Tax policy trends and what they mean for Malta Richard Ogden – [email protected]
April 2013
Agenda
► Global tax policy trends
► Megatrends and economic challenges
► Government cooperation
► Tax and CSR
► Potential futures
► Europe/EU
► Likely reaction of other countries – the future of tax competition
► Application to Malta
► How does the Maltese tax system compare
► Challenges facing Malta
► Choices, choices, choices
► Addressing those challenges
Page 2 Tax policy trends and what they mean for Malta
Tax policy trends and what they mean for Malta Page 3
Global tax policy trends
Economic uncertainty and globalisation – Driving global tax policy change
Tax policy trends and what they mean for Malta Page 4
1 A shifting global economy 2 The accelerating pace of
globalisation
4
A changing model
for tax administration
3
A rapid succession of
legislative and regulatory
changes
Driving
Economic uncertainty and globalisation – Accelerating pace of globalisation ► Distinct differences in growth rates by region.
By 2015/2016, emerging countries will account
for 74% of all global growth
► Economic influence is being rebalanced from
west to east, and north to south, with the
sovereign debt crisis accelerating the shift
► GDP rankings are changing; China has
overtaken Japan and Brazil has overtaken the
UK
► New consumer markets are opening – the
middle class is growing.
► Today, 1.8 billion people are middle class.
► By 2030, 5 billion people will be middle
class
► 85% of that growth will come from Asia
► In the next 10 years, China’s middle class
will grow from 5% to 40% of its population
Tax policy trends and what they mean for Malta Page 5
United States 35.8%
Japan 21.4%
China 2.0%
Rest of Asia-Pacific
Area 4.4%
Rest of World 36.4%
2000
United States 24.0%
Japan 11.8%
China 14.8%
Rest of Asia-Pacific
Area 5.2%
Rest of World 44.2%
2015?1
1 Based upon current IMF growth projections
Shifting composition of the Fortune
Global 500 – Headquarters locations
Driving global tax policy change – A three-year scorecard
Tax policy trends and what they mean for Malta Page 6
► After the (last) crisis: key areas impacted 2009–2012 for the rest of the world …
► Falling headline corporate income tax rates
► Corporate tax base expansion
► Shift toward territorial taxation
► CFC tightening
► Tax revenue composition – and growth of indirect taxes
► Interest and expense deductibility
► Thin capitalisation
► Intangibles
► Tightening loss utilisation
► Taxation of immovable property
► Climate change and sustainability
► Anti-abuse measures and general approach to tax enforcement
G-7: Sovereign gross debt, deficits
Tax policy trends and what they mean for Malta Page 7
Gross debt, G-7 countries Annual deficit projections, G-7 countries
Japan, 256.6
Italy, 118.9
United States, 113.0
United Kingdom, 86.8
France, 84.6
Canada, 73.6
Germany, 71.1
(30.0)
20.0
70.0
120.0
170.0
220.0
270.0
Gro
ss d
eb
t (%
of
GD
P)
Year
Japan Italy United StatesUnited Kingdom France CanadaGermany
Germany, (0.2)
Italy, (1.1)
Canada, (0.5)
France, (0.5)
United Kingdom, (1.0)
United States, (4.4)
Japan, (7.5)
(11.0)
(9.0)
(7.0)
(5.0)
(3.0)
(1.0)
1.0
3.0
5.0
7.0
2011 2012 2013 2014 2015 2016 2017
An
nu
al
defi
cit
(%
of
GD
P)
Year
Germany Italy CanadaFrance United Kingdom United StatesJapan
Percentage share of major tax categories in total tax revenue
Tax policy trends and what they mean for Malta Page 8
Source: OECD Tax Database
Note: * including certain taxes on goods and services and stamp taxes
9 8 8 8 10 10
26 30 30 27 25 25
18 22 22
25 24 25
1
1 1 1 1 1 8
6 5 6 6 5 12
13 16 19 19 20
24 18 16 13 12 10
2 2 2 3 3 3
0
10
20
30
40
50
60
70
80
90
100
1965 1975 1985 1995 2000 2008
Corporate income tax Personal income tax Social security contributions Payroll taxes
Property taxes General consumption taxes Specific consumption taxes Other taxes *
