Taxing firms in the global economy
Over recent years, Malta’s tax system has been closely scrutinised by the European Commission and other EU Member States amid claims that multinational firms were unfairly reporting profits in Malta to take advantage of the country’s advantageous corporate tax rate even in cases where these firms had little real activity in Malta.
Government has had to fight tooth and nail to ensure that Malta is able to retain the current tax system; and it is likely that the Maltese Government will have to continue working strategically on this front as international institutions – such as the European Commission and the OECD – are expected to continue pushing the agenda for the harmonisation of taxation within the EU and around the world.
Against this background, Daniel Gravino’s PhD research at Loughborough University focused on the strategic behaviour of firms in the global economy, and how governments acting in the interest of their country’s citizens may influence global firms’ decisions through tax competition and/or regulation.
Specifically, part of the research focused on issues relating to multinationals’ location decisions and the profit-shifting opportunities that arise when there are differences in corporate tax rates/regimes among competing countries.
A key insight obtained from the research is that the expected positive impact of antitax avoidance policies on (typically large) host countries’ tax revenues may be smaller than anticipated because they also intensify the competition for attracting and retaining real capital.
The difference in the market size of competing countries turns out to be key in determining whether anti-tax avoidance policies intensify the competition for real capital.
The more similar countries are in market size and other country characteristics, the more intense is tax competition for real capital.
Dr Daniel Gravino holds a BCom (Hons) and an MA in Economics from the University of Malta, and an MSc in Economics from the University of Warwick. His PhD research at Loughborough University was partly funded by the Endeavour Scholarship Scheme