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Recalibrating our investment promotion tactics
01
Aug
Recalibrating our investment promotion tactics

Malta, like Ireland, aims to attract direct foreign investment by offering a favour-able tax regime to potential investors. Both countries have been successful, with Ireland attracting a number of multi-nationals to its shores, as well as establishing itself as a vibrant financial services centre. Malta has lured various offshore financial operators as well as a sizeable electronic gaming services community. So why am I suggesting that we recalibrate our tactics to promote new investment? The reason is simple: In these tough economic times legal tax avoidance has become almost as unacceptable to the heavyweight economies as illegal tax evasion.

Recent pronouncements by the OECD and the G20 are the proverbial writing on the wall to countries that encourage tax avoidance schemes even if they euphemistically refer to them as “tax efficiency” tactics to promote investment. The secretary-general of the OECD, Angel Gurria, warned that “international rules, such as double-taxation treaties, are outdated and often abused to the point where they become ‘double non-taxation treaties’. The OECD report Action Plan on Base Erosion and Profit Shifting highlights the fact that “in many jurisdictions, businesses can establish non-resident affiliates and route income through them, thus avoiding tax”.

If this does not sound ominous enough to countries like Ireland and Malta that thrive on their low tax regimes for international investors, one would do well to heed what British Chancellor George Osborne had to say in the last G20 meeting in Moscow: “Addressing avoidance is an important step towards a global tax system that is fair and fit for purpose for the modern economy.” Put in a simpler way, world leaders are saying that there is nothing creative or modern about offering low taxation to multi-nationals and international investors who want to avoid tax almost at all costs, and this new paradigm applies both to large as well as emerging and developing economies. At the latest Moscow G20 leaders backed a 15-point plan designed by the OECD which includes forcing companies to pay tax where their sales are made and encouraging more transparency about their tax arrangements.

“Our message is clear. We want a competitive tax system that supports investment, jobs and growth, but tax that is owed must be paid, so that everyone pays their fair share.” International rules, such as double-taxation treaties, are outdated and often abused to the point where they become ‘double non-taxation treaties’ We have two options to address this imminent threat to the success of our strategy to attract foreign direct investment. We can either continue to insist on leaving things as they are and opting out of any EU level agreements on tax reforms, or start to recalibrate our tactics to attract much needed direct foreign investment by relying less on our tax-efficient regime. This change in tack need not be immediate. We need time to promote new tactics to support our economic growth strategies. In the meantime, we can continue to make our voice heard in the EU fora and insist that as a small country with limited natural resources one of the few options available to us for attracting investment is to promote our tax-efficient regimes. Hopefully, we will not be considered as a threat to the big boys in the EU like Germany and France. Our long-term strategy for attracting long-term foreign direct investment should be based more on winning tactics that make us more attractive to potential investors. I am afraid that this time these winning tactics will not be achieved by some clever consultants who come up with new laws and regulations that beat those of competing countries.

Read full article here.

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