The country-specific report, published earlier this week by the Commission, found that the absence of certain anti-abuse rules and a lack of withholding taxes on dividends, interests and royalties payments vis-à-vis third countries “are features of the tax system which may facilitate aggressive tax planning”.
The EC said it defines ‘aggressive tax planning’ as taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems “for the purpose of reducing tax liability”.
The findings come after a separate report published by Green MEPs in January accused Malta of being a tax haven arguing that the European Union’s smallest member state helped multinationals avoid paying €14bn (£12.1bn, $14.8bn) in taxes between 2012 and 2015.
Foreign direct investment
The Commission added that the it was particularly concerned about the “very high level” of foreign direct investments being funnelled through the country using “special purpose entities” – often seen as a hallmark of a tax haven.
Foreign direct investment (FDI) is the money a company or individual ploughs into one country, usually by setting up a shell company in that jurisdiction in order to buy assets in another country.
The EC report revealed that Malta also has a “high level of dividends or royalty payments” as a percentage of GDP, which suggests that the country’s tax rules are used by companies that engage in aggressive tax planning.
However, the Commission noted that Malta has “taken steps” to change some of its tax rules facilitating aggressive tax planning.
Malta, a tax haven?
At the start of the year Malta, which has a population of 430,000, took over the EU’s rotating presidency – a stint that will last six months.
These latest revelations will add fuel to concerns that the island may not have the stomach to push for a crackdown on tax avoidance during its time in office.
Panama Papers
Last April, the Maltese prime minister, Joseph Muscat, faced calls to resign after the leaked Panama Papers showed two of his allies had offshore accounts, including health and energy minister Konrad Mizzi.
The scandal involved the leak of more than 11 million files from Panamanian law firm Mossack Fonseca which revealed how the rich and powerful around the world use offshore shell companies registered in tax havens to avoid paying tax.
Following the leak, the EU has vowed to draw up a blacklist of tax havens while more than 25 EU-member countries including Malta have signed a deal setting up a confidential beneficial ownership register, which would automatically share information on the ultimate owners of companies.
