Malta Rejects Tax Haven Accusation

Malta assumed the European Union’s rotating presidency this year. However, as the EU moves to crackdown on tax evasion in the wake of the Panama Papers scandal, the tiny island nation has faced charges that it helped major multinationals avoid paying billions in taxes to other EU member states, and therefore, possibly unfit for the presidency.

As the smallest EU member state, Malta has a population of just 430,000. During its six month tenure as EU president, a main goal for the EU will be cracking down on corporate tax evasion. Primarily, this will include mandating that large multinational companies operating in Europe disclose profits earned and taxes paid on a country-by-country basis, and by developing and publishing a comprehensive list of global tax havens.

Many EU tax campaigners are wondering whether the country will help the EU tackle tax-related issues, considering its own tax regime and the fact that the government does not mention the word tax once in any of its presidency priorities.

The tax system in Malta is generous to say the least, with large companies routinely paying as little as 5 percent tax on their profits,” alleged German Green MEP Sven Gielgold, who campaigns on tax issues. “This is completely unacceptable and raises serious questions.”

It is true, at least on paper, Malta has what is one of the highest corporate tax rates in the EU, set at 35 percent. However, companies rarely, if ever, pay this much in tax to the country in practice.

Malta offers companies extremely generous dividends and refunds. Once these are accounted for, the actual tax rate for most corporations tends to hover around 5 percent. In some cases, companies have even paid zero corporation tax thanks to a convoluted regime of tax break for intellectual property, known as a patent-box scheme.

A report commissioned by Green MEPS in the European Parliament found that between 2012 and 2015, Malta helped multinationals to avoid paying a staggering €14 billion in taxes thanks to these practices.

The country was also found to have a total of 14 aggressive tax planning indicators used to denote what kind of options governments give companies to aggressively reduce their tax liabilities. That ranking put Malta just ahead of Luxemburg, which is often labeled a tax haven.

In response, Malta has agreed to phase out the patent-box scheme. A government spokesman said that the company was committed to carrying out EU work on a number of draft tax laws, including country-by-country reporting.

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