Malta Is Not In Conflict With EU Over Tax Says Government

by Robert Lee, Tax-News.com, London

24 September 2003

The Maltese government has rebuffed a recent report by the Financial Times that alleged the island was on a collision course with the European Union concerning harmful tax measures offered to businesses that could distort the single market.

"Reports like these have already appeared in recent months in the Financial Times," a spokesperson for the Ministry of Finance and Economics told the Malta Independent. "They mainly referred to offshore business. However, this is not an issue any longer since offshore business has been phased out and Malta is close to being fully compliant with the European Union acquis."

"We have negotiated on these issues and all will be in place by May 2004. We will be fully compliant with the EU," added the spokesperson.

Earlier this year, the European Commission identified a number of harmful tax measures within the new intake of countries due to join the EU in 2004, seven of which were found in Malta. Whilst the Maltese government accepted the Commission's decision, it pointed out that a number of the measures in question had been repealed in 1996, and were in the last phases of a transitional period due to terminate in September 2004.

'Harmful' measures identified by the Commission included:

• 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.

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