EU Commission Identifies 7 Maltese 'Harmful' Tax Measures

by Robert Lee, Tax-News.com, London

19 August 2003

The European Commission has described the seven 'harmful' tax measures that it wants the Maltese government to abolish as part of its attack on tax measures in the ten acceding nations that it fears will distort the single market.

The first three measures identified by the Commission concerned offshore trading and non-trading companies, offshore insurance firms and offshore banking companies.

Whilst Malta has agreed with the Commission's verdict on these measures, the government says that they were repealed in 1996, with a transitional period currently in place until 23 September 2004.

Other measures singled out by the Commission as harmful include:

• International Trading Companies - These are considered harmful by the Commission as they create an effective tax rate of 4.2% for non-residents (the standard rate being 35%);
  
  
• Dividends from (other) Maltese companies with foreign income - This is deemed to establish a favourable holding regime for non-residents, providing for a tax exemption on income derived from a subsidiary based in a country with significantly lower taxes than Malta without the appropriate anti evasion measures in place;
  
  
• Investment Service Companies - This measure gives deductions not available to other resident firms, and the Commission claims that this could seriously affect the location of business activity, especially in the financial services sector;
  
  
• Non-resident Companies - This measure allows the taxation of foreign income to be delayed, in some cases indefinitely.

Whilst the Maltese government is considering changes to the laws concerning these four measures, it has indicated that it is not in complete agreement with the Commission on these decisions.

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