Tax competition within the EU and the financial services sector in Malta : a comparative study of direct taxation

Abstract

This dissertation aims to analyse direct taxation system applied to the financial services sector in Malta. The research conducted explores the main characteristics of the Maltese direct taxation system which promote Malta as an attractive jurisdiction for financial services companies to invest in Malta. Since this study involves a comparison with other countries, the choice of Ireland and Luxembourg is by no means accidental. Both countries are considered small jurisdictions and are among Malta's main competitors since both countries offer low tax rates and have established financial services centres. Chapter one provides a detailed analysis of the growing Maltese financial services sector and how it has transfmmed into a main contributor to the Maltese economy. It also identifies the various factors which enables Malta to be an attractive alternative jurisdiction for investors. In addition this chapter identifies the Maltese laws concerning taxation of corporate profits which are applicable to companies in this sector. Extensive research is done in Chapter two to provide a well explained analysis of the concept of tax competition from an international and EU point-of-view which is fundamental to this study. This study also identifies the difference between beneficial and harmful tax competition and tax harmonisation. The methodology section in Chapter three illustrates the various methods used to conduct this study amongst which were the interviews provided by lawyers, accountants, tax compliance officers and politicians who agreed to be part of this study. Chapter four explains the various EU laws which promote harmonisation and coordination of direct taxation within the EU to limit what the EU refers to as 'harmful tax competition', including the proposal for a Common Consolidated Corporate Tax Base (CCCTB). Chapter five examines the important elements of the Maltese taxation system and compares them with those in Ireland and Luxembourg. Also in this chapter, the interviews conducted provide a strong backing to the desk-bound research since they provide an insight from the perspectives of key stakeholders of the effects of the Maltese direct taxation on financial services corporations.