which, although not directly applying to Maltese companies in Malta, would still encroach on their operations in the continent, hence, effectively eroding the present competitive advantage of Malta-based companies.
I hear you ask: how do we fend off this move by the European Socialists? First of all, we need to change tack from thinking about using our atomic bomb – the veto – to using our foot soldiers to break the opposing ranks.
The fact that this proposal by the European Socialists finds itself high on the priority list of a Socialist manifesto for Europe is a worrying indicator that our foot soldiers are not pushing through. It is legitimate to ask why. Could it be that they find themselves in a weak bargaining position given that the government they find themselves defending is selling European citizenship and remains embroiled in worrying allegations of corruption at the highest levels?
The second consideration is that the Socialists’ proposal, albeit radical, as presented does, however, represent a wider call for tax fairness by other political groups including the largest group to which I belong, the European People’s Party. This latter element calls for a united front by all Maltese actors and a strategic planning of alliances with like-minded quarters in other member states.
When I visit gaming and financial services companies and when I speak to professionals earning a living from Malta’s expanding services industry they are least concerned as to which political party I come from but very interested in working together to defend their business model. To me, their business model is our own and I stand ready to defend it with sound argument and in unison with all those of goodwill across party and political boundaries.
Peter Agius is a Nationalist Party candidate for the European elections.
This is a Times of Malta print opinion piece