EU tax coordination and harmonization : impact on FDI in Malta

Abstract

Following the latest world-wide recession, Europe has gone through a period of turmoil, where its dual nature of centralised monetary policy and fiscal decentralisation has made common resolutions difficult to develop. This has acted as evidence that fiscal coordination of Member States might be much more necessary than originally envisaged. This study seeks to assess fiscal unification through the corporate taxation sphere and it looks at how changes in such policy would affect established FDI in Malta. In this regard it was determined that FDI is attracted to Malta by a whole package of factors, of which taxation carries a substantial weight. Through the use of a questionnaire, an extensive case study was constructed seeking to determine how FDI behaviour may change following the introduction of a Common Consolidated Corporate Tax Base (CCCTB) and/or tax rate harmonisation. It was found that a CCCTB, if optional, would only be taken up by a few established FDIs. On the other hand if the system is made compulsory it would not lead to extensive changes in behaviour, even if downsizing would be considered more than a relocating option. On the other hand, harmonisation is considered to be more harmful than the introduction of the CCCTB. Investment would decrease and a higher proportion of firms would consider downsizing and relocating.