Issue link: https://maltatoday.uberflip.com/i/643092
maltatoday, SUNDAY, 21 FEBRUARY 2016 News 7 MATTHEW VELLA THERE'S a new battle lining up for the Maltese government inside Brussels: an aggressive fight against tax avoidance prepared by the Eu- ropean Commission. BEPS – or base erosion, profit shifting – is exactly what its acro- nym states: multinationals mak- ing millions in gross profits try to 'erode' that base by introducing new costs, such as interest pay- ments between one subsidiary and the other; and then shift the profit to a low tax country like Malta. Malta has always insisted it is no tax haven, but it employs a system which allows foreign shareholders to claim a six-sevenths' refund on their taxed dividends, taxed at the maximum 35%. The effective tax rate often ends up being 5%. Labour MEP Alfred Sant says that the BEPS rules bring with them something far more detest- able for the Maltese government: a common corporate tax. "[It's] part of a strategy to harmonise corpo- rate and income tax structures across the EU, on the same basis as for VAT. Though this is denied by those who are lobbying for BEPS, CCTB and country-by-country re- porting, the logic of what is going on points in the direction of tax harmonisation. That would be le- thal for Malta." But another MEP, German Fabio Demasi of the Left Party, has ex- pressed doubts on the effectiveness of the Commission's proposals be- cause rules on controlled foreign corporations (CFCs) are basically confined to non-EU countries. "Rather, they will make it more attractive for companies to re- locate headquarters to member states with very low effective tax rates… With the proposed 40% threshold, companies enjoying a 5% effective tax rate in Malta could control subsidiaries elsewhere be- ing taxed as little as 2% without the rules kicking in. There are similar concerns about other elements of the package." It is internationally recognised that tax 'planning' allows multi- nationals to literally wipe out tax that would have been paid in the country where their profits are made, which is why Malta hosts thousands of foreign companies. One example from the past was Commonwealth Bank of Austral- ia, whose profits were channelled back to Malta where it held a small office of five employees. "Such levels of tax competition are extremely harmful and they divert much needed funds from public coffers," Demasi told Mal- taToday. "I recognise the danger of strong and large member states imposing their will and preferenc- es on smaller ones if tax policies were entirely harmonised, but an EU which permits the levels of tax avoidance that we currently see is and will increasingly fail in the eyes of citizens that are paying their fair share." Sant says MEPs opposing the BE- PS proposals could serve as a drag on Brussels' plans but he admits there's a huge majority in favour of making them even more stringent. "Indeed, the EP has just appealed to the Commission not to submit to pressure from member states and water down its current batch of proposals, which the EP has al- ready criticised as not being suffi- ciently robust." And he says there will be equally less concern about countries with strong financial services indus- tries. "There is little interest any- where to make any exceptions for the financial services of islands with specific needs." George Mangion, a business columnist for MaltaToday, says Pierre Moscovici's anti tax avoid- ance package is a frontal attack that comes as a knee-jerk reaction to scandals on private tax rulings for Starbucks and Apple by some jurisdictions in Europe. "Malta has not featured in such secret tax rulings and therefore should not be subject to revise its tried and tested regime based on the impu- tation system," Mangion, a partner at PKF Malta, says. Mangion says that the rules em- phasise strengthening CFC rules, but while Malta is a favourite for housing holding 'parent' com- panies that head multinationals, "there is no spotlight on Malta since [ATAP mentions] 15 coun- tries that allow for a generous tax exemption while raising a clear question as to whether those divi- dends have been taxed in the first place." Like Sant, Mangion suspects a Trojan horse in the Commission's plans that could pave the way for a common corporate tax, last put in mothballs in 2008 at the start of the recession. "Malta, like other member states, supports the fight against harmful tax completion, and insists on full transparency and exchange of information. But it retains its sovereign rights over domestic tax rules." This is a joint fight for Maltese politicians. Edward Scicluna has told European counterparts to fo- cus on "blatant cases of tax evasion and not interfere with domestic issues with little or no effect on BEPS", but even he fears that BEPS will go beyond what is necessary to prevent abuse. Opposition MP Claudio Grech told an inter-parliamentary com- mittee convened by the Commit- tee on Economic and Monetary Affairs at the European Parliament that Malta wants to retain its fiscal sovereignty. "If the initiative is to be a success, the EU must uphold the principle of subsidiarity and fiscal sovereignty and reflect this through an adequate degree of flexibility at the level of the mem- ber state." Ding ding, seconds out on Malta's fight to stop Brussels's tax plans Finance Minister Edward Scicluna (right) and EU Commissioner Moscovici: Malta is dead set against tax harmonisation