Malta faced with new EU Commission attempt to introduce common corporate tax

The European Commission is preparing to launch a new common tax base for large European companies, after the proposal got struck in the Council for the past five years over opposition from countries like Malta, Cyprus or the UK.

The two proposals, leaked versions of which have been seen by MaltaToday, are for a common corporate tax base (CCTB) and a common consolidated corporate tax base (CCCTB), which will introduce a common tax for companies with a turnover higher than €750 million a year.

The Commission claims that it will capture 64% of businesses in Europe, especially those doing cross-border trade – the primary target of the proposal.

The reason why countries like Malta oppose a common tax base is because it uses tax incentives to attract foreign companies to book their profits here: companies who get their profits taxed in Malta are allowed an 85% refund on the tax charged on dividends for foreign shareholders. The result is a net tax rate of 5% in some cases.

The national variations between the 28 EU member states allow large companies to exploit differences between the tax regimes to reduce their final bill – to close this loophole, the EC wants member states to apply a common tax rate for companies with a total group revenue that exceeds €750 million. “All revenues will be taxable unless expressly exempted,” the draft proposal reads.

Green MEP Sven Giegold: This is a welcome proposal

But it also envisages some dividends and proceeds from the disposal of shares could be exempt. Countries will remain responsible for setting tax rates.

The scope of the proposal is to have companies pay their taxes in the countries they are earning profits. Malta earns at least €200 million annually by retaining just 5% of the tax charged on foreign-generated profits.

“This is a welcome proposal from the European Commission,” German Green MEP Sven Giegold, also a member of the Panama Papers committee, told MaltaToday. “For too long EU member states competed with tax dumping for the investment of transnational corporations. A common consolidated tax base can ensure fair competition. Member states should support the proposals and end unfair tax competition.”

EU states will have to back the proposals unanimously, something that makes support from Malta possibly unlikely.

The new impetus for the common corporate tax comes from recent corporate tax scandals and a commitment made by EC president Jean-Claude Juncker himself, after the Luxleaks revelations. Even here, companies that benefited from tax rulings in Luxembourg often used Malta to further cut their tax exposure.

Supporters of the CCCTB say a common corporate tax base is the first step for tackling tax evasion.

“As Greens, we realise that the way we currently tax companies – as if subsidiaries from the same company were independent entities – is a fiction, from which we need to move away. Finally implementing a common and consolidated corporate tax base would be a crucial step towards ending tax dumping in Europe, as well as reducing business costs,” Giegold said.