Malta resists changes to digital levy
Low taxes have been Malta’s recipe for economic success. That might not last.
For over a decade, low corporate tax rates made the tiny Mediterranean island of Malta the best place in Europe to set up online poker, sports betting and slots sites. That could all change soon.
As Brussels doubles down on efforts to regulate the gambling industry and enforce a new tax regime for digital companies, Malta is fighting to keep its biggest asset.
Rising skepticism of the gambling sector, did little to deter operators in recent years. But a new EU-wide digital taxation scheme, spearheaded by France and Germany, now threatens to tax all digital companies on their turnover or profits.
The tax proposals may intend to take aim at big American giants like Apple, Facebook and Google, but any new measures could inevitably affect other digital firms, such as the online gambling companies thriving in Malta.
The extent of the rules is still not clear, the European Commission is only expected to release its proposal in the spring and France seems to have dialed down its enthusiasm. But the political push to tax digital firms could be bad news for the island, which has grown dependent on the gaming sector’s success. Online gambling makes up almost an eighth of the tiny country’s economy and is one of the largest sectors, along with finance and tourism. Malta’s population of over 430,000 has few natural resources to speak of.
“Possible international corporate taxation reforms may affect Malta’s fiscal position unfavorably due to the high share of corporate tax revenues in total revenues,” a recent evaluation from the International Monetary Fund said.
Along with countries like Luxembourg and Ireland, the Maltese government is scrambling to obstruct the Franco-German initiative and will make a case for pursuing global tax reforms via the Organization for Economic Cooperation and Development [OECD], which wants to set global, not just European, taxation standards for digital giants.
Because EU decisions on tax reforms require full, unanimous agreement from all member countries, Malta has the power to stall potential reforms for months. But whether this will save Malta from broader EU oversight, and rising criticism against its digital gambling sector, is far from clear.
“Malta has a general problem with money laundering and tax evasion,” said Markus Ferber, a German European People’s Party MEP and vice chair of the European Parliament’s Economic and Monetary Affairs Committee. “For me, it is very clear that the Maltese government has to significantly step up their game.”
The Commission can launch infringement procedures if Malta isn’t complying with EU rules. That could target money laundering and Malta’s corporate tax exemptions and rules, especially if they favor one company or type of company.
The Commission prepared a recent analysis of Malta’s compliance with anti-money laundering rules and flagging potential areas of improvement. The recent murder of journalist Daphne Caruana Galizia, who was investigating corruption and money laundering, also led to calls for a closer look at Malta.
Malta needs to show to Europe and indeed the world that its rules and regulations are healthy and robust,” European Commission First Vice President Frans Timmermans said earlier this month.
With ongoing European Parliament investigations into Maltese politicians’ involvements in the Panama Papers scandals and tougher EU-wide scrutiny on sectors like online gambling, European authorities aren’t expected to let up anytime soon.
Věra Jourová, Europe’s commissioner for justice, put it simply: “I will focus on Malta.”
Malta’s gambling industry has been a key driver of its economic growth in the past decade.
When the country joined the bloc in 2004, it had an economy funded largely by tourism, with little or no tech industry to speak of. Online gambling was still a relatively new concept in Europe.