Malta Business Bureau against common consolidated corporate tax

The Malta Business Bureau (MBB) has revealed an impact assessment report of the European Commission's proposal for a directive on a Common Consolidated Corporate Tax Base (CCTB), which the MBB is insisting would be detrimental to the Maltese economy.

Presenting the report to Finance Minister Tonio Fenech, outgoing MBB president John Huber said that the report - compiled in collaboration with Bank of Valletta with an assessment carried out by Pricewaterhouse Coopers - will not be published for public consumption due to the nature of financial data disclosed by participating companies.

Welcoming the report, Fenech said that Malta was against the CCCTB, but in favour of a common corporate tax base (CCTB). He said that while it was the European Commission who proposed the mechanism, it would finally be up to the Council of Ministers to take the final decision. "However, one cannot deny that the pressure from the Commission is there," Fenech said.

Fenech reiterated that Malta was concerned about a consolidated corporate tax base, and that government was consistently raising these concerns at EU level.

The finance minister added that EC surveys showed that for a more open European single market, the problem didn't lie with the EU's tax system but with more bureaucratic processes which should be given more priority than what is currently being given to the CCCTB.

"Moreover, we are not ready to go for a proposal which the council of ministers is against," he said, adding that concerns were raised by several member states, including Germany.

The MBB study follows up on how the tax computation system as proposed in the draft CCCTB Directive would be managed in practice, the tax base on which the tax computation would be drawn up and the final tax liability to be incurred by firms. "While we welcome in principle the rationale behind the proposal, we believe that the directive would be detrimental to the Maltese economy and its underlying business community," Huber said.

He added that Malta, through government, the opposition and the social partners, should take a strong position against the proposed directive.

"Government should also take a clear stand against at the forthcoming European Council meeting in June, when a progress report on the political discussions held so far will be presented to the Heads of State and Government," Huber said.

"Social partners should also take a clear position within their respective European umbrella organisations."

According to the MBB report, the CCCTB would have divergent fiscal impacts on outbound business and inbound investment, creating commercial activities by subsidiaries of international groups operating in the Maltese domestic market.

"Malta is very likely to be placed at a disadvantage in being attributed a share of the consolidated tax base, because factors present within the formula are reliant on the existence of tangible fixed assets, employees with higher payrolls costs and revenues generated in Malta," Huber said.

The MBB argued that, with the possible exception of inbound investment involving manufacturing, it is unlikely that the Maltese companies with a  foreign-owned CCCTB group will have significant tangible fixed assets and employees situated in Malta.

"Moreover, it is also unlikely that a significant part of the sales made by the group will be made to Malta's customers," Huber said.

According to the European Commission's website, the CCCTB is a single set of rules that companies operating within the EU could use to calculate their taxable profits.

In other words, a company or qualifying group of companies would have to comply with just one EU system for computing its taxable income, rather than different rules in each Member State in which they operate.

In addition, under the CCCTB, groups using the CCCTB would be able to file a single consolidated tax return for the whole of their activity in the EU. The consolidated taxable profits of the group would be shared out to the individual companies by a simple formula so that each Member State can then tax the profits of the companies in its State at the tax rate that they - each Member State - chooses.