Shift towards territorial taxation
Tax policy trends and what they mean for Malta Page 9
2012 statutory CT rate1 Taxation of foreign-source income
Countries with worldwide tax regimes
US 39.0% Worldwide with deferral and foreign tax credit
China 25.0% Worldwide with foreign tax credit
Korea 24.2% Worldwide with foreign tax credit
Countries with territorial + exemption tax regimes
Japan 38.01% 95% dividend exemption enacted in 2009
France 36.1% 95% dividend and branch exemption
Germany 33.0% 95% dividend exemption
Italy 31.4% 95% dividend exemption
UK 24.0% 100% dividend exemption enacted in 2009
Netherlands 25.0% 100% dividend and branch exemption
Switzerland 21.2% Proportional dividend exemption
1 Includes both national and sub-national statutory corporate tax rates.
International developments
OECD
► Beneficial Ownership
► Permanent Establishment
► Intangible Property
► Double Non-Taxation
► Base Erosion and Profit Shifting (12 February 2013)
UN
► Transfer pricing manual (practical)
► Paper on hybrid entities, focusing on the classification of
non-resident entities
Global
► Extractive Industries Transparency Initiative (37 countries)
G20/G8
► Political support for work on tackling tax avoidance and
tax evasion
► Delivery through OECD
Tax policy trends and what they mean for Malta Page 10
European Commission
► Action Plan (6 December 2012)
► Tax Haven identification and
toolbox of defensive measures
► Common EU GAAR
► Treaty provisions on double non-
taxation
► Exchange of information and of
knowledge (e.g., IT tools/joint
audits)
► Transparency Directive
► CCCTB
EU Code of Conduct Group
► Work focused on PPL arrangements
► ‘Agreed Solution’: denial of
exemption of the interest payment
received
Corporate tax responsibility: Paying the right amount of tax – Overview and current state of play ► Governments & supra-national
► Focus on base erosion and profit shifting
► Increased GAAR and SAAR
► Greater tax authority scrutiny
► Increased tax payable
► External stakeholders
► Increased tax activism
► Increased media scrutiny
► Corporate
► Consumer boycott
► Brand erosion
► Greater tax authority focus
► Internal resources spent on damage
limitation
Tax policy trends and what they mean for Malta Page 11
“How Apple Sidesteps Billions in Taxes”
(New York Times, 12 April 2012)
“Starbucks paid no tax on UK earnings in
the past three years.”
(The Guardian, 16 October 2012)
“Google Revenues Sheltered in No-Tax
Bermuda Soar to $10 Billion”
(Bloomberg, 10 December 2012)
“Facebook accused of taking UK for a ride
over taxes”
(The Guardian, 10 October 2012)
Tax policy trends and what they mean for Malta Page 12
Where Malta is now?
Malta’s position relative to the OECD– Fiscal and economic key indicators
Tax policy trends and what they mean for Malta Page 13
Corporate Tax Rate
VAT
Debt
12.5
35 36.15
8 18
27
14.5 72.2
214.3
Ireland Malta France
Switzerland Malta Hungary
Highest Lowest
Estonia Malta Japan
Highest Lowest
Highest Lowest
Choices, Choices, Choices
Tax policy trends and what they mean for Malta Page 14
Role for each tax
Tax Mix
Tax
Structure Transparency
Designing
the tax
structure
Delivery of certainty
Maintaining
and
Building
Reputation
Tax
Administration
Tax policy trends and what they mean for Malta Page 15
Appendices
Macro economic data – General government gross financial liabilities as a percentage of GDP
Tax policy trends and what they mean for Malta Page 16
Source OECD: all countries have been studied apart from BRIC, South Africa, Mexico, Chile and Turkey
83.10%
82.50%
73.50%
72.20%
64.10%
62.30%
61.00%
59.90%
51.30%
51.30%
48.60%
44.70%
39.50%
36.40%
29.80%
29.30%
14.50%
0%50%100%150%200%
Austria
Netherlands
Israël
Malta
Poland
Finland
Denmark
Slovenia
