US SENATOR DECLARES WAR ON MALTA’S TAX MODEL
By Economist
A senior US senator has written to the world’s four largest accountancy firms, demanding full details of tax arrangements that allow big companies to pay very little tax by routing profits through Malta. Ron Wyden, the leading Democrat on the Senate Finance Committee, sent the letters this week to the chief executives of PwC, KPMG, Deloitte and EY.
He is reacting to a New York Times investigation published in August. That report described how companies such as the shoe maker Crocs, Victoria’s Secret and others have set up subsidiaries on the island, often in offices with almost no staff, and shifted profits there from higher-tax countries. The result, according to the paper, is that the companies cut their global tax bills by hundreds of millions of dollars. The accountancy firms are said to have designed and promoted these structures, including versions that still work under the new international 15 per cent minimum tax rules.
Malta’s official company tax rate is 35 per cent, one of the higher rates in the European Union. However, the island’s long-standing refund system means that non-resident shareholders usually receive most of the tax back when profits are paid out as dividends. The effective rate for many foreign-owned companies is therefore around 5 per cent. The arrangements are legal under Maltese and EU law, and they form part of the financial-services sector that provides thousands of jobs and substantial government revenue here.
Wyden has said he is concerned that ordinary American workers pay tax on every wage packet while large corporations, assisted by professional advisers, use overseas structures to reduce what they owe. In his letters he asks the firms to describe the Malta structures they have used, to supply marketing materials, to estimate the tax savings achieved, to state the fees they have earned, and to say whether they have worked with Maltese advisers or officials. He wants replies by 10 November.
The timing is sensitive because Americans vote on 3 November in mid-term elections that could hand control of the Senate to the Democrats. President Trump’s Republicans currently hold a narrow majority. If the Democrats gain the four seats they need, Wyden is expected to become chair of the Finance Committee. He would then have stronger powers to hold public hearings, require documents, and propose new laws that could limit the usefulness of overseas profit-shifting for US companies.
For Malta that raises clear questions. Greater scrutiny from Washington, or changes to American tax rules, could make the island less attractive to US multinationals. Some firms might relocate structures or face higher US tax bills on the profits currently booked here. That could affect the volume of business handled by local professionals and, over time, the contribution the sector makes to the island’s economy. At the same time, the story underlines how a small EU country can become central to global tax debates and how decisions taken in Washington can quickly affect life on the island.