German Chancellor Angela Merkel this week sounded an alarm that the UK may end up copying Malta's low tax rate model when it exits the European Union.
Addressing a meeting with non-governmental organisations in Hamburg this week, before she hosts a G20 summit in the city next month, she said: "I don't want to pillory anyone but the island states of Ireland, Malta and Cyprus say: 'We have a bad geographical location, we're at such a disadvantage, we can only attract companies by having very low taxes'.
"And when, within the context of Brexit, Britain one day decides to step into this tax competition too, then of course that would be a huge challenge for countries."
Merkel, who said it was already hard to organize fair tax competition in Europe, also announced plans for a Franco-German corporation tax reform. Germany and France will attempt a joint corporation tax reform via a common tax assessment framework "so that at least two countries can be a role model", she said, adding that this could also be a blueprint for a global tax system.
The G20 summit is due to take place in Hamburg in early July. On 13th July the governments of Germany and France will meet in Paris for the Franco-German Council of Ministers, where they want to make proposals for closer cooperation in areas such as tax.
In a manifesto document ahead of an 8th June election, Britain's Conservatives - who emerged as the largest party but lost their parliamentary majority - said corporation tax would be cut to 17 per cent by 2020.
Merkel's comments that "at least two countries can be a role model" and that "I don't want to pillory anyone but..." have been construed as thinly veiled criticism of the low tax rates offered by Malta.
Malta's tax imputation has come under fire of late, after a project undertaken by the network of European Investigative Collaborations (EIC) exposed how the system allows for companies to pay the lowest levels of tax on profits in the EU.
Malta has repeatedly come under fire for its system, which allows companies to effectively pay close to five per cent corporate taxation on profits through a 6/7 rebate. The idea behind the system is to attract companies to register in Malta, and thereby attract millions in tax revenue on company profits to the island that would otherwise go to the country where those companies are earning their profits.
Her comments also come in the wake of recent articles criticising Malta for allowing several major German companies to open letterbox subsidiaries in Malta, avoiding millions of euros in taxes in the process, and the recent Malta Files stories that have done the rounds recently in the European press, slamming Malta's extremely favourable taxation rates.
Malta's tax rates were also one of the leading subjects in the recent European Parliament plenary session on the rule of law in Malta, attended by Prime Minister Joseph Muscat.