Malta opposes the idea floated by European Commission President Jean-Claude Juncker that European tax reforms should not require unanimous approval.

Finance Minister Edward Scicluna said Malta would not give up the right enshrined in the EU treaty to establish its own taxation.

“We do not agree with Mr Juncker’s opinion, and realistically, nobody is willing to set aside national sovereignty at a whim,” he said, reacting to a proposal made by the EU chief in his State of the Union speech to the European Parliament in Strasbourg on Wednesday.

Mr Juncker said governments’ veto powers on EU tax reforms should be limited, calling for a simpler decision-making process that involved qualified majority voting rather than unanimity.

READ: 10 key ideas from Juncker's State of the European Union speech

Among the suggested reforms, Mr Juncker called for a harmonised company tax across the 28-country bloc, something that Malta, the UK and other small states have consistently opposed.

“We believe more needs to be done and can be done to complete what we already started, such as the banking and capital markets union, before referring to unrealistic wishes that require treaty changes,” Prof. Scicluna told the Times of Malta.

Mr Juncker’s reflection adds to the pressure from France and Germany for a harmonised EU company tax to stop firms operating in their own countries from seeking favourable tax rates elsewhere.

Finance Minister Edward Scicluna. Photo: Darrin Zammit LupiFinance Minister Edward Scicluna. Photo: Darrin Zammit Lupi

But with Britain expected to leave the EU in 2019, some fear Member States opposed to tax harmonisation could lose an important ally.

Economist Philip Von Brockdorff believes one of the biggest impacts on Malta from Brexit will be the loss of the UK’s clout on taxation matters.

READ: Financial sector says EU tax proposals are 'not in Malta's interest'

“With Brexit, it will be harder for Malta to fight for its patch,” Dr Von Brockdorff said. However, he also believes a common corporate tax base would be unfair to the EU’s peripheral countries.

The taxation system in Malta affords generous rebates to companies, making it a major attraction for foreign investment, he added.

Malta has consistently defended its taxation system, saying that it is in line with OECD rules.

“The ability of a country to set its own taxation is one way of attracting investment to places like Malta and Ireland that sit on Europe’s periphery, cut off from the nerve centres in Frankfurt and Paris,” Dr Von Brockdorff said.

While Mr Juncker’s idea remains just that for the time being, Prof. Scicluna called for a level-headed approach on taxation matters.

He made the appeal ahead of his departure for an EU finance ministers’ meeting in Brussels today that is expected to discuss a suggested turnover tax for digital multinationals like Google and Amazon.

The move would ensure that these companies paid higher taxes in Europe.

“We need to calm down, listen and debate but we also have to evaluate what the US and China will do and whether we could be putting ourselves at a disadvantage globally, as a bloc,” Prof. Scicluna said.

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