Foreign Minister Tonio Borg has been discussing Malta’s removal from the Italian Black List of the Controlled Foreign Companies with counterpart Franco Frattini for the past two years. This will now take place within a month, which should lead to a boost of the financial services sector in Malta.

The aim behind the enactment by Italy of the Italian Controlled Foreign Companies (CFC) legislation is to tax subsidiaries of Italian companies located in so-called low tax jurisdictions even if the profits of the relative subsidiaries are not distributed to the Italian parent. To this effect Article 127 of the Italian tax legislation (TUIR i.e ‘Testo unico delle imposte sui redditti’) has a Black List of CFC countries. Malta featured in the Black List prior to its EU membership and although pursuant to its EU membership not all types of Maltese companies were blacklisted, in reality all Maltese companies were construed to be de facto blacklisted due to the uncertainty resulting from the lack of clarity of the wording of the legislation.

Also in view of the deterrence which the issue could have on potential Italian investors willing to set up in Malta, the government of Malta embarked on a persistent and consistent campaign with the Italian side for the removal of Malta from the Black List. While it is pertinent to note that Malta’s tax system was also cleared both for ‘state aid’ purposes and by the EU Code of Conduct (Business Taxation) Group, Malta’s Tax Management Act (Section 10 A) was also amended in a way that is directly related to this issue.

Furthermore on 13 March, 2009, Malta and Italy concluded a Protocol to the Agreement between the Government of Malta and the Government of the Republic of Italy for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion amending a number of articles of the agreement and including reference to the taxes covered, the elimination of double taxation and to exchange of information.

In an amnesty scheme, named scudo fiscale, launched by the Italian government in October 2009, Malta was not considered as a grey\black list country any more which was already indicative of Italy’s intentions.