Business leaders in Malta are at odds with the European Commission’s push to reform tax legislation, despite the lack of clarity on the “exact effect and magnitude” such changes would imply.
Perit David Xuereb, President of the Malta Chamber of Commerce, Enterprise and Industry, reiterated the entity’s position in favour of Malta’s fundamental right to defend its taxation regime, stating that while it is a strong believer in the European project, it believes a “one-size-fits-all principle cannot be applied.”
Echoing the views already put forward by Malta’s MEPs, Perit Xuereb said that Malta’s fiscal policy was not “simply a way of collecting revenue” but a tool to attract investment, stimulate growth and overcome its disadvantages of smallness and peripherality. He underlined the need for Malta to be “more positive and decisive in arguing for our cause” when it comes fiscal policies, adding that the entity was prepared to “mobilise its expert members” in the face of growing international pressure.
Malta Business Bureau (MBB) President Simon de Cesare concurred, stating that Maltese business is against EU tax harmonisation “because this erodes fiscal competitiveness” for smaller and peripheral countries, and works against Malta’s interests.
“The EU formula for the distribution of taxes among member states, derived from a multinational company’s global taxes, does not favour smaller markets,” Mr de Cesare stated. He said that Malta can expect to lose out if tax systems are harmonised across all member states, since it would be less able to “attract foreign companies to set up a physical presence here.”
Yet, a European Commission official highlighted the benefits of a “pooled sovereignty” when meeting the challenges of the global capitalist system, in which multinational companies have taken advantage of the rules, to the detriment of the European pocket.
“When certain business activities threaten member state revenues, it is only logical that swift, decisive and timely action be taken – together,” the official underlined, while noting that the Common Consolidated Corporate Tax Base (CCCTB) meets two key objectives of the Juncker Commission, namely fighting tax avoidance and boosting jobs and growth.
“It would eliminate the mismatches and loopholes between national tax systems, which companies can currently exploit, while easing the administrative burden and cost on companies operating in the EU. It would create more transparency around each member state’s tax system and effective rates. This means fairer tax competition – no hidden rulings or special regimes – and a level-playing field for all businesses in the Single Market,” the official said.
Paul Giglio, Tax and Assurance Partner at international audit and advisory firm Mazars, said that while the introduction of tax harmonisation could be problematic to a country like Malta, it was hard to determine the exact effect and magnitude that this would have on the Maltese economy. Mr Giglio listed the island’s regulatory system, its pool of professionals who are able to give a personalised service to their clients; the euro currency; economic stability; as well as less bureaucracy in the manner in which business is established as key selling points which would be retained even if the EU voted to implement tax harmonisation rules.
He underlined the need for Malta to continue “providing different advantages and areas of specialisation, not merely tax advantages”, saying that any changes could be best countered by thinking “in terms of different products and ideas to sell, which are not tax-driven.”
These, in his view, should include “value-added services, which allow for remote global working”; innovation hubs focused on developing cutting-edge products; renewable energy systems and new international financial products. “If our authorities start to give this direction now, it is possible that Malta will again reinvent itself even in the face of this new challenge,” he said.
Mr Giglio also stressed the need to improve the island’s reputation as a financial centre, in the wake of recent criticisms which have led to the European Parliament’s recent ruling labelling Malta as having the characteristics of a tax haven. This could be achieved by strengthening regulators; eliminating false advertising in the financial sector; ensuring that businesses which set up in Malta comply with tax substance standards and practicing judiciousness when it comes to client onboarding.
Yet, despite the controversy the contentious proposals on tax harmonisation have created locally, it may be some time before any modifications to the current system are implemented. While some of the “steps to a fairer and more tax efficient environment in Europe” have passed, many of the sticking points have been in discussion since 2016.
There has also been substantial opposition to these proposals, particularly from small member states, with the Institute of International and European Affairs (IIEA), an Irish think tank on European and International affairs, underlining the challenges the new clause faces. The views of Malta Chamber’s Perit Xuereb, who stated that “Europe must listen to small peripheral countries such as Malta which by their geographical characteristics remain vulnerable irrespective of their current economic well-being”, reflected some of the issues noted by the IIEA in their report, which stated that “the likelihood of qualified majority voting being introduced for any new policy area, particularly an area that is so traditionally tied to national sovereignty such as foreign policy or taxation, is close to nil.”
This would result in the process towards tax harmonisation stretching out for much longer, until all member states are on board with the change.
The full version of this article originally appeared in The Malta Business Observer