Malta – Anti Tax-Avoidance Provisions

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The anti tax-avoidance provisions in Malta are broadly written giving the Commissioner for Revenue wide powers of intervention. They include schemes or arrangements that reduce, postpone or obtain a tax advantage or refund or offset, should such schemes or arrangements be fictitious, artificial or non-genuine or are not put in place for valid commercial reasons or do not reflect economic reality. The laws go further to also include as suspect schemes or arrangements that defeat the scope and purpose of the tax rules in question.

The Commissioner is empowered to determine tax liability, totally or partially, disregarding such schemes or arrangements.

Our understanding is that schemes or arrangements can be construed to be corporate or entity structures, contracts, payments or receipts or other transactions.

Malta Income Tax Act – Chapter 123

Article 51 – General Tax Avoidance Rule

Last amended in 2010

(1) Where any scheme which reduces the amount of tax payable by any person is artificial or fictitious or in fact not given effect to, the Commissioner shall disregard the scheme and the person concerned shall be assessable accordingly.

(2) (a) Where a person, as a direct or indirect result of any scheme of which the sole or main purpose was the obtaining of any advantage which has the effect of avoiding, reducing or postponing liability to tax or of obtaining a tax refund or set-off of tax, has obtained or is in the position to obtain such an advantage, the Commissioner shall , by order in writing, determine the liability to tax or the entitlement to a refund or setoff of tax of the said person, or any other person, for any year of assessment, in such manner and in such amount as may be necessary, in the circumstances of the case, to nullify or modify the said scheme and the consequent advantage.

Malta Income Tax Act – Chapter 123

Article 51 – Tax Avoidance Rule relating to the EU Parent Subsidiary Directive (Participation Exemption)

Subsidiary Legislation 123.74 – Effective 1st January 2016

(2) b) The benefits of the EU Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (as amended) shall not be granted to any arrangements or series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the scope of the said EU Council Directive, are not genuine having regard to all relevant facts and circumstances.

For the purposes of this paragraph:

(i) an arrangement may comprise more than one step or part

(ii) without prejudice to any remaining genuine steps or parts of any particular arrangement, an arrangement or a series of arrangements, shall be regarded as not genuine to the extent that they are not put into place for the valid commercial reasons which reflect economic reality; and

(iii) where a single step or part in an arrangement or a series of arrangements is, by itself and without regard to the remainder of the arrangement or series of arrangements, not genuine, the provisions of this paragraph shall apply only to the such step or part that is not genuine, without prejudice to the remainder of the arrangements or series of arrangements that are genuine.

Malta Subsidiary Legislation 123.187

European Union Anti Tax Avoidance Directives Implementation Regulations (ATAD I)

Article 6 – General Anti-Abuse Rule – Effective 1st January 2019

(1) For the purposes of calculating the tax liability in according with the Income Tax Acts, there shall be ignored an arrangement or a series of arrangements (arrangement) which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part.

(2) For the purposes of sub-regulation (1), an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

(3) Where arrangements or a series thereof are ignored in accordance with sub-regulation (1), the tax liability shall be calculated in accordance with the provisions of the Income Tax Acts.

 

This article is only intended to give a general overview of the legislation. Professional advice should be separately sought on the applicability of these rules to any actual company structure or situation.

Please contact David Marinelli, DM Europe, should you wish to discuss any matter relating to Companies registered in Malta.

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