Finance Minister Edward Scicluna had a lukewarm reaction to the announcement of a €750 billion COVID-19 economic recovery EU fund rolled out on Wednesday, saying this could spell trouble for Malta’s fight against tax harmonisation.
Malta has been vehemently objecting to such a harmonisation plan saying this would deal a severe blow to the financial services and gaming industry as they would no longer be able to reclaim up to 30% of the 35% corporate tax paid here.
While no official figures have been divulged on the €750 billion fund, Malta is set to be allocated around €1 billion of which €350 million will be in grants and the rest in loans.
“It is good fruit, but like a prickly pear it must be handled with care,” Scicluna remarked in parliament when asked for his reaction by Labour MP Anthony Agius Decelis during question time on Wednesday.
'Where is the money coming from?'
For Malta, the minister said, the issue was not only how much would be allocated for grants and loans, but how this money would be repaid.
“What is peculiar in this situation is that those in need of money do not want further loans but cash,” he said.
“How is this money going to get paid back?” he questioned.
Scicluna warned against getting burdened with unsustainable debts which could lead to a situation whereby fresh loans would have to be sought to pay older ones.
“The worst danger for Malta, and this is where we must see what is in the national interest, is that they are turning to company taxes, where Malta was already facing challenges and threats [before the outbreak of the pandemic],” he warned.
Scicluna referred to the Common Consolidated Corporate Tax Base commonly referred to as tax harmonisation, whereby Malta would no longer be allowed to impose tax according to its national regime.
Instead, profits of cross-border companies across Europe would be put in a centralised fund and redistributed according to a mathematical formula, Scicluna said.
Malta has been vehemently objecting to such proposal as it would deal a huge blow to the financial services industry. This position has found common ground between the Labour and the Nationalist Parties, from whom all of Malta’s six MEPs hail.
They are insisting that removing the exclusive competence of member states on tax matters would have a disproportionately negative effect on Malta. However, under EU rules, such a plan will only get through if there is unanimous approval by member states.
Minister sounds warning on climate tax
The finance minister also sounded another warning, this time on climate tax.
He said southern Mediterranean countries that are very reliant on air and sea travel for tourism would suffer the most. Malta, along with other countries such as Greece, Spain and Italy, was vehemently opposing such measures, though it agreed in principle to a climate tax.
“The Commission is using the situation to push taxes which harm Malta. When looking at this package, one has to consider how it will be repaid and the repercussions on Malta if it meant the introduction of certain taxes," he said.