Grant Thornton Malta’s Tax Partner Austin Demajo is responsible for local and international tax services and has provided tax advice to international clients involved in cross-border business ventures. Here, Austin offers his insight into Malta’s taxation sector and shares his predictions for the future with us.
As a specialist within the tax arena, what would you say are the challenges of providing effective tax advice in Malta?
As with any advisory service, tax consultancy carries its challenges. I would say that mergers and acquisitions often prove to be amongst the most exigent, in view of the body of anti-avoidance provisions which are subject to interpretation due to their subjective nature. In these cases, when providing tax advice, it is opportune to place oneself in the shoes of the Commissioner and attempt to determine the matter from his perspective. In such instances, as well as in matters relating to restructuring of holdings, we always recommend that one fully understands and identifies the reasons which would have led to the enactment of relevant anti-avoidance provisions – and thus, be in a better position to address the issues.
Another taxing issue in tax matters is the creation of taxable presences in Malta, primarily by foreign investors either through a permanent establishment or branch issue. It is often unclear as to what level of business activity is needed in Malta to create a taxable presence for a foreign entity. To date, our tax legislation only provides that profits attributable to branches are taxable. This requires that each case is seen and investigated individually in great detail. Whilst certain cases are not too complex to determine, others often give rise to conflicting interpretation.
What are the complexities of operating within the taxation sector in Malta, in regards to the ever-changing regulatory environment of the field?
I do not believe that this is something unique to Malta. International taxation is currently sitting in the eye of a hurricane and there is much uncertainty as a result of different approaches and interpretations adopted by individual countries in their quest to implement, at the very least, the minimum standards established by the BEPS project.
We have recently seen more than 70 countries signing the OECD Multilateral Instrument with each jurisdiction making its own reservations and in many cases opting for different provisions as set out in the Instrument. The interpretation of tax treaties is set to become even more complex and perhaps contentious where different interpretations are adopted by countries, giving rise to tax uncertainty to businesses and individuals alike.
Within the EU, there is also huge political pressure to introduce CC(C)TB and in less than 2 years, Malta will introduce the provisions of the Anti-Tax Avoidance Directive(s). In this scenario, a tax advisor, be it in Malta or any other country operating within the EU, is obliged to include a number of caveats as a number of structures may not withstand the test of time.
How would you say has the tax system in Malta transformed throughout the years?
Specific provisions to attract economic activity to Malta have been in place since the late 1950s. The type and focus of these provisions have evolved in line with local and international developments, whilst retaining their attractiveness. Today, the Malta tax system and its extensive double tax treaty network mean that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base. Malta has also refrained from introducing withholding taxes on outflows, such as dividends, interest and royalties making the Island an attractive location for international business.
Malta is the only EU member state operating the full imputation system of company taxation. In conjunction with this system of taxation, the Island operates a refundable tax credit system on dividends paid to shareholders and also offers a varied program of residence and citizenship options. – All this whilst being fully compliant with the EU’s non-discrimination system.
As a thought leader, do you believe there is potential for further significant legislative development in the tax field in Malta?
No legislation is set in stone and tax matters are no different. As mentioned earlier, international taxation is currently facing a number of challenges, the ripple effect of which will be felt on a local level and will eventually reflect in significant changes in Malta’s tax code especially upon the adoption of the provisions of the EU Anti-Tax Avoidance Directive.
The Government of Malta is determined to maintain the competitive edge of the Island whilst ensuring that our tax code embraces these newly adopted tax principles.
On a domestic level, attention is required to the lack of guidance notes on the interpretation of a number of subjective provisions of our tax legislation.
A global spotlight is shining on tax like never before. More than ever, firms looking at international tax jurisdictions need to have assurance that they are paying the right amount of tax while ensuring that their stakeholders have a positive perception of their business. In a world of increasingly complex tax legislation, they need to know how the rules affect them.
Grant Thornton offers a professional advice that is reliable and personal. We take time to understand the issues that are important to our clients and from there, we can support them on every aspect of their tax affairs.
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