Malta, that gift of tax planning to Europe and perhaps even the whole world, published a new innovative corporate tax system at the beginning of the month: instead of a company paying an effective tax of 5% under the current imputation system, it can now choose an optional alternative to pay 15% upfront instead. The Prime Minister lauded this in the newspaper and stated that 10 companies could practically pay an additional billion annually to Malta’s beautiful island and government. One must also commit to this for at least 5 years, and it is not allowed to switch back to the old 5% system during that time. In terms of turnover, Evolution would also fall within the scope of opportunities brought by this new “program”.
One might wonder, what’s the point of this? But as background, one must remember the OECD minimum tax regulation, which was also implemented as an EU directive and set a 15% minimum level for corporate tax for large multinational companies. However, the Prime Minister was quick to state that this 15% tax has nothing to do with the 15% minimum tax, which Malta does not intend to implement in the coming years. Malta’s current Minister of Finance has long, and recently also representatives of the government and opposition in a united front, spoken, to put it bluntly, about circumventing it, or in other words, securing Malta’s competitiveness and attractiveness.
https://newsbook.com.mt/en/maltas-mps-unite-in-defence-of-tax-regime-at-eu-symposium/
As I have written before, this is entirely possible within the framework of minimum tax regulations through so-called Qualified Refundable Tax Credits (QTRC), which are treated as income and do not lead to additional taxation, even if the effective tax rate falls significantly below 15%. For example, after the minimum tax came into force, Hungary apparently came up with the idea of giving 50% of the research and development costs of companies operating in the country as such refunds, which lowered the minimum tax to around 5%. Many countries, such as Switzerland, Luxembourg, Singapore, and the Caribbean islands, have created or are creating similar mechanisms to remain competitive.
The only tricky thing in their practical implementation concerned only the nature of tax refunds: according to the regulation, they must be directly redeemable for cash. Malta’s tax authority would therefore need billions in cash so that it could, well, give billions back in cash to companies and thus wipe the effective tax rate towards zero. I noted that this new corporate tax would be quite suitable as a first step in such an implementation. Especially its commitment obligation would secure such a cash flow to finance the system. Evolution has significant economic activity in Malta: product development, a large studio, and all IP assets, against which it would be easy to grant these cash-redeemable credits and bring the tax rate back to its previous levels. We await further information from the Maltese, most likely the entire corporate tax package will be unveiled next month in connection with the budget.
