The future of tax competition : a Maltese perspective

Abstract

Purpose: The aim of this study is to assess the importance of tax competition for a country like Malta, where FDI contributes to a large portion of the GDP. This research will analyse any potential changes recommended the Maltese tax system, in light of international tax developments. Design: A qualitative research methodology was utilised to address the objectives of this study. This was carried out through semi-structured interviews conducted with local tax practitioners. Findings: The findings outlined the importance of tax competition for Malta, whose economy depends heavily on foreign direct investment, The focus of this study revolves around Pillar 1 and 2 proposed by the OECD. These may impact Malta’s attractiveness which may discourage investment to the country. Research has shown that Malta’s current tax system is the main element which attracts FDI, but from this study it is clear that this is no longer sustainable, and changes are required particularly in light of recent international developments. Among its recommendations, the dissertation outlines a reduction in the statutory tax rate with the potential removal of the tax refund system to remain sustainable in light of Pillar 2. Such amendments are necessary to maintain Malta’s competitiveness and attractiveness in the long-term. Conclusion: This study concludes that Malta’s attractiveness and competitiveness has decreased due to local and international developments, but the Maltese beneficial tax system still plays an important role in attracting FDI. Changes are necessary to safeguard our tax base, whilst still remaining compliant with international tax requirements through collaboration and transparency. Value: This study provides valuable insight into international tax competition and potential changes required in Malta, in light of the developments in the international tax sphere.