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.
Way forward
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.
Our close collaboration with other Grant Thornton member firms ensures our services are relevant to our clients’ tax affairs, wherever they are in the world.
Contact info:
- +356 9943 7892
- E. Austin.demajo@mt.gt.com
Nearly half of CFOs expect the US economy to improve during the next six months and only 9% expect it to worsen, according to the Grant Thornton LLP 2014 Fall CFO Survey. The biannual survey reflects the insights of more than 1,000 CFOs and other senior financial executives across the US.
The survey’s findings indicate that economic optimism has remained stable during the past year despite increasing global uncertainty. In spring 2014, 51% of respondents expected the economy to improve during the next six months, compared to 40% in fall 2013 and 45% in the firm’s spring 2013 survey.
The most common growth strategies for businesses in the upcoming year include pursuing organic growth in existing markets (87%) and introducing new products or services (72%). In addition, more than one-third (37%) of companies are considering a merger or acquisition in the next 12 months. For companies with more than $5 billion (€4.2 billion) in annual revenue, that number is even higher at 60%.
“While it’s encouraging that CFOs aren’t expecting contraction, they’re not predicting significant growth either,” said Stephen Chipman, Chief Executive Officer of Grant Thornton. “It’s vital that our country’s political leaders focus now on resolving this uncertainty by advancing comprehensive tax and entitlement reforms to spur economic growth.”
The notion that US economic optimism remains stable amidst increasing global uncertainty correlates with other recent research from Grant Thornton. The Grant Thornton International Business Report found that optimism for the nation’s economic outlook among US business leaders remained strong at a net balance of 69% in third quarter 2014 while Eurozone optimism dropped to a net balance of 5%, down 30 percentage points from the previous quarter. In particular, German optimism plummeted 43 percentage points to 36%.
“The economic environment in Germany has very significant implications for the US economy and businesses,” added Mr. Chipman. “We have yet to realise the domestic repercussions of the weakening Eurozone and will be watching the situation closely in the coming months.”
New research from the Grant Thornton International Business Report (IBR) has found that the UK ended 2014 as one of the world's most optimistic economies. Although UK business optimism declined on a quarterly basis (from 82% in Q3 2014 to 68% in Q4 2014), the UK still ranked amongst the top five international economies in Q4, just ahead of the US.
Supporting this optimism amongst UK business leaders, the data shows positive year-on-year expectations amongst businesses for: employment (+12%), revenue and profit (both +9%) and exports (+2%). Moreover, only 8% of UK businesses pointed to access to short-term finance as a potential constraint; the lowest amongst global economies surveyed.
"In many ways, 2014 was the first year since the 2008/09 financial crises where businesses felt they were really back on track. The measures adopted to cope with the downturn helped many of them turn into leaner and more nimble operations, the fruits of which are now ripening. Consequently, UK businesses are entering the new year on a stronger footing," said Scott Barnes, CEO of Grant Thornton UK LLP.
Globally, the IBR revealed that while business confidence in 2014 climbed to levels not seen since before the financial crisis, a recent spate of uncertainty is weighing on growth prospects for the year ahead. The falling price of oil, the future of the Eurozone, tensions in Ukraine and concern around the pace of the slowdown in China, the confidence of business leaders, especially in the world's largest three economies, has slipped.
In Q4, global optimism dropped from 43% to 35%, driven by steep falls in the US (down 10 percentage points to 59%), China (down 30pp to 25%) and Japan (down 12pp to -12%).
