The implications of a common consolidated corporate tax base for Malta

Abstract

The community of states forming the European Union (EU) is becoming increasingly integrated as policy-makers incessantly strive to strengthen the communal links between the member states. In the area of taxation, this process has been uneven. While member states cooperate in indirect tax, the harmonisation of direct taxation is still being widely debated. At the time of writing, the process has been stalled once again. This hesitation gives the writer the opportunity to analyse the process and its implications from start to present. To complete the projected economic union, a solution to tax distortions and crossborder trade barriers is crucial as diverse national policies, practices and objectives produce numerous different tax base computations and tax rates, thus resulting in a community of competing tax strategies. While EU member states insist on tax sovereignty, multinational corporations in Europe face onerous costs and fees, a maze of regulations and the implicit need for complex tax planning. This has led the European Commission to strive to complete the internal market by closing the loophole that is direct taxes, and creating a level playing field for business and investment throughout Europe. Yet, for direct tax harmonisation to become a reality in the EU, member states must be more pro-active and commit themselves to a reform of company taxation in the interests of economic growth and employment. Although Malta looks forward to an integrated Europe of states working together to attain the economic objectives they set out from time to time, it opines that direct tax harmonisation is an excessive approach, and not the solution to the EU’s competitive deficiencies. Malta attempts to maintain attractive economic policies to draw investment to its shores. This freedom to administer its financial policies sustains the Maltese economy and should thus not be hampered by competing states under the veil of the European Union.