09/02/17

Country: Malta, Hanging on to our tax rate

There are important considerations when an MEP decides to launch a melodramatic tirade against an EU member state, reports Times of Malta.

The first is who the MEP is and what his or her agenda might be – and let us not be naïve: there are always dots to connect. Second is the substance behind it: anyone can claim that the sky will fall on our heads – but it takes more than an acorn to bring down a jurisdiction.

The third – and most important – is what Malta’s reaction should be.

Sven Giegold is a German, Green MEP and is a member of the Committee of Inquiry to investigate the application of Union law in relation to money laundering, tax avoidance and tax evasion. It is worth reading the actual text of his question in the EP: “While this Parliament has made the fight against tax evasion and money laundering a priority, Malta unfortunately exploits a loophole in EU corporation tax policy: it treats local income differently to international income. Local businesses have to pay 35 per cent on their profits; international corporations profit from a corporation tax rate of as little as five per cent. That is not social; that is not European. Prime Minister, I call on you to change that in the interests of the coherence of the common market.”

What prompted his interest? Is there any German interest in deterring German companies from setting up in Malta because of the attractive tax system?

Read carefully what Mr Giegold said: Malta’s tax rate is “not social, not European”. This is not about whether Malta is a tax haven or not, but about the changing global pressures which have turned perfectly legal and acceptable tax efficiency into a sinister infringement.

Malta’s imputed tax system is clever, innovative and quite unique, and it was completely approved by the EU member states – including Germany.

Tax in the EU remains a sovereign issue – but as long ago as 1997, it became clear that some sort of code of conduct was required for the growing Union. When Malta’s accession loomed, there were various elements of the tax system which would have run foul of state aid and competition law, and most were changed. The system was approved in March 2006 – subject to a few tweaks – and in November 2006, all the member states, albeit with some moaning and groaning, agreed that Malta complied with the code. By April 2007, the changes highlighted in March 2006 were made.

Mr Giegold was referring in his arguments to a 2015 report on aggressive tax planning – which was not endorsed by the EU, and it comes at a time when member states insist ever more vociferously on reaping the tax rewards for their companies’ activities. As he said, tax migration is “not social, not European” any longer. It does not make Malta a tax haven, a term which means a number of things to different entities – but not in the sinister, cloak-and-dagger context he implied.

Does Malta have full transparency on trusts? Full exchange of information? Tax loopholes that were exploited in the past? Let those without sin cast the first stone. After all, Malta was at least consistent across all countries with its tax rates – unlike many other countries.

No one expects that all countries will become saints overnight: the important thing is that there is goodwill and real action – which is why Malta must stop avoiding the Panama Papers scandal.

Malta may need to tweak its tax rate eventually, not because it is a tax haven but because such a competitive tax rate is “not social, not European”. But the country needs to do that at the right time – when it can bargain it against something it needs in return from the other member states… including Germany.