Malta and EU Tax and Compliance Policy Bulletin 83

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Malta and EU Tax and Compliance Policy Bulletin 83

David Marinelli

June 20, 2022

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FATF Makes Initial Determination that ‘Malta has substantially completed its action plan

In June 2021 Malta was placed on the FATF grey list – the list of the countries under increased monitoring by the FATF. In its February 2022 plenary the FATF noted that Malta has made the following key reforms:

continuing to demonstrate that beneficial ownership information is accurate and that, where appropriate, effective, proportionate, and dissuasive sanctions, commensurate with the ML/TF risks, are applied to legal persons if information provided is found to be inaccurate; and ensuring that effective, proportionate, and dissuasive sanctions are applied to gatekeepers when they do not comply with their obligations to obtain accurate and up-to-date beneficial ownership information;
enhancing the use of the FIU’s financial intelligence to support authorities pursuing criminal tax and related money laundering cases, including by clarifying the roles and responsibilities of the Commissioner for Revenue and the FIU; and
increasing the focus of the FIU’s analysis on these types of offences, to produce intelligence that helps Maltese law enforcement detect and investigate cases in line with Malta’s identified ML risks related to tax evasion.

An on-site visit is envisaged so that the FATF may “verify that the implementation of Malta’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation and improvement in the future.”

EU Council Reviews Tax Blacklist

On 24 February, the Council of the EU reviewed its List of Non-Cooperative Jurisdictions for Tax Purposes (“Blacklist”). No jurisdictions were added to the list during the review. The following jurisdictions remain on the Blacklist: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu. The state of play in Annex II of the Blacklist also details steps taken by various jurisdictions to undertake reforms in order to comply with tax good governance standards. More detail on this can be found in the Code of Conduct (Business Taxation) report to the Council of the EU.

The Blacklist is reviewed twice per year, and will next be reviewed in October 2022.

OECD Publishes Public Comments on Draft Pillar I Nexus & Revenue Sourcing Rules

The OECD has published the public input received on the first consultation process conducted concerning Draft Rules for Nexus and Revenue Sourcing from the Pillar 1 solution to address the tax challenges arising from digitalisation and globalisation of the economy. This consultation concerns Amount A of Pillar 1.

The revenue sourcing rules will allow in-scope MNEs to identify the relevant market jurisdictions from which revenue is derived, and to apply the revenue-based allocation key. Under the OECD agreement reached in October 2021, revenue is sourced to the end market jurisdictions where goods or services are used or consumed. Further consultations will be conducted in the coming months on the 14 building blocks which make up Pillar 1

OECD Consultation on Draft Rules for Tax Base Determination Under Pillar I

The OECD continues to seek input on the Draft Model Rules for Tax Base Determinations, the second consultation concerning the computation of Amount A under the Pillar 1 solution to address the tax challenges arising from digitalisation and globalisation of the economy.

As stated in the OECD consultation, the purpose of the tax base determinations rules is to establish the profit (or loss) of an in-scope MNE that will be used for the Amount A calculations to reallocate a portion of its profits to market jurisdictions. The rules determine that profit (or loss) will be calculated on the basis of the consolidated group financial accounts, while making a limited number of book-to-tax adjustments. The rules also include provisions for the carry-forward of losses.

ECOFIN: EU Council Progress on Pillar 2 Minimum Corporate Tax Implementing Directive

EU Finance Ministers met on 15 March at the Council of the EU’s Economic and Financial Affairs Council configuration. At the meeting, significant progress was made in relation to the EU Directive on the implementation of the OECD’s Pillar 2 minimum corporate income tax.

A revised compromise text published ahead of the meeting revealed some notable changes from the original proposal, the most significant of which being that the time limit for transposition has been changed to 31 December 2023, instead of 31 December 2022. Under the current compromise text, the Directive would apply for fiscal years beginning 31 December 2023, instead of from the start of 2023. The Undertaxed Payments Rule would then accordingly apply from 31 December 2024. The revised compromise text also includes a provision that Member States with no more than 10 ultimate parent entities of groups in scope of the Directive can elect not to apply the Undertaxed Payments Rule and Income Inclusion Rule until the end of 2025.

Although progress has been made towards agreeing the draft Directive, certain Member States called for further delay for the transposition and more lenient conditions for the option to elect not to apply the Undertaxed Payments and Income Inclusion Rules. French Finance Minister, Bruno Le Maire, said of the discussions, “We have made major progress on the minimum taxation directive. An agreement is within reach to end the race to the bottom. Multinational companies will have to pay a minimum of 15% of taxes worldwide.

OECD: GloBE Model Rules Guidance & Framework Consultation

The OECD has now published a detailed technical Commentary and Illustrative Examples setting out guidance on the operation and intended outcomes of the Global Anti-Base Erosion Rules.

Speaking concerning the commentary, Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said: “The release of the Commentary today is a significant achievement which concludes many months of hard work by Inclusive Framework members in reaching a detailed agreement on the substantive provisions of the GloBE Rules. With the completion of the technical work on the Model Rules and Commentary, Inclusive Framework members now have all the tools they need to begin implementing the rules.”

