tax policy trends and what they mean for malta€¦ · driving global tax policy change – a...

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

Tax policy trends and what they mean for Malta


Global tax policy trends

Economic uncertainty and globalisation – Driving global tax policy change


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


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


► 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


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


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


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


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


“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)


Where Malta is now?

Malta’s position relative to the OECD– Fiscal and economic key indicators


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


Role for each tax

Tax Mix

Tax

Structure Transparency

Designing

the tax

structure

Delivery of certainty

Maintaining

and

Building

Reputation

Tax

Administration


Appendices

Macro economic data – General government gross financial liabilities as a percentage of GDP


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


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


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…


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


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


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


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


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


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%)


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)


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)


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


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)


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


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


* 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%)


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%


Thank you

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