Czech Republic
New Zealand
Sweden
Norway
Switzerland
South Korea
Luxembourg
Australia
Estonia
(Average rate: 82,6%)
214.30%
181.30%
127.00%
125.60%
124.70%
123.20%
109.80%
105.30%
105.10%
103.20%
93.80%
87.60%
87.40%
85.80%
0%50%100%150%200%
Japan
Greece
Italia
Portugal
Iceland
Ireland
United States
United Kingdom
France
Belgium
Spain
Germany
Hungary
Canada
Average rate: 82,6%)
OECD website (www.oecd.org)
Macro economic data – Difficulties to start a debt reduction movement
Tax policy trends and what they mean for Malta Page 17
0%
20%
40%
60%
80%
100%
120%
2007 2008 2009 2010 2011 2012
Euro Zone OECDOECD website (www.oecd.org)
(Debt as a % of GDP)
Macro economic data – With Eurostat data
Tax policy trends and what they mean for Malta Page 18
Average general government gross financial liabilities in the European Union in 2012
as a % of GDP
72.20%
93.60%
70.90%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Malta Euro Zone EU Zone 27
* Maastricht definition of general government gross public debt OECD website (www.oecd.org)
Macro economic data – An improvement of general government financial balances…
Tax policy trends and what they mean for Malta Page 19
Evolution of general government financial balances as a % of GDP
Source OECD: all countries have been studied apart from BRIC, South Africa and Mexico OECD website (www.oecd.org)
(9.0)
(7.5)
(6.0)
(4.5)
(3.0)
(1.5)
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Corporate taxation – 2012 rate
Tax policy trends and what they mean for Malta Page 20
Mexico
Poland
Russia
Turkey
India
Germany
China USA
Sweden
Spain
Australia
Canada
Brazil
Norway
UK
Finland
South Africa
Italy France
Chile
Iceland
Stable rate
Decreased rate
Increased rate
IBFD website (www.IBFD.org) & Ernst & Young tax policy and controversy briefing n° 11 Out of scope
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
P
P
E
F
B
L
NL
D
UK
UK
DK S
N
Worldwide tax trends – Limitation of financial interest deduction is the rule
Tax policy trends and what they mean for Malta Page 21
Mexico
Poland
Russia
Turkey
India
Germany
China USA
Sweden
Spain
Australia
Canada
Brazil
Norway
UK
Finland
South Africa
Italy
France
Chile
Iceland
Absence of limitation measures
Existence of limitation measures
IBFD website (www.IBFD.org) Out of scope
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
I
P
E
F
B
L
NL
D
IRL
UK
DK S
N
Corporate taxation – Mandatory transfer pricing documentation has also become a common rule
Tax policy trends and what they mean for Malta Page 22
Mexico
Poland
Russia (2012)
Turkey
India
Germany
China USA
Sweden
Spain
Australia
Canada
Brazil
Norway
UK
Finland
South Africa (2011)
France
Chile
Iceland
No
Yes
IBFD website (www.IBFD.org) Out of scope
South Korea
Japan
New Zealand
Italy
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
I
P
E
F
B
L
NL
D
IRL
UK
DK S
N
Corporate taxation – Maintenance or adoption of tax incentives relating to R&D and industrial property
Tax policy trends and what they mean for Malta Page 23
Mexico
Poland
Russia
Turkey
India
Germany
China USA
Sweden
Spain
Australia
Canada
Brazil
Norway
UK
Finland
South Africa
Italy France
Chile
Iceland
No (18%)
Yes (82%)
IBFD website (www.IBFD.org) Out of scope
New Zealand
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
I
P
E
F
B
L
NL
D
IRL
UK
DK S
N
Worldwide tax trends – The state of affairs regarding General anti avoidance rules (GAAR)
Tax policy trends and what they mean for Malta Page 24
Mexico
Russia
India
China USA
Australia
Canada
Brazil
South Africa Chile
Iceland
No (5% of the countries studied)
Similar rules (26% of the
countries studied)
IBFD website (www.IBFD.org) Out of scope
South Korea
Japan
Yes (69% of the countries studied)
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
