In further updates to last week’s front-page story published in The Malta Business Weekly, the Minister for Finance, Professor Edward Scicluna has confirmed in a press statement (published on 4 June) that “Malta agrees on closing a tax loophole referred to as hybrid loan mismatch. At the last ECOFIN Meeting which took place on 6th May 2014, Malta only disagreed with the wording of the amending directive, but not the object of the Parent Subsidiary Directive.”
The statement goes on to quote the explanation of Malta’s position given by the Minister for Finance, in the ECOFIN meeting of the 6th of May 2014: “We fully agree that profits which have benefited from a deduction in the Member State of the subsidiary ought not to escape taxation in the Member State of the Parent and that of the Permanent Establishment (Subsidiary). Malta, like all other Member States had already agreed in the Code of Conduct Group to address this issue.
Indeed, we have supported the Presidency in its approach of splitting the adoption of this proposal, with a view to fast track a rapid agreement on this aspect. Let me be clear therefore that Malta equally shares the view that this “hybrid loan mismatch” loophole ought to be closed as quickly as possible.”
In the press statement Professor Scicluna goes on to explain that “The Parent Subsidiary Directive, like the other tax directives in force, are not taxing instruments. Consequently, the Maltese Government believes that the same objective could be achieved with a wording which, whilst achieving the same aim, better respects Member State`s competence in this area.”
The statement from the Minister of Finance concludes by observing that “Malta’s preferable option of wording is the one that most safeguards Member States competence in this area. To this effect, the Government is currently seeking legal advice which while safeguarding Malta’s interests would achieve the aim of the amending directive, that of closing a tax loophole.”
Following on from this statement The Malta Business Weekly contacted the spokesperson for the European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, Mr AlgirdasŠemeta, with a series of questions about the current situation (responses received on 6 June).
The Malta Business Weekly asked whether the Commission shared Malta’s concern that the recommended revisions inadequately “respects Member State’s competence” in the area of taxation. The Commissioner’s spokesperson responded that “The Commission believes that the compromise text fully takes into account Member State competences, while also allowing us to close the hybrid mismatch loophole which is so costly for Member States. No Member State other than Malta has raised concerns about competences.”
In the light of the fact that the Ministry for Finance explain that they are seeking legal advice about amending the directive, The Malta Business Weekly asked whether Malta has been scheduled, or has requested, additional opportunities to negotiate the agreement before the meeting on the 20th June. The Commissioner’s spokesperson confirmed that “As always, the texts were discussed first at technical level by Member State tax experts, then at ambassador level. The Commission services are always willing to assist Member States in addressing any concerns they might have, in order to reach agreement. There have been many opportunities for Malta to discuss this issue with the Commission and the Council Presidency (currently held by Greece)”
The Commissioner’s spokesperson confirmed that as it stands under the current compromise it is foreseen that the deadline for the transposition of the Directive into national law is the 31st of December 2015.