Malta could end up on a future EU blacklist of tax havens due to preferential tax measures that potentially facilitate offshore structures, according to the European Green Party.

During its six-month mandate, the Maltese presidency of the European Council will be expected to supervise the screening of third-country jurisdictions for inclusion in an eventual EU list of non-cooperative jurisdictions.

However, a new report on Malta’s tax system published by the European Green Party today suggests that, if European countries were also to be screened, Malta could fail to pass the test itself, depending on the interpretation of criteria by the EU.

“While Malta is likely to be compliant on the ‘tax transparency’ and ‘implementation of the OECD Base Erosion and Profit Shifting agenda’ criteria, it is the ‘fair taxation’ criterion that would be problematic for Malta,” the report states.

“Our analysis of the Maltese tax system shows the presence of preferential tax measures that could be regarded as harmful and facilitating offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the country,” it continues.

Our analysis of the Maltese tax system shows the presence of preferential measures that could be regarded as harmful and facilitating offshore structures

The Greens’ analysis found that Maltese subsidiaries or branches of foreign multinationals do not need to have real economic activity and a substantial economic presence in Malta to benefit from tax incentives, particularly with respect to royalty income and the tax refunds system.

The report concludes that, under the ‘fair taxation’ criterion, Malta could be categorised as an offshore jurisdiction, as it provides financial services to non-residents on a scale that is disproportionate to the size and financing of the domestic economy.

Moreover, questions are raised in the report about Malta’s ability to push through EU anti-money laundering and tax reforms due to the involvement of Minister Without Portfolio Konrad Mizzi and the Prime Minister’s chief of staff, Keith Schembri, in the Panama Papers.

“While its presidency priorities do not even mention the word ‘tax’ and with important upcoming negotiations on a Common Consolidated Corporate Tax Base or a Public Country-by-Country Reporting, Malta simply cannot adopt a wait-and-see approach on European corporate tax reforms in the next six months,” says the Greens’ report.

The Greens call for the presidency to ensure that fair taxation reforms are made a priority and to reopen discussions in the Council on the revision of the Anti-Money-Laundering Directive.

They also recommend the start of a thorough and independent analysis of the spill-over effects of the Maltese tax legislation on other European countries.

“Between 2012 and 2015, close to €14 billion in tax could have been paid in other countries but was wiped clean thanks to Malta’s full imputation tax system. Greater European solidarity is expected from the country currently holding the presidency of the European Union,” the Greens say.

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