Talks with Brussels on 'harmful tax schemes'

The European Commission and Malta have started official talks over certain local measures which Brussels considers "harmful tax schemes".

A commission report last June had stated that Malta was one of three EU acceding countries which have not done enough to phase out harmful tax schemes. It identified no fewer than seven harmful tax measures in Malta.

Sources close to the government yesterday confirmed that talks between the acceding countries, including Malta, and the commission are taking place in Brussels.

The last meeting was held on Friday and talks are expected to resume shortly.

"There is agreement on three of the schemes which focus on offshore business. The government had already amended the law in 1994 and the schemes are no longer being offered. The last incentives in the three schemes offered in 1994 are due to expire next year and therefore there is no issue with regards to these three schemes.

"There is a probability that the government could withdraw another scheme out of the seven mentioned in the commission report. This scheme, related to certain company dividends, was in any case never utilised by companies.

"The Maltese authorities are arguing that the three other schemes highlighted in the report are not harmful and we are not the only country to be making this argument," the sources said.

The Financial Times on Tuesday reported that EU member states have targeted tax breaks for international companies in Malta and have yet to reach agreement with the island. Several countries, according to the FT report, are considering a large number of Maltese schemes as harmful.

Current member states have established a voluntary code against unfair business taxation targeting "harmful" practices.

The commission had identified one harmful tax measure in the Czech Republic, nine in Cyprus, two in Hungary, three in Lithuania, seven in Malta, two in Poland, five in Slovakia and one in Slovenia.

Many countries agreed to phase out special deals for offshore companies or to clear up rules for investment promotion schemes.

When contacted on the matter, Joseph Bannister, chairman of the Malta Financial Services Authority, said consultations continued "but a positive outcome for Malta is expected shortly".