Malta MEPs rebel against parties backing tax transparency law

Malta’s six MEPs have refused to back a draft EU directive that would oblige multinationals to publish details of their activities on a country-by-country basis, even outside the EU. 

The measure is designed to help the poorest countries fight tax evasion, by forcing multinationals to publish their name, number of employees, revenues, capital and profits and losses on a country-by-country basis.

Malta employs a generous tax system that allows foreign multinationals to book their profits in a Maltese holding company, and then claim up to 85% in rebates on the corporate tax paid in Malta.

German companies like BASF use a Malta parent company to reduce their tax exposure, but under the new rules they would have to declare the individual profits they book on a country-by-country basis.

The proposed law could require companies to publicly report how much profit they make, where they make it, and if it is taxed accordingly. “That means citizens can hold companies to account for avoiding paying taxes, and hold governments to account for allowing it,” Oxfam said.

Nationalist MEPs David Casa and Roberta Metsola refused to back the directive, rebelling against their own group, the European People’s Party. So did Labour MEPs Alfred Sant, Miriam Dalli, and Marlene Mizzi, who abstained and did not follow the Socialists’ line.

Sant said that member states like Malta relied on tax flexibility to promote economic activity, especially for small nations on the periphery of the eurozone.

“I abstained on this motion because it has the effect of promoting EU common policies in favour of tax harmonisation. Declarations made repeatedly during its preparation confirm that this is one of the intentions behind it, going beyond the need – with which I agree – to curb tax abuses and money laundering,” Sant told the plenary in Strasbourg on Thursday.

Sant said different member states have different endowments, while being subject to common rules on tariffs, excise duties, VAT, and the strict management of debt and deficits for eurozone countries “The fact that they must balance their books under Eurozone rules ensures that their tax and spending regimes operate competitively under similar conditions to those of their fellow members,” Sant said.

Sant also said the low limits proposed for company turnover discriminated against the smaller economies. 

The proposal was approved with 534 votes in favour, 98 against and 62 abstentions, in a victory for transparency campaigners. The new rules are part of a wider overhaul of tax regulation spurred on by the revelations in the Panama Papers.

Comparing companies’ declared profits or losses in certain tax jurisdictions against their levels of real activity will allow tax authorities to see whether profits are being shifted from one jurisdiction to another to minimise companies’ tax liabilities.

Any company with a turnover of more than €750m and at least one subsidiary in the EU will have to publish details of its worldwide activities.

One loophole however gives companies a get-out clause to sidestep their responsibilities, claiming the need to protect trade secrets. The loophole was defended by the right-wing and centrist political groupings, who warned that in some cases, strict transparency rules could undermine European companies’ competitiveness.

Belgian MEP Philippe Lamberts, leader of the European Greens, said it was clear that ‘competitiveness’ was “just code for ‘reputation’”.

According to a report by the African Union, Africa lost more than $1,000 billion over the last 50 years due to illicit financial flows, including tax evasion.

“Billions lost to corporate tax dodging around the world can lead to people lacking healthcare and education, particularly in developing countries losing out more than $100 billion a year,” Oxfam said.

“Scandals such as LuxLeaks and the Panama Papers have revealed the scale of the problem. People want change: 350,000 EU citizens publicly want laws to make companies declare their tax affairs – instead of only finding out about lost money when the next scandal is exposed.”