Malta abandons corporate tax reform

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A planned corporate tax overhaul has been scrapped, with Clyde Caruana blaming the move on declining international appetite for a global minimum corporate tax.

The finance minister said on Friday that “Malta will not take the plunge” as international momentum for a minimum corporate tax has been lost.

Earlier this year, Caruana said tax authorities were testing proposals for a new corporate tax regime to ensure revenue streams remained healthy. The change was intended to align Malta with international efforts to introduce a minimum effective corporate tax rate of 15%.

The European Commission proposed last December a directive on a minimum effective tax rate for the global activities of large multinational groups. The proposal delivered on the EU’s commitment to be among the first to implement the historic global agreement on tax reform reached at international level.

However, the committee’s proposal requires unanimous agreement among member states to become law and Hungary vetoes the move.

Caruana said his Hungarian counterpart told him at the last meeting of EU finance ministers that Hungary would not hesitate to veto it.

“With Hungary insisting on its veto and with the United States, which was a leading proponent of minimal global taxation, facing a November midterm election that could shift the balance of power in Congress , the momentum for change has been lost,” Caruana said. interviewed by MaltaToday on Malta’s state of reform.

“We were in the process of drawing up our plans to align with international efforts but with the possibility that nothing will happen at this time, it would not be wise for us to take the plunge before the big players clarify their positions,” he added.

Malta does not have a separate corporate tax system and the highest corporate tax rate is 35%, as is personal taxation. However, Malta operates an imputation system which offers companies generous refunds on profits that are taxed here. This system effectively reduces the corporate tax rate to 5%.

The system was authorized by the European Commission when Malta joined the EU. But, over the years, big countries like Germany and France have lobbied to harmonize corporate taxes to prevent big companies from shifting profits to low-tax jurisdictions like Malta. .

Taxation is a national competence and any change at EU level requires unanimous support at Council level.

Malta has always opposed any move towards tax harmonization at EU level, but lost an important ally when the UK left the bloc.

Eventually, Malta acquiesced to the less radical position adopted by the OECD for the introduction of a global minimum tax of 15% on company profits. This would have required an overhaul of the current system.

Efforts by the EU to be the first to go down this path have so far been stymied by Hungary’s veto.

And now Malta is taking a wait-and-see approach. “We will wait for more clarity to emerge internationally and when it is time for us to act, we will,” Caruana said.

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