New FATF Anti-Money Laundering Standards

The Financial Action Task Force (FATF) updated its Recommendations to add new definitions of “nominator” and “nominee shareholder or director”, to strengthen the standards on beneficial ownership of legal persons, and recommended governments set up beneficial ownership registers where this is not already in place. These measures would reportedly be of use in identifying assets targeted by sanctions introduced by the international community following the Russian invasion of Ukraine.

Other changes to the FATF Recommendations include:

Combating the financing of the proliferation of weapons of mass destruction through the consistent implementation of targeted financial sanctions when these are called for by the UN Security Council.
Improved transparency to make it harder for criminals and terrorists to conceal their identities or hide their assets behind legal persons and arrangements.
Stronger requirements when dealing with politically exposed persons (PEPs).
Expanding the scope of money laundering predicate offences by including tax crimes.
An enhanced risk-based approach which enables countries and the private sector to apply their resources more efficiently by focusing on higher risk areas.
More effective international cooperation including exchange of information between relevant authorities, conduct of joint investigations, and tracing, freezing and confiscation of illegal assets.
Better operational tools and a wider range of techniques and powers, both for the financial intelligence units, and for law enforcement to investigate and prosecute money laundering and terrorist financing.

FATF is the global standard-setter for measures to combat money laundering, terrorist financing, and financing of proliferation. It is an intergovernmental organisation with 36 members and with the participation of over 180 countries through its global network.

EU Commission Launches Public Consultation on a New EU System for Withholding Taxes

The European Commission has launched a public consultation questionnaire on a new EU-wide system for withholding taxes. Input received will feed into the upcoming legislative initiative planned for adoption in Q4 of 2022, which aims to introduce a common EU-wide system for withholding tax on dividend or interest payments. The draft legislation aims to remove barriers to cross-border investment and will also include a system for the exchange of information between tax authorities.

The policy options being considered for the new legislative proposal are as follows:

Option 1: Improving withholding tax refund procedures to make them more efficient: This option entails the implementation of several measures, the objective of which is to simplify and streamline withholding tax refund procedures by making them quicker and more transparent. These measures are not limited by but could include: the establishment of common EU standardised forms and procedures for withholding tax refund claims irrespective of the Member States concerned and the obligation to digitalise current paper-based relief processes.

Option 2: Establishment of a fully-fledged common EU relief at source system: This option entails the implementation of a standardised EU-wide system for withholding tax relief at source whereby the correct withholding tax rate, as provided in the DTC is applied at the time of payment by the issuer of the security, to the non-resident investor thereby not incurring double taxation.

Option 3: Enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits: This option envisages a reporting and subsequent mandatory exchange of beneficial owner-related information on an automated basis, to reassure both the residence and source country that the correct level of taxation has been applied to the non-resident investor.

The consultation sets out questions concerning the above policy options, and will be open for input until 24 June 2022. Feedback can be provided via the Have Your Say website.

ECOFIN: Poland Vetos Pillar 2 Minimum Tax Implementing Proposal

EU Finance Ministers met on 5 April at the Council of the EU’s Economic and Financial Affairs Council configuration. Ministers failed to reach agreement on the EU Directive on the implementation of the OECD’s Pillar 2 minimum corporate income tax at the meeting after Poland invoked its veto, on the basis that it is not prepared to move forward on the implementation of Pillar 2 without it being “legally tied” to the implementation of Pillar 1. A recording of the discussion can be viewed here. This comes notwithstanding changes in the revised compromise text published ahead of the March meeting, the most significant of which being that the time limit for transposition has been changed to 31 December 2023, instead of 31 December 2022.

Following the meeting, Executive Vice-President Dombrovskis stated that the Commission “regret that agreement was not possible in today’s ECOFIN and would like to commend the French Presidency’s outstanding work and commitment to make sure that there is consensus and agreement on this important file. We do hope that this agreement will be possible at the next ECOFIN.

OECD Public Consultation Meeting on Minimum Tax Implementation Framework

On 25 April, the OECD held a public consultation meeting concerning the Implementation Framework of Pillar 2, following the release of the Global Anti-Base Erosion (GloBE) Rules as part of a landmark agreement on a two-pillar solution and the related Commentary, and the consultation on the Implementation Framework for the Rules.

The public consultation meeting consisted of panel discussions on: perspectives on implementation priorities; information reporting and exchange; simplifications and safe harbours, and co-ordination and tax certainty. Panelists discussed the input received by the OECD on the implementation framework and how best to ensure that tax administrations and MNEs can implement and apply the GloBE Rules in a consistent and co-ordinated manner.

The consultation is available to watch on replay here.

EU Commission Latest EU Law Infringement Package

The European Commission has issued a number of infringement decisions or letters of formal notice addressed to Member states for breach of their legal obligations under EU law. Germany received a letter of formal notice concerning discriminatory withholding taxation of dividends/ interest to charitable organisations.

Source: Malta Institute of Taxation Click here, CFE Tax Advisors Europe Click Here

Please contact David Marinelli should you wish to discuss any matter relating to your Malta registered company.

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