Brussels, 24/03/2006 (Agence Europe) - The European Commission has formally requested that Malta abolish the tax regime for Maltese Companies with Foreign Income (CFI) and the International Trading Companies' (ITC) regime by the end of 2010 at the latest. Under these regimes, revenues from foreign sources paid to shareholders of an ITC or a CFI are subject to minimal or no taxation. The Commission explains in a press release that it 'intends to put a definitive end to these offshore tax regimes because they seriously distort competition and trade in the Single Market. Competition Commissioner Neelie Kroes said: “The schemes provide sizable aid to companies that are owned by non-Maltese and produce revenues outside of Malta, and are therefore highly distortive without promoting growth of the Maltese economy”.
Under the two regimes for multinationals set up in 1994, Maltese companies active outside Malta benefit from extraordinary refunds of corporate taxes upon distribution of their profits to shareholders residing outside Malta. Thus, ITCs' and CFIs' profits distributed to non-resident shareholders are subject to very low taxation in Malta (down to 4.2% instead of the normal 35%). In response to concerns raised by the Commission, Malta suggested turning both schemes into a tax refund system by 2012, but the Commission wants the following measures introduced by 2010: (i) to abolish the existing ITC and CFI schemes by 1st January 2007 at the latest and enact by the same date a new refundable tax credit system that does not in practice favour foreign-owned companies over domestic-owned companies; ii) to prohibit ITC tax status being given to any new company registered in Malta after 31st December 2006. The existing ITC shall benefit from the current system only until 31st December 2010; and iii) to limit the number of newly created ITCs between the date of acceptance of the appropriate measures herewith proposed and 31st December 2006 to the yearly average number of ITC companies created in the last five years. Malta has one month to accept the proposed measures, failing which the Commission may open a formal state aid investigation.