As published on maltatoday.com.mt, Friday 8 October, 2021.
The Maltese government has agreed on the OECD global minimum corporate tax pact but has flagged certain reservations over the text.
Finance Minister Clyde Caruana told MaltaToday that Malta has agreed on the 15% minimum corporate tax, but holds reservations when it comes to the €750 million profit threshold as well as excluded sectors.
“Every country is bowing its head to the agreement. This is because even if no other country agrees on it, countries can still tax the difference between what Malta taxes locally and that 15% elsewhere,” he explained.
If a multinational company with a local branch in Malta pays a 5% tax rate on the island, other countries will still be able to order for the remaining 10% tax to be paid in their home country.
The agreement will eventually be discussed at EU level so that it can be drafted into a directive. Once set in stone, a transitory period will allow government to help companies settle into the system.
Malta has one of the highest statutory corporate tax rates in the world, taxing 35% of end-year company profits.
However, Malta’s tax regime allows for companies owned by non-residents to benefit from an effective 5% corporate tax.
On Thursday, Ireland also agreed to bump its corporate tax rate to 15% after deciding to sign up to the OECD’s global minimum corporate tax pact.
Ireland’s 12.5% corporate tax rate will be dropped in favour of the agreed 15%, but even the Emerald Isle holds its reservations on the agreement.
Finance Minister Paschal Donohoe explained that Ireland was not ready to sign up to the original version of the deal. The country had been engaging with the OECD to arrive at a fairer agreement, and eventually secured the removal of “at least” in the agreement text.
As per the agreement text, the 15% rate will only apply to companies generating a turnover of more than €750 million.
Ireland’s low-tax policy allowed it to persuade large multinationals, including Google and Facebook, to place their European headquarters in Dublin.
Until 2014, the country had adopted a “double Irish” tax scheme that allowed global corporations to transfer their taxable revenue from an operating firm in Ireland to an Irish registered firm in an offshore tax haven.
However, the scheme had allowed multinationals to pay as little as 1-2% tax on their revenue. After facing pressure from its EU partners, Ireland agreed to outlaw the practice.