A new EU-wide corporation tax regime will be “revenue-neutral” and is not intended to be an additional source of government revenue, according to Finance Minister Clyde Caruana.

Speaking at a pre-budget consultation meeting with social partners, Caruana said that while discussions on the implementation of the new rules are ongoing, a statement on the way forward will be delivered during next month’s budget.

Known as the EU Minimum Tax Directive, the new rules will see companies with a turnover of over €750 million pay 15% tax.

This is expected to impact around 660 multi-national companies that have a base in Malta, many of which previously paid as little as 5% tax through Malta’s current corporate tax regime. It is estimated that these companies employ some 20,000 people.

The new rules, Caruana said, meant that “incentives and niceties” would need to be applied to all companies across the board, “not just for those for whom the rules apply”. The new rules are not intended to bring about additional revenue or boost public finances, but to bring about a balance for all companies operating within the market, he said.

Malta’s current tax regime says that companies are subject to a flat rate of 35% tax, one of the highest statutory corporate tax rates in the world. However, rebates and other incentives targeted at attracting foreign investment often bring the effective rate down heavily for foreign investors.

New EU fiscal policy does not mean tax harmonisation

Reacting to questions from social partners, Caruana dismissed fears that a new fiscal agreement reached by EU finance ministers could mean the imminent introduction of tax harmonisation.

The reform of the Economic Governance Framework, a new set of rules that Caruana says was agreed upon by European leaders in record time, is set to guide EU states to reduce their deficit and debt levels to acceptable levels.

The past few years have seen soaring debt levels across the continent, with many European financial institutions left scrambling to bring inflation and spiralling deficit levels under control.

However, Caruana stressed, the new framework does not speak about tax harmonisation.

Tax harmonisation has long been a bone of contention around Europe, with many smaller states in the bloc arguing that a one-size-fits-all approach to taxation makes it impossible for them to compete with their larger counterparts.

The Maltese delegation in the European Parliament has taken a united stand against tax harmonisation saying this would have a disproportionate impact on smaller economies like Malta’s.