I
P
E
F
B
L
NL
D
IRL
UK
DK S
N
New Zealand
Evolution of the general anti avoidance rules in 2012 – A converging movement
Tax policy trends and what they mean for Malta Page 25
Mexico
Russia
India
China USA
Australia
Canada
Brazil
UK
South Africa Chile
No existing GAAR
Maintenance of the GAAR
IBFD website (www.IBFD.org) – Ernst & Young Tax Policy – GAAR rising Out of scope
New Zealand
Tightening of the GAAR
FIN EST
PL
CZ
SK
H
SN
TR
ISR
GR
Malta
A CH
I
P
E
F
B
L
NL
D
IRL
UK
DK S
N
Worldwide tax trends – An extensive use of Tax Information Exchange Agreements (TIEAs)
Tax policy trends and what they mean for Malta Page 26
24
197 200
67
93
0
40
80
120
160
200
2008 2009 2010 2011 2012
Number of signed TIEAs (in force or not)
OECD website (www.oecd.org)
European tax trends – Maintenance or decrease in the corporate income tax rate
Tax policy trends and what they mean for Malta Page 27
25.00%
24.50%
24.00%
21.00%
20.00%
20.00%
20.00%
19.00%
19.00%
19.00%
19.00%
18.95%
18.00%
12.50%
10% 20% 30% 40%
Denmark
Finland
United Kingdom
Estonia
Greece
Iceland
Russia
Czech Republic
Hungary
Poland
Slovak Republic
Switzerland
Slovenia
Ireland (Average rate: 23,93%)
1 Slovenia: will be reduced to 17% in 2013 and 16% in 2014 2 Hungary: the solidarity surcharge tax of 4% has been repealed since 01/01/2010 3 Russia: 2% of federal tax and18% of regional tax 4 Estonia: will be reduced to 20% as from 01/01/2015 5 United Kingdom: will be reduced to 23% as from 01/01/2013 6 For Luxembourg City: encompasses a CIT rate of 21.84% and a municipal tax of 6.75%
7 Portugal: encompasses a CIT rate of 25%, a regional surcharge tax of 3%, and a municipal surcharge tax of 1,5% 8 Germany: CIT rate of 15% and a surcharge tax of 5,5% 9 Belgium: encompasses a CIT rate of 33% and a temporary ‘crisis’ surcharge tax of 3% 10 France: encompasses a CIT rate of 33,33% and a surcharge tax of 3,3%. An additional surcharge tax of 5% applies as from 01/01/2012
Stable rate Decreased rate between 2011
and 2012
Increased rate between 2011
and 2012 IBFD website (www.IBFD.org)
36.15%
35.00%
33.99%
29.83%
29.83%
29.50%
28.80%
28.00%
27.50%
26.30%
25.00%
25.00%
10% 20% 30% 40%
France
Malta
Belgium
Spain
Germany
Portugal
Luxembourg
Norway
Italy
Sweden
Netherlands
Austria (Average rate: 23,93%) 1
2
3
4
5
6
7
8
9
10
European tax trends – Increase in the standard VAT rate
Tax policy trends and what they mean for Malta Page 28
* 20% until 31 December, 2012; as from 1 January, 2013, a single VAT rate of 17.5% will apply.
Stable rate Decreased rate between 2011
and 2012
Increased rate between 2011
and 2012 IBFD website (www.IBFD.org)
20.00%
20.00%
20.00%
20.00%
20.00%
19.60%
19.00%
19,00%
18.00%
17.50%
15.00%
8.00%
0% 10% 20%
Estonia
United Kingdom
Austria
Slovak Republic
Slovenia
France
Germany
Russia
Malta
Slovak Republic*
Luxembourg
Switzerland
(Average rate: 20,91%) (Average rate: 20,91%)
27.00%
25.50%
25.00%
25.00%
25.00%
23.00%
23.00%
23.00%
23.00%
23.00%
21.00%
21.00%
21.00%
21,00%
0% 10% 20% 30%
Hungary
Iceland
Sweden
Norway
Denmark
Portugal
Poland
Greece
Finland
Ireland
Belgium
Italy
Netherlands
Spain
And Malta? – Against the current
Evolution of the corporate income tax rate within the European Union between 2009
and 2012
(1.67%)
0%
5%
10%
15%
20%
25%
30%
35%
40%
Malta EU Zone 27 Euro Zone
2009 2012
Sources: Eurostat
(0.38%)
Page 29 Tax policy trends and what they mean for Malta
And Malta? – Against the current (cont’d)
Evolution of the standard rate of VAT within the European Union between 2009 and
2012
17%
17%
18%
18%
19%
19%
20%
20%
21%
21%
22%
Malta EU Zone 27 Euro Zone
2009 2012Sources: Eurostat
+ 4.77%
+ 6.06%
Page 30 Tax policy trends and what they mean for Malta
Thank you
IMAGE EXPIRY: None