Loopholes that could allow illicit funds to be laundered through the Maltese corporate tax refund system should be closed as the country seeks to be removed from the Financial Action Task Force (FATF) gray list of untrustworthy financial jurisdictions.
Sources have told the Times of Malta that a national team of experts working to fill the country’s financial crime loopholes will propose reform of the Maltese corporate tax system.
The reform, which will soon be presented to the cabinet, will deal with the practice of reimbursing large parts of the tax debts of foreign companies operating here.
In short, the issue revolves around the depth of scrutiny local tax authorities have in deciding whether or not to refund the lion’s share of their tax payments.
Currently, the tax authorities process applications for reimbursement on average in just four to six weeks, and some applications are approved in half this time.
The proposed reform, which Parliament would have to pass, would extend this window of time to up to a year and allow authorities to properly identify the source of funds before large public sector payments are affected.
Tax authorities are carrying out new due diligence reviews on foreign companies
Malta’s tax rate on paper is 35 percent, but the island offers international businesses an effective tax rate of five percent through a range of refunds and related schemes.
This attracts foreign companies to settle here and generates high tax revenues for the state treasury.
In the past few weeks the tax authorities have carried out a new due diligence on foreign companies operating through Malta that have applied for and received tax refunds.
Sources said that a review of its anti-money laundering system by the Financial Action Task Force raised concerns about the Maltese system.
In June, the global watchdog put the country on its so-called gray list of countries not doing enough to stem the flow of illegal funds.
Malta has now signed an agreement with the FATF to step up the fight against financial crime and must show that it takes this commitment seriously before it can be removed from the list.
At the heart of the plan is an increased commitment to the effective fight against tax crimes through the use of intelligence to detect tax fraud and better oversight of the rules of ultimate beneficial ownership.
Earlier this month, the Times of Malta reported how the deadlines for investigating and prosecuting tax crimes are being extended by the police.
Meanwhile, the future of the Maltese corporate tax rate is in doubt, as efforts by the international community to establish a global minimum rate have skyrocketed.
The Organization for Economic Cooperation and Development (OECD) proposes the introduction of a new minimum tax rate of 15 percent.
Global Minimum Tax Agreement: What You Need To Know.
The proposal is one of two pillars of reforms that would also allow countries to tax a share of the profits of the 100 most profitable companies in the world – like Google, Facebook and Apple – regardless of where they are based.
In a few weeks’ time, the government is expected to table a number of proposals to the organization that it hopes will help the country gain a competitive advantage in attracting foreign companies to its shores.
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