Q&A: Maltese Finance Minister Edward Scicluna Surveys a Changing EU Tax Landscape

August 2017

Scicluna has returned to his role as the Maltese finance minister after the country’s presidency of the EU Council ended in June. When Malta began its six-month presidency, many were sceptical about how the leaders of the small Mediterranean island could achieve their ambitious objectives – particularly the tax measures.

Only a few days into its presidency, the Maltese leaders were facing a barrage of criticism. For example, the EU Greens/EFA party claimed Malta would not be able to pass the EU’s tax haven criteria if it came to an assessment – an accusation Scicluna had dismissed.

Nevertheless, Scicluna and his colleagues battled against the critics and were successful in many of their goals. They managed to amend the Anti-Tax Avoidance Directive (ATAD), enact the dispute resolution mechanism, work on the re-launch of the common consolidated corporate tax base (CCCTB), e-commerce proposals, and the reduced rates on e-publications proposals, among others. The legacy of their efforts also lives on under Estonia’s presidency and plans to discuss CCCTB proposals at the next informal ECOFIN meeting in September.

However, success was not easy for Malta, as Scicluna tells International Tax Review.

Anjana Haines: What was the highlight for you while Malta held the presidency of the EU Council?

Edward Scicluna: The Maltese presidency managed to find agreement on a number of difficult direct and indirect tax files. I am referring to corporation tax and VAT files. Although Malta did not manage to conclude the latter, this was only due to political issues in some member states, and Malta’s technical work is still perceived as having paved the way for a successful conclusion in the near future.

The EU and its member states have continued to be at the forefront on BEPS implementation, and this has naturally influenced the EU tax agenda. The directive on anti-hybrid mismatches (ATAD II) agreed in February 2017 and the Dispute Resolution Mechanism Directive agreed in May 2017 stem from this wider exercise (BEPS Action 2 and Action 14, respectively).

AH: What tax measures are you most proud to have seen be enacted/approved and why?

ES: Modernising and improving the tax landscape within the EU is a priority for all member states as global competitive pressures are particularly pronounced in the area of taxation. By finding agreement on the Dispute Resolution Mechanism Directive for example, Malta continued to build a robust and competitive EU tax system. Malta views the Directive as playing an important role in strengthening tax certainty and improving the business environment in Europe. This aspect of tax certainty was also a topic for discussion amongst finance ministers at the informal ECOFIN held in Valletta in April 2017.

AH: What tax measures did you not manage to get approved that you would have liked to?

ES: Tax files are decided by unanimity and negotiations have to take their course. Malta focused on two VAT files, one concerning the application of a reduced VAT rate on electronic goods, and the other on having a generalised system of reverse charge as an anti-fraud measure. Malta managed to move forward in the technical discussions on both proposals, and attempted to find political agreement on both. Unfortunately, the time was not ripe for political agreement due to specificities in certain member states that the presidency was unable to influence and overcome.

AH: Malta has had to face some critics during its presidency, with many claiming the country cannot lead the charge for tax reform in the EU when it is itself a tax haven. How have you dealt with this during the past six months and what is being done in Malta to remove this 'tax haven’ tag?

ES: Malta is not a tax haven as it does not conform to the main characteristics of a tax haven, namely: (a) domestic laws provide for banking and account information secrecy; (b) the jurisdiction does not enter exchange of information agreements.

Malta removed bank secrecy in the early 90s, nearly 25 years before a number of EU member states did. Furthermore, Malta was one of the first subscribers to the automatic exchange of information standard, and exchanges information with other tax authorities not only within the EU, but also outside. It is also interesting to note that Malta has never been labelled as a tax haven by international organisations such as the EU, OECD, UN, Oxfam, Transparency International, etc. but mainly by journalists.

The work programme for the Maltese presidency in the area of taxation was an ambitious one and the reactions received from our counterparts in the Council, particularly from other member states and the European Commission, were very positive and acknowledged the work during our term. The outcome of our efforts are a direct rebuke to the criticism received during our presidency, as it is clear to many that Malta did manage to lead the charge for tax reform in the EU.

Regarding the 'tax haven’ tag given the small island states, recent studies such as the one on conduit and sink financial centres show otherwise.

AH: Now that Estonia has taken over the presidency, what tax measures would you like to see discussed in the ECOFIN meetings?

ES: Malta is interested in seeing a political agreement on the VAT files that Malta wished to conclude. We are keen to see a modernised VAT system so that the EU may continue being a very attractive and easy place to do business.

Another important aspect of taxation that needs to remain high on the ECOFIN agenda relates to third countries. This is particularly important in the context of the rise of Asia, the US and now Brexit. The EU needs to take greater account of the third country dimension. The EU is always at the forefront of global tax efforts, but unless our partners also follow-suit, we risk undermining the global tax system, which would be to our disadvantage. Tax avoidance and evasion are global phenomena, and should be tackled through global coordinated action. The third country dimension is essentially about ensuring a level playing field across the globe.

AH: If you could fix anything in the EU or international tax landscape, what would it be and why?

ES: The taxation of the digital world is a very important issue that requires wider European and global cooperation. The current legal landscape must be overhauled to reflect the way that digital goods and services are becoming more and more essential in people’s lives and therefore have to be taxed appropriately.

AH: Now that your political party has won a second term in office, what is on your tax agenda in Malta? How will you achieve this?

One has to accept that the international tax landscape will remain fluid for many years to come. Our agenda is to adapt and pre-empt these changes in order to maintain competitiveness while at the same time maintain credibility. We must avoid shocks and tax uncertainty. It is not good for corporations and neither is it good for countries thriving on foreign direct investment.

The above article was published on www.internationaltaxreview.com on 7 August 2017 and has been republished with the approval of the Publisher.