‘Dark clouds on horizon’ for Malta’s financial services industry

KPMG, PN leader warn that proposals recently approved by European Parliament could threaten Malta’s booming financial services industry

New European initiatives could threaten Malta’s sovereignty over its own fiscal affairs, KPMG partner Juanita Bencini warned.

“There are dark clouds on the horizon and a closer European union may not necessarily be good for us,” she said, referring to the European Common Consolidated Corporate Tax Base proposal that would require EU member states to develop a common set of rules to determine the tax base of companies with operations in multiple European countries.

“We cannot allow large countries to run roughshod over Malta in the name of tax transparency, ” she told a KPMG conference. “Tax transparency shouldn’t dictate what countries’ tax rates should be or what their taxation system should look like.”

In order to attract foreign companies to set up subsidiaries here, Malta offers an incredibly advantageous refund on shareholder dividends – profits that they would have otherwise made in other EU countries.

While the statutory corporate tax rate for corporations is 35%, shareholders can take advantage of tax rebates when the company’s taxed profits are distributed amongst them. This rebate on their dividends reaches as high as six-sevenths of the tax paid by the company, effectively reducing shareholders’ tax burdens to 0%-5%.

However, the amount of money lost to EU member states through corporate tax avoidance each year is estimated at €1.1 trillion, and European Commission president Jean-Claude Juncker has pledged to clamp down on the practice. Last week, the European Parliament overwhelmingly voted in favour of recommendations by a special tax committee to tackle corporate tax avoidance – that include the establishment of a common European corporate tax base that would streamline the way companies calculate profits.

All six Maltese MEPs voted against the proposal, warning that small economies like Malta will bear the brunt of their introduction.

‘Unjust onslaught on Malta’s tax legislation’ – Busuttil

Addressing the KPMG conference by video, Opposition leader Simon Busuttil spoke of “a growing and unjust onslaught” by European and international institutions against Malta’s favourable tax regime.

“We fended this pressure off during our time in office, but it is now gathering significant momentum,” he warned. “Government, Opposition and all stakeholders must work together to defend our patch against what I see as an unjust onslaught driven by interests that I, for one, do not share.

“I believe that it should be perfectly possible for a country to have cutting-edge tax legislation that offers an attractive package to one and all. Competition is good and tax competition is also good. It is good for us, but it should also be good for Europe.”

However, he said that Malta must start thinking of alternatives from now, during the calm before the storm.

“It would be folly of us to think that life can go on as it is and that things will not and cannot change. It is our job to think today of alternatives that we ought to have in place if we want to grow our economy in a manner that relies less on what we take for granted today.”

In his own video speech, Prime Minister Joseph Muscat briefly touched on the issue by reiterating the government’s stance that fiscal policy decisions should continue to be taken by national parliaments.

“We will continue to enhance Malta’s regulatory legal framework so as to cement our position as a centre of excellence in the financial services sector,” he said. “We will keep introducing new innovative initiative to encourage stakeholders to set up or expand their operations in Malta.”