EU's 'nuclear' plan on tax veto crosses Malta red line

EU governments could lose their veto power on tax matters under proposals being prepared by the European Commission, a move Malta will oppose says Edward Scicluna.

The Finance Minister said any attempt to circumvent the veto power would not be acceptable.

So far tax matters have been the competence of national governments with any changes at EU level requiring unanimity.

But the EU executive is considering triggering a never-used clause in the EU treaty that would allow tax reforms to pass with a majority vote.

Known in Brussels jargon as the ‘nuclear option’, the move is intended to unblock legislative reform that has so far been opposed by a number of states, including Malta, Ireland and Luxembourg.

But Scicluna was adamant that any such move would enter the realm of national sovereignty and will be opposed.

“Any political quick-fix crossing a long-standing red line would not be acceptable to many… but I do not want to speculate about what if,” Scicluna told MaltaToday from Brussels. He will be attending a meeting of EU finance ministers on Tuesday where the issue is expected to arise.

EU tax commissioner Pierre Moscovici told a news conference last Thursday the Commission did not exclude the option of triggering article 116 of the Lisbon treaty on the basis that different tax arrangements within the EU are distorting the market.

"We certainly don't exclude using it. We will work on it. We will make proposals in that direction," Moscovici said.

But Scicluna insisted yesterday that even if the Commission were to use the passarelle rule to circumvent unanimity, there were also safeguards for some of these provisions, including the possibility of national parliaments to object.

“I would expect our Parliament like many others would object to the use of such provisions by the Commission,” Scicluna said.

So far new tax regulations and practices were approved by consensus in the code of conduct committee, he added.

“Peer pressure works well in such circumstances. My reading is that the majority of the member states would want to maintain this arrangement which respects the EU treaties,” Scicluna said.

Malta and Ireland have long argued that being on the periphery of the EU, a low-tax regime is crucial to attract foreign investment. Malta’s tax arrangement that sees companies effectively paying tax at 5% is in line with international standards. However, the system has often been the target of larger countries that accuse Malta of harbouring tax dodgers, who would otherwise be paying higher taxes in their home country.

Changing the tax system would harm Malta’s economy and that of other small states.

The EU executive has long clamoured for a uniform corporate tax base across the EU. The latest effort comes in the wake of Paradise Papers, a new data leak that followed the Panama Papers, which showed how rich people were avoiding tax through complex company structures and the use of low-tax regimes.

Bigger EU countries are pushing for reforms that would reduce tax dodging.