The Malta Independent 26 June 2022, Sunday

Sweden wants its citizens’ Malta-based companies struck from taxation white list

David Lindsay Monday, 5 March 2018, 10:10 Last update: about 5 years ago

The Swedish government intends to clamp down on Swedes who have incorporated companies in Malta under the country's low tax regime and intends to remove Malta-based companies from Sweden's Controlled Foreign Corporation taxation White List, Swedish Finance Minister Magdalena Andersson said this week.

The Swedish government will be removing low-tax Malta from the CRC white list on account of the letterbox companies its citizens have established there.


In future, a Swedish partner in a Malta-based company will need to show that the company is active and is more than a mere letterbox company set up in Malta with the sole intention of avoiding CFC taxation.

"The possibility of tax planning with low-tax letterboxes abroad is something that harms the trust of the taxpayer and the tax payroll," Andersson said. "Malta is a country we are proposing to remove from the white list. Instead, an assessment can be made in individual cases with regard to Malta-incorporated companies. We will continue to take measures to make it difficult for aggressive tax planning."

In Sweden, entities that pay fair corporate income tax rates overseas, gauged at 15.4 per cent, are granted exemption from Sweden's Controlled Foreign Corporation (CFC) income tax. The Swedish government now appears to have formed the opinion that Malta's tax rate for foreign companies is anything but fair.

Sweden has a CFC income tax white list that includes 153 countries and it also has a blacklist and a grey list. Companies based in white-list countries are exempt from CFC taxes. Entities based in white-list countries are not subject to CFC taxes.

Corporations with ties to countries on the blacklist, including notorious tax havens, are subject to CFC taxes only if their earnings are taxed at a rate below 15.4 per cent. Grey-list countries are held to a similar standard with regard to profits related to financial services. Sweden's blacklist includes 54 countries that are corporate tax havens according to the generosity of their tax rates.

While the Swedish Finance Minister did not say whether Malta would be downgraded to the grey or the black list, Swedish letterbox companies incorporated in Malta certainly pay well below the 15.4 per cent threshold.

Malta's tax imputation system has come under practically continual fire lately, with many of its fellow EU member states crying foul and accusing Malta of effectively stealing from their state coffers by offering their companies better taxation rates, which allows companies to effectively pay close to five per cent corporate taxation on profits through a 6-7ths rebate.

To qualify for this 6-7ths tax rebate, a company or subsidiary registered in Malta does not carry out its main activities locally and their shareholders do not reside in Malta.

Being a small economy with limited resources, policy-makers have consistently argued that they had to capitalise on the islands' strengths so that service-based industries could flourish. Preferential tax rates and other financial incentives have been provided to cross-border corporations and extremely wealthy individuals for years.

As a result, these multi-billion dollar companies open luxurious offices in Malta and channel profits to the island, paying a fraction of the taxes of what they would - some argue should - be paying elsewhere. This represents large amounts of tax revenue for the Maltese government.

Policy-makers have consistently said that in view of Malta's relatively small workforce, limited natural resources and isolation from mainland Europe, the island had to come up with systems in order to attract service-based industry, thereby attracting wealth and generating jobs.

It has also been argued that as long as preferential tax rates are uniform across the board, meaning one corporation cannot broker a higher tax rebate than another through secret sweetheart deals, and as long as the funds coming into the island come from legal, clean and legitimate sources, then it will continue to defend its system.

Policy-makers have also argued that Malta should not bend to the will of other countries that are attempting to cling to as much tax revenue from company profits as they can. Others outside Malta argue that companies should be paying taxes where they are earning their profits.

Malta is vigorously defending its taxation system on both European and international levels.

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