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Malta Business Review
GAMING REVIEW
Odds stack up against Malta’s
online gambling bet
Low taxes have been Malta’s recipe for economic success. That might not last. | By Joanna Plucinska
For over a decade, low corporate tax rates
made the tiny Mediterranean island of
Malta the best place in Europe to set up
online poker, sports betting and slots sites.
That could all change soon.
As Brussels doubles down on efforts to regulate
the gambling industry and enforce a new tax
regime for digital companies, Malta is fighting
to keep its biggest asset. Rising skepticism of
the gambling sector, also referred to as online
gaming by government officials, did little to
deter operators in recent years. But a new EUwide
digital taxation scheme, spearheaded by
France and Germany, now threatens to tax all
digital companies on their turnover or profits.
The tax proposals may intend to take aim
at big American giants like Apple, Facebook
and Google, but any new measures could
inevitably affect other digital firms, such as
the online gambling companies thriving in
Malta. The extent of the rules is still not clear
— the European Commission is only expected
to release its proposal in the spring and France
seems to have dialled down its enthusiasm.
But the political push to tax digital firms could
be bad news for the island, which has grown
dependent on the gaming sector’s success.
Online gambling makes up almost an eighth
of the tiny country’s economy and is one of
the largest sectors, along with finance and
tourism. Malta — population of over 430,000
— has few natural resources to speak of.
“Possible international corporate taxation
reforms may affect Malta’s fiscal position
unfavourably due to the high share of
corporate tax revenues in total revenues,”
a recent evaluation from the International
Monetary Fund said. Along with countries
like Luxembourg and Ireland, the Maltese
government is scrambling to obstruct the
Franco-German initiative and will make a
case for pursuing global tax reforms via the
Organization for Economic Cooperation and
Development [OECD], which wants to set
global, not just European, taxation standards
for digital giants.
Possible international
corporate taxation reforms
may affect Malta’s fiscal
position unfavourably due to
the high share of corporate tax
revenues in total revenues
Because EU decisions on tax reforms require
full, unanimous agreement from all member
countries, Malta has the power to stall
potential reforms for months. But whether
this will save Malta from broader EU oversight
— and rising criticism against its digital
gambling sector — is far from clear. “Malta has
a general problem with money laundering and
tax evasion,” said Markus Ferber, a German
European People’s Party MEP and vice chair
of the European Parliament’s Economic and
Monetary Affairs Committee. “For me, it is
very clear that the Maltese government has
to significantly step up their game.”
The Commission can launch infringement
procedures if Malta isn’t complying with EU
rules. That could target money laundering and
Malta’s corporate tax exemptions and rules,
especially if they favour one company or type
of company. The Commission prepared a recent
analysis of Malta’s compliance with anti-money
laundering rules and flagging potential areas of
Continued on pg 52
improvement. The murder of journalist Daphne
Caruana Galizia last year, who was investigating
corruption and money laundering, also led to
calls for a closer look at Malta.
“Malta needs to show to Europe and indeed
the world that its rules and regulations are
healthy and robust,” European Commission
First Vice President Frans Timmermans said
earlier this month. With ongoing European
Parliament investigations into Maltese
politicians’ involvements in the Panama
Papers scandals and tougher EU-wide scrutiny
on sectors like online gambling, European
authorities aren’t expected to let up anytime
soon. Věra Jourová, Europe’s commissioner
for justice, put it simply: “I will focus on Malta.”
UNDER SCRUTINY
Malta’s gambling industry has been a key
driver of its economic growth in the past
decade. When the country joined the bloc
in 2004, it had an economy funded largely
by tourism, with little or no tech industry to
speak of. Online gambling was still a relatively
new concept in Europe.
The small country saw an opportunity to
capitalize on a gap in the market and became
one of the first to craft clear rules for the
Malta sees e-sports as a
potential way of diversifying
its economy | Kazuhiro
Nogi/AFP via Getty Images
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