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Malta: EU Tax Reform Must Give Companies Investment Certainty


Added on 11/04/2017

European Union presidency holder Malta rejected claims it’s trying to slow efforts to clamp down on multinational company tax avoidance by raising concerns about the pace of reforms, but insisted companies have the right to tax certainty when making investments, reports BNA.

At the same time, EU member states led by Ireland complained April 9 that they are being forced to serve “two masters” in complying with EU tax reforms that sometimes diverge from reforms adopted by the Organization for Economic Cooperation and Development (OECD). These include pending EU proposals calling for country-by-country tax and profit reporting, as well as a common consolidated corporate tax base.

Facing criticism over a paper, “ Tax Certainty in a Changing Environment,” presented April 7-8 at an EU finance ministers meeting in the Maltese capital of Valletta, Malta Finance Minister Edward Scicluna countered by citing the presidency’s recent legislative achievements. They include a measure approved in February to regulate hybrid mismatches, as well as intensive efforts to comple Reform Momentum

“Good taxation contributes to tax certainty,” Scicluna said. “Because the end game is that companies need to know the future. They are investing today—parting with their money today. They want to know with certainty what the future holds when it comes to taxation.”

The remarks by Scicluna came in response to mounting concerns among some EU member states and leading EU-based companies that by adopting measures such as the Anti-Tax Avoidance Directive, which gold-plates a number of OECD base erosion and profit shifting reforms, the EU is putting itself at a competitive disadvantage, especially vis-a-vis the U.S.

Two Masters

Irish Finance Minister Michael Noonan, speaking at a closed-door session at the EU finance meeting, complained that the EU and OECD BEPS objectives can contradict each other.

“We cannot serve two masters” Noonan said, according to EU officials at the meeting.

In his comments, the Irish finance minister used the occasion to take aim at the pending EU Common Consolidated Corporate Tax Base (CCCTB) proposal, insisting the EU was pushing for a “formulary apportionment” approach for taxing company profits while the OECD is pushing for taxes to be paid where profits are earned. Ireland has consistently opposed the consolidation part of the CCCTB, as it calls for low-tax countries where multinationals are based to share profits with other EU countries where commerce has occurred.

The Irish criticism of the CCCTB clashed with the position of other EU member states, including Germany and France, as well as European Taxation Commissioner Pierre Moscovici. All insisted the CCCTB would not only reduce tax avoidance but would boost investment because companies would only be required to file one tax return instead of different returns for each member state with which they conduct business.

CCCTB as Rudder

In his remarks, which were seen by Bloomberg BNA, Moscovici also told EU finance ministers the CCCTB provides a proactive way for the EU to establish tax certainty for companies in the face of impending tax reforms in the U.S..

“At present, the greatest source of uncertainty undoubtedly in the international context is the potential impact of tax reform in the United States and the potential domino effect it might have ,” said Moscovici. “Are we going to wait and let it sweep us away, without a rudder?”

Instead, Moscovici said the best EU response to tax uncertainty is to adopt the CCCTB. “It provides security, stability and efficiency for our single market.”

Commenting on the Maltese presidency paper, Tommaso Faccio, a lecturer at the U.K.'s Nottingham University Business School, told Bloomberg BNA April 10 that company investment decisions aren’t only based on taxation. But he said a simpler tax system, such as the CCCTB, would provide multinational enterprises with tax certainty.

“The EU is the largest economic bloc in the world and should lead the way to reduce tax avoidance towards a fairer allocation of tax revenues across member states,” Faccio said.

Progress Slow

Despite the CCCTB benefits touted by Moscovici and other EU member countries, progress on the technical work in the Council of Ministers has been slow, according to officials in the Malta presidency tasked with chairing the work. When the European Commission relaunched the CCCTB in October 2016, it called first for an agreement on a common corporate tax base before moving onto the CCCTB.

“We were aiming to get an agreement on the CCTB by the end of our presidency, but at this point that is not likely,” a Maltese official told Bloomberg BNA. “If we can get an agreement on some core principles, I think that would be important progress.’”

However Maltese officials told Bloomberg BNA prospects for completing the pending EU Double Taxation Dispute Resolution Directive, which would establish various means of binding arbitration to resolve tax disagreements, are much more positive. He said divisions on issues such as the scope of the directive and territorial aspects are close to being resolved. This includes the likelihood the directive will cover more than business taxation, as was originally proposed by the European Commission.

OECD Touts Dispute Resolution

Speaking at a news conference after the meeting of EU finance ministers, OECD Secretary General Angel Gurria said an EU agreement on the Taxation Dispute Resolution Directive would be a vital complement to help ensure company investment decisions.

“We have spoken to 700 companies with a value of $17 trillion in 62 companies,” Gurria said. “And the number one concern they raised is tax certainty. And that is why the EU double taxation dispute mechanism is so important. We need to stop double non-taxation but also prevent double taxation.”te by June an EU double taxation dispute mechanism.