Issue link: https://maltatoday.uberflip.com/i/1367395
16 maltatoday | SUNDAY • 2 MAY 2021 This article is part of a content series called Ewropej. This is a multi-newsroom initiative part-funded by the European Parliament to bring the work of the EP closer to the citizens of Malta and keep them informed about matters that affect their daily lives. This article reflects only the author's view. The European Parliament is not responsible for any use that may be made of the information it contains. MEPs object as EU moves forward on 21% digital levy DAVID LINDSAY ALL six of Malta's MEPs – Labour and Nationalist alike – broke ranks with their respective political groups this week when it came down to voting on the pros- pect of levying a 21% minimum tax on digital-based companies in the EU. The move, seen as another step toward establishing an across-the-board com- mon corporate tax so dreaded by Malta, was overwhelmingly endorsed by both the Socialists and Democrats, as well as by the European People's Party. But, in a break from the norm, Malta's four Labour Party MEPs all abstained from the vote. The two Nationalist MEPs, meanwhile, went a step further and voted against the resolution, which was adopted in the end with 549 votes in favour, 70 against and with 75 ab- stentions. The EU's bid for the harmonisation of corporate tax rates has long been as bone of contention with Malta, which levies lower and more preferential rates for multinational companies basing themselves in Malta, much to the cha- grin of their 'home' countries, which are being denied. Such companies making bases for themselves in Malta have in- cluded the likes of BMW, Lufthansa and Volkswagen. The EU has been seeking to draw up new rules to prevent such companies from setting up 'letter box subsidiaries' in countries solely to qualify for a softer tax regime. The Maltese registry of companies is riddled with a plethora of such brass plate offshore companies, and the Mal- tese taxman is making a pretty penny from them, despite the low tax rates be- ing applied. Past cases in point in Malta have in- cluded the well-known example of UK energy giant Npower having dodged paying up to £108 million in UK cor- poration tax by posting a loss in the UK, and instead shifting its profits to a subsidiary company in Malta. Austral- ia's Commonwealth Bank had used a back-office firm in Malta, Commbank Europe Limited, to save several millions in taxes. The general accusation Malta faces is that, in so doing, it is serving as a tax haven by allowing such companies to avoid paying taxes in their home coun- tries or in the countries in which they actually do their business. This, they ar- gue, constitutes profit shifting to Malta, which, in their view, is effectively rob- bing other states' coffers to enrich its own. Malta offers a specific, and attractive, tax regime with a very low effective tax rate. The nominal rate of corporate in- come tax is 35% but by the grace of Mal- ta's full imputation system of taxation, the 'real' rate can go as low as approx- imately five per cent if the taxpayer is organised in a certain way, such as by having a group of a minimum of two companies (parent and subsidiary) that are resident in Malta. This week's European Parliament res- olution puts digital companies alone in the cross hairs over such practices, for the time being, but it is seen as having represented another large step toward establishing an EU common corporate tax – the prospect of which has been vehemently opposed by successive Mal- tese administrations. Maltese MEPs resist That explains Maltese MEPs' resist- ance to the resolution, which had been widely embraced this week by Parlia- ment, in line with its consistent calls to level out the EU's taxation playing field. Contacted for an explanation behind their vote, which saw them break ranks with the EPP, Nationalist MEPs David Casa and Roberta Metsola recalled how their joint position has always been that taxation should remain, as far as possi- ble, a question of national competence. "On this particular file," they told Mal- taToday in a joint statement, "we would have preferred if there was more clarity as to the type and size of the companies this would affect and what measures would be proposed to mitigate any neg- ative, disproportionate, effects on econ- omies like Malta." "We must be very careful not to go down the road of having a dispropor- tionate response that risks infringing on States' sovereignty on taxation matters. "Coming from Malta, we need to make sure that any measures we propose do not place a hugely disproportionate burden on economies like ours that re- lies on competitiveness in taxation. "Our hope is that the clarity we need will materialise going forward." Ambiguous text leaves question mark over remote gaming While the overall aim is at digital gi- ants such as Facebook and Amazon, the text is somewhat ambiguous as to which companies will be affected and, as Met- sola and Casa observe, lack, "clarity as to the type and size of the companies this would affect". As far as Malta is concerned, there could be a question mark hanging over the remote gaming industry and the lucrative taxes the government rakes in from their presence in Malta, where they partake of the disputed advanta- geous tax rate on offer. That revenue, and indeed the signif- icant employment the industry gen- erates, could stand at risk depending on the final version of the digital text, which would still need to be approved at Council level and, being a tax matter, will require the unanimity of all mem- ber states. Much, however, will depend on paral- lel ongoing negotiations on an interna- tional level at the Organisation for Eco- nomic Cooperation and Development and the United Nations. Last week the UN Committee of Ex- perts on International Cooperation in Tax Matters today agreed to the text of a new article and commentary for the UN model tax treaty that would grant additional taxing rights to countries where an automated digital services provider's customers are located. Such automated digital services, ac- cording to the Committee, involve income received with little human in- volvement from the service provider and specifically include income derived from online gaming. Commission wants new tax operable by 2023 As such, and considering its past stances against any sort of tax harmoni- sation, Malta could very well be expect- ed to oppose any such move at Council level. Heavyweights such as France and Ger- many, however, have given it strong public backing so far. It also comes as US President Joe Biden is pushing hard for the same tax to be levelled on an in- ternational scale, through OECD struc- tures. Biden envisages a 21% minimum tax, a level the European Parliament en- dorsed in this week's plenary session, and would like to see that 21% mini- mum tax extended beyond the purely digital sphere and – in Malta's worst- case scenario – extended to include all multinationals. The US, along with allies such as Ger- many and France, are pushing for an international deal through the OECD as early as this summer. The Europe- an Commission, meanwhile, said this week it intends to table its proposals for the new digital tax this summer and to making it operational from 2023 on- wards, to help fund its post-pandemic budget. PL and PN MEPs found common ground of sorts this week as they all objected to a parliamentary resolution calling for a common 21% minimum digital tax rate, which could spell trouble for Malta's remote gaming industry and open the door to another prospect Mata has been fighting off for years – a common minimum rate for all multinationals