A report by the EU Greens/EFA party claims Malta’s tax system offers a number of advantages for foreign multinationals and wealthy individuals, which may hinder its ability to pass the future EU list of non-cooperative jurisdictions if it were screened based on the fair taxation criterion.
“On paper, a company is subject to income tax in Malta at a flat rate of 35%. In reality, Malta applies a full imputation system to relieve the economic double taxation otherwise arising on the taxation of dividends received by shareholders, which reduces the effective tax rate to just 5% for trading companies. Shareholders can receive a tax refund of up to six-sevenths of their tax paid in Malta. This system is applicable to both resident and non-resident shareholders, which is why it is not considered a selective tax advantage according to European competition law,” the report said.
The report added that its analysis of the Maltese tax system “shows the presence of preferential tax measures that could be regarded as harmful and facilitating offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the country. Depending on the interpretation of the criteria by the EU and the listing process, Malta could – if EU countries were also screened – possibly end up in the future EU list of non-cooperative jurisdictions”.
Maltese Finance Minister and economist Edward Scicluna dismissed the report as “outright bullying on the smallest EU member state to taint its undoubted economic and financial record in the EU to date”.
“The Greens Report is a pseudo-scientific report inundated with inaccuracies and untruths with parts lifted (cut and paste) from Maltese political journalism involved in local political parochial battles,” Scicluna told International Tax Review in response to the report. “What it depicts is a caricature of our system. Our system cannot be labelled in a fair manner as simply a 5% corporation tax.”
Tax commitments
The report comes as Malta takes over the six-month presidency of the EU Council from January 1 to June 30, with Scicluna chairing meetings on taxation.
Expectations from European citizens to deliver in the fight against tax evasion and avoidance, as well as money laundering, are high, given the OffshoreLeaks, LuxLeaks, SwissLeaks and Panama Papers scandals. The report questions whether Malta is up to delivering on the important EU-wide tax agenda.
“While its Presidency priorities do not even mention the word ‘tax’ and with important upcoming negotiations on a Common Consolidated Corporate Tax Base or a Public Country-by-Country Reporting, Malta simply cannot adopt a wait-and-see approach on European corporate tax reforms in the next six months,” the report states.
Scicluna said he wrote to Sven Giegold, a member of the Greens/EFA in the European Parliament, pointing out that during one's Presidency, a country's own interests take a back seat.
“The Presidency is judged solely by what it manages to obtain during those crucial six months,” he said. “So what Malta is simply asking, is to judge it by its work during the six-month term.”
The tax agenda
During Malta’s six-month term, Scicluna will be chairing the Economic and Financial Affairs Council (ECOFIN) meetings.
His first meeting as chair, on January 27, will look at, among other things, the proposed generalised reverse charge mechanism for VAT. On February 21, ministers will hold talks on the Anti-tax Avoidance Directive 2 (ATAD2) on tackling hybrid mismatch arrangements. A later meeting on May 23 will discuss a Council Directive on EU double taxation dispute resolution mechanisms, and the reduced VAT rate for electronically supplied publications.
Before Malta’s presidency terms ends, on June 16, ECOFIN will discuss the proposals for a common corporate tax base (CCTB), modernising VAT for cross-border e-commerce, the financial transaction tax, and a report on the progress of the Code of Conduct Group (Business Taxation).
Discussions on the CCTB could, however, put Malta in a difficult position as it tries to wrestle between remaining impartial during its presidency and its objection to the European Commission’s common consolidated corporate tax base (CCCTB) plans. The Commission has proposed implementing the CCTB and then introducing consolidation later.
Although Malta’s commitments to its presidency means that it will have to supervise these tax topics, as well as several others, the Greens do not believe it is up to the task.
The report points at the inclusion of certain Maltese ministers in the April 2016 Panama Papers scandal for having offshore interests. “This possibly casts doubts on Malta’s ability to push through EU anti-money laundering and tax reforms when it holds the European Presidency,” the report said.
