MALTA: House opposes EU rules to aggregate tax bases of multinationals

Malta’s parliament has sent the European Commission a reasoned opinion in opposition to proposed tax rules that help all companies in a group determine their tax base.

The House of Representatives said the BEFIT proposal does not comply with the principle of subsidiarity, saying it was questionable whether the European Commission had allowed national parliaments to fully assess all the implications of this proposal.

Currently, multinationals must comply with up to 27 different national tax systems in the EU. The Commission claims it creates an uneven playing field by increasing tax compliance costs for businesses operating in more than one member state.

The new proposal – mandatory for groups operating in the EU with an annual combined revenue of at least €750 million – seeks to make multinationals file one return on all tax bases where its subsidiaries are based, which are then aggregated at EU group level and allocated to each company in the group.

Member states then apply their own adjustments and corporate tax rate to the allocated tax base of the company established in that country.

But Malta’s MPs said they expected a more conscientious approach on such a sovereign matter as taxation, considering the profound implications that a single corporate rulebook on tax could have on a peripheral island member state like Malta.

“There is considerable uncertainty regarding the proposed initiative’s financial and economic consequences for Malta, particularly given the possible future formulaic approach to allocate profits,” the House said in its reasoned opinion to the EC.

“The purported simplifications brought about by the overlay of BEFIT rules are doubtful. Concerns arise for smaller tax administrations being required to handle an additional set of rules, with their own administrative and operational requirements, in addition to national tax rules which will remain in place.”

The reasoned opinion was welcomed by the Institute of Financial Services Providers (IFSP), which insists that the BEFIT Directive might exacerbate the uneven playing field it seeks to address by raising tax compliance costs and burdens.

“Taxation remains a national competence and EU member states should be allowed the flexibility for their tax systems to be structured in such a way to reflect their economic reality,” the IFSP said.

The IFSP said BEFIT could undermine Malta’s tax sovereignty under the guise of eliminating tax obstacles to cross border economic activity, to the detriment of all EU member states.

“If the BEFIT Directive were to be promulgated by the European Parliament in its current format, EU businesses will be disadvantaged compared to those operating outside of the EU.”

Similar concerns have been expressed by the parliaments of Sweden, Poland, Ireland and the Czech Republic.