International taxation changes could ‘pose a major challenge’ to Malta’s iGaming sector

Changes in the way international taxation is collected, thanks to recommendations made by the Organisation for Economic Cooperation and Development (OECD) could “pose a major challenge to the sustainability and profitability” of many iGaming operations in Malta.

This information came to light through a report issued by Country Profiler on the iGaming industry in Malta. The article from the report was penned by Vladimiro Comodini, partner at RSM Malta and Alan Craig, partner at Mazars Malta.

This challenge stems from OECD measures on Base Erosion and Profit Shifting (BEPS), which are a series of measures aimed at mitigating the global phenomenon of tax avoidance. Revelations that Luxembourg was offering special tax rulings with multinational corporations sparked public outrage, as well as outrage from other EU member states and a global rethink on the way tax is collected. These special tax rulings refer to the government offering multinational companies secretive and extremely attractive corporate tax rates. Therefore, such cross-border countries will register in that country offering the advantageous tax rates, such as Luxembourg in this case, and transfer profits earned through operations in other countries to Luxembourg, in order to avoid paying substantial amounts of tax.

In relation to BEPS, the OECD made 15 official recommendations that aim to curb tax avoidance and seek to harmonise tax regulations worldwide.

One of the measures, the report highlights, states that Multinational Enterprises (MNEs) “with more than €750 million group turnover will need to pay taxes in the countries where profits are made”.

The report continues to say that “the OECD estimates that the measure will affect some 9,000 companies globally”.

It was stressed that the BEPS measures are recommendations and are not binding regulation, but cautions that a number of countries have “already adopted or are poised to adopt changes to their international tax systems based on the OECD recommendations”.

As an example, the report takes note of the UK’s decision to introduce the Diverted Profits Tax , set to be charged at 25 per cent of diverted profits, which applies to both UK and non-UK companies where the entity or transaction lacks economic substance or where a UK taxable presence is avoided.

In the light of this, the report finally goes on to say that:

“Malta’s fiscally attractive tax regime, especially when compared to other EU countries, has been identified as one of its major competitive advantages. Specific Tax incentives, such as the 15 per cent flat tax rate for Highly Qualified Persons, and a wide array of double taxation treaties with various countries worldwide, have contributed to Malta’s success as a base for iGaming companies. CFOs working in iGaming have pointed out that if in a few years’ time an iGaming operator would need to pay high gaming taxes plus VAT and up to 30 per cent in corporation taxes, this would pose a major challenge to the sustainability and profitability of many operations.”