The Implications and Relevance of a Tax Exemption for Co-operatives: The Case of a Small European State

Purpose: To assess the relevance of the tax exemption being granted to Maltese co-operatives on their ploughed-back profits to the creation of such legal structures and to their financial performance. Design/Methodology/Approach: We do this by carrying out 21 semi-structured interviews and reviewing of the financial statements of four co-operatives over a period of five years. Findings: Results show that such a tax exemption may indeed be attracting a few applicants to form co-operatives. However, although the exemption may be serving as an incentive to encourage such start-ups, their promoters may be commonly lacking more valid reasons for choosing to set up this particular structure, which is meant to balance both commercial and social goals. The article therefore concludes that the tax exemption on its own is evidently insufficiently effective in the promotion of genuine and financially successful start-ups and recommends that a review of the tax exemption provision is likely to be beneficial. Further recommendations include (i) rendering such a provision more relevant by linking its granting to the results of a social audit for each co-operative,(ii) reviewing the legal asset-lock provision so as no longer to undermine the attractiveness of the tax exemption, and also (iii) launching vigorous education programmes on the raison d’etre of a co-operative. Practical Implications: Although there were several studies relating to Maltese co-operatives, there has not been a study specifically dealing with the tax exemption for such entities. Accordingly, this research study would prove to be useful in assessing the relevance of the tax exemption conceded to Maltese co-operatives by delving into its implications. Originality/Value: This study will identify any possible amendments that could be made to resolve the tax implications encountered.