|The Maltese presidency of the EU Council is a new entry this year|
Malta's government has had to deal with a barrage of tax criticism over the years, but, while it held the EU Council presidency, it battled through that to deliver the amended Anti-Tax Avoidance Directive (ATAD) and enact of the dispute resolution mechanism, among other things.
"The work programme for the Maltese presidency in the area of taxation was an ambitious one and the reactions received from our counterparts in the Council, particularly from other member states and the European Commission, were very positive and acknowledged the work during our term," Malta's Finance Minister Edward Scicluna (pictured) tells International Tax Review. "The outcome of our efforts is a direct rebuke to the criticism received during our presidency, as it is clear to many that Malta did manage to lead the charge for tax reform in the EU."
Malta's six-month presidency, which ended in June 2017, also included working on the relaunch of the common consolidated corporate tax base (CCCTB), e-commerce proposals, and the reduced rates on e-publications proposals. The legacy of its efforts also lived on under Estonia's presidency (see page 34).
"The Maltese presidency managed to find agreement on a number of difficult direct and indirect tax files," Scicluna says, referring to corporation tax and VAT files. "Although Malta did not manage to conclude the latter, this was only due to political issues in some member states, and Malta's technical work is still perceived as having paved the way for a successful conclusion in the near future."
The EU and its member states have continued to be at the forefront on implementation of action points in the OECD's BEPS project, and this has naturally influenced the EU tax agenda. The directive on anti-hybrid mismatches (ATAD II), agreed in February 2017, and the Dispute Resolution Mechanism Directive agreed in May 2017 stem from this wider exercise (BEPS Action 2 and Action 14, respectively).
Scicluna, an avid sailor, notes what this achievement meant for him: "Modernising and improving the tax landscape within the EU is a priority for all member states, as global competitive pressures are particularly pronounced in the area of taxation. By finding agreement on the Dispute Resolution Mechanism Directive, for example, Malta contributed to building a robust and competitive EU tax system. Malta views the Directive as playing an important role in strengthening tax certainty and improving the business environment in Europe. This aspect of tax certainty was also a topic for discussion amongst finance ministers at the informal ECOFIN held in Valletta in April 2017."
There were a number of tax matters that the Maltese presidency was unable to conclude, however. Looking ahead, Scicluna says there are many opportunities for the EU, but these will not materialise unless there is a collective drive towards change.
"There is no doubt that the main issue at stake is profit shifting. The CCCTB is an ingenious method to ignore the ways in which profits are shifted and their respective counter-measures, and short-circuit this by consolidating corporations' profits and apportioning them by country through some agreed formula. The fly in the ointment is: which formulae will the countries be ready to accept? One which gives more weight to capital, or labour, or research?"
"The countries which see themselves at the losing end of this proposal have two lines of defence. The first is that they may disagree with the artificial formulae of apportionment. The second concerns the fact that while all European proposals are riding on the OECD BEPS recommendations, this one is not. There is no CCCTB in BEPS. For this reason I see greater resistance to its introduction."
On digital taxation, Scicluna believes wider European and global cooperation is crucial. Another important aspect of taxation that needs to remain high on the ECOFIN agenda, he says, relates to third countries. "This is particularly important in the context of the rise of Asia, the US and now Brexit. The EU needs to take greater account of the third country dimension. The EU is always at the forefront of global tax efforts, but unless our partners also follow suit we risk undermining the global tax system, which would be to our disadvantage. Tax avoidance and evasion are global phenomena, and should be tackled through global coordinated action. The third country dimension is essentially about ensuring a level playing field across the globe."
Malta's ambitious agenda during is six-month presidency set the tone for EU-wide changes for succeeding EU Council presidencies. This progress has been seen during Estonia's leadership and may be further enhanced by Bulgaria and Austria in 2018.
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