Issue link: https://maltatoday.uberflip.com/i/258814
maltatoday, WEDNESDAY, 12 FEBRUARY 2014 News 6 JAMES J. PISCOPO MALTA stands to lose around 18% of its tax revenue if the EU intro- duces the Financial Transaction Tax, the director of Finance Malta said yesterday. MEP candidates and financial sector professionals participated in a roundtable conference held by the European Parliament office in Malta, discussing the EU's perspec- tive on Financial Services and the impact on the Maltese economy. Candidates from the major po- litical parties reiterated their stand against the proposal for an FTT, subscribing to the view that taxa- tion was the competence of the re- spective member states. However, Alternattiva Demokra- tika chairperson Arnold Cassola declared himself in favour, saying the proposals ensured greater con- sumer protection against harmful speculations in the sector. "It's true that locally we have a solid conservative banking model, but at the present time there is no regulation that safeguards the con- sumer. After all, SMEs are exempt- ed from the Financial Transactions Tax, thus 90% of the local stake- holders will be unaffected," Cassola said, although this declaration was heavily opposed by members of the audience. Bank Of Valletta's Aldo Scardino underlined that the local banking sector was very conservative and that after the past recession, local banks underwent the same scrutiny that larger, foreign banks had gone through. He expressed his doubts that the FTT would lead to greater consumer protection. The FTT was proposed by the Eu- ropean Commission in September 2011 to ensure that the financial sector made a fair and substantial contribution to public finances. The proposal is backed by the majority of member states, including Ger- many and Italy. Cassola then pointed out that the introduction of the FTT would mean a reduction of Malta's annual contribution towards the EU, which currently amounts to around €70 million. However, banker Kenneth Farru- gia, the director of Finance Malta, promptly intervened to say that Cassola's financial estimates were wrong, citing studies showing that Malta stood to lose 18% of its tax revenue if the FTT is introduced. "This would mean that the gov- ernment would need to seek alter- natives to collect the lost revenue," he said. Stakeholders' representatives re- marked that more regulation would be an additional burden, and that consequently Malta would lose its competitiveness that set it apart from other EU states. "This is a global matter: should the EU introduce this tax, investors will simply move to other jurisdictions that would harbour them from such taxation. Malta would definitely lose out," Farrugia said. Both Nationalist and Labour can- didates argued on the importance of proportionality and the principle of subsidiarity in order to prevent a negative impact on Malta's econ- omy. Labour MEP candidate Cyrus En- gerer concurred with the stakehold- ers and said that Malta would be- come a net contributor rather than a beneficiary should the proposed EU tax model be adopted. Fellow Labour candidate Ivan Grixti remarked that the FTT aims to cut tax avoidance by multination- als operating across EU states, but that national interest forced Malta to disagree with the proposal since Malta did not face the same prob- lems other countries do. On his part, Nationalist MEP hopeful Ray Bugeja called for self- regulation as the way forward. "This sector is too technical to be regulated by the government. Self- regulation should be advocated, in a scenario that should something go wrong, it is you who pay the price," Bugeja said. Another PN candidate, Kevin Cutajar, underlined the need for continuous consultation between the authorities and stakeholders, adding that additional regulations should be industry-driven. The Head of the European Parlia- ment information office, Peter Ag- ius, pointed out that the most inf lu- ential MEPs are often those who act on a European dimension and then use such inf luence to advance the in- terest of their electorate. Summing up a common theme expressed by most participants, Agius said that at national level, the possibilities of national scrutiny of EU law should be better utilised, whether through national parliaments or consulta- tion with civil society. During the discussion, the Com- mon Consolidated Corporate Tax Base was also mentioned. In theory, the CCCTB is an effort to facilitate tax returns for companies that op- erate across borders, as they can choose in which member state to file their tax returns – and set losses in one country off against profits in another. However, the tax collected from all the member states through the scheme will be pooled and then ap- portioned to the individual coun- tries depending on a formula that includes tangible fixed assets, em- ployees' payroll costs, and sales. This approach does not take into account intangible assets or even fi- nancial assets, and is considered to favour larger member states. "The CCCTB will eradicate Mal- ta's only edge in the market, ob- tained through a solid regulatory framework and adequate tax incen- tives," argued Austin Demajo from Grant Thornton. "Government would need to seek alternatives to collect tax revenue" – Kenneth Farrugia Malta would lose 18% of tax revenue with EU's financial tax – banker The European Commission proposed a harmonised Financial Transactions Tax in 2011. The initiative was supposed to be a first tangible step for taxing such transactions at the global level. The banks have been fighting the introduction of a financial transactions tax for years. On the other hand, European governments want the tax to recoup some of the billions of euros they spent on various bank bailout programs. By mid-2012, EU finance ministers decided at ECOFIN that they could not reach unanimous agreement on the proposal for an EU-wide FTT in the foreseeable future. Nonetheless, 11 member states, including Germany and France, expressed a strong willingness to go ahead with the FTT. The UK legally challenged this initiative. Although the UK is against joining this tax, it fears being forced to collect the FTT on behalf of other EU states, driving business overseas. The initiative sees governments charging a tax rate of 0.1% for shares and bonds, and 0.01% for derivatives. According to the European Commission, when applied by the 11 member states the FTT is expected to deliver revenues of €30-35 billion annually. The European Commission gives three objectives for the introduction of the Financial Transactions Tax. First, it believes the tax would strengthen the Single Market by reducing the number of divergent national approaches to financial transaction taxation. Secondly, FTT would ensure that the financial sector makes a fair and substantial contribution to public revenues. The third objective given by the Commission sees the FTT as a support to regulatory measures in encouraging the financial sector to engage in more responsible activities, geared towards the real economy. The tax will be due if any party to the transaction is established in a participating member state, regardless of where the transaction takes place. This is the case both if a financial institution engaged in the transaction is, itself, established in the FTT-zone, and also if it is acting on behalf of a party established in that jurisdiction. A closer look at the FTT MEP candidates discussing the Financial Transaction Tax