1. What were the most significant developments in your region/jurisdiction's tax practice in the past 18 months? What were the most notable effects of these developments?
Recently, Malta introduced what is known as the Consolidated Group (Income Tax) Rules. Companies registered in Malta, as well as their foreign corporate shareholders now have the possibility of forming one fiscal unit for income tax reporting purposes as from year of assessment 2020. Once within the fiscal unit, the principal taxpayer, generally, the parent company of the group, undertakes all rights, duties and obligations under the domestic tax law, while those of the transparent subsidiaries are suspended. This regime eases the tax compliance as only one consolidated tax return would be submitted for the whole group, while it improves the group’s cash flow. Tax refunds otherwise due to the shareholders upon receipt of dividends are deducted from the tax due by the group, hence potentially diminishing the effective tax paid by the group. The Consolidated Group (Income Tax) Rules, compliments the VAT Grouping Regime, which was introduced for some industries a couple of years ago.
Malta also introduced a Patent Box Regime, through which eligible entities can benefit from deductions against qualifying income derived from qualifying intellectual property. This regime continues to make Malta an attractive jurisdiction for taxpayers who are involved in the development and use of intangible assets.
Moreover, in an attempt to battle the disruptions of COVID-19, the Maltese government implemented various financial aid measures and incentives to assist the mostly impacted businesses. The fiscal measures and incentives ranged from deferral of payments of certain types of taxes, wage supplements to employees, grants for teleworking and reduction in capital gains tax and stamp duty tax on the sale of immovable property in Malta.
2. Do you anticipate any significant legislative changes in the future with a material impact on tax in your region?
Although already implemented in our domestic system, the provisions of the DAC 6 Directive will surely impact the tax practice in Malta in the long run. With an effective date as from early 2021, we are now expecting the issuance of guidelines by the respective bodies on the interpretation of certain unclear provisions as well as the procedure to be implemented to report two years’ worth of retrospective cross border arrangements, as well as future ones, with the local authorities. We believe that due to the magnitude of these rules, updates and amendments will follow accordingly to the already implemented legislation.
3. Is the global drive towards regulation going to affect tax practice? If yes, in which areas?
The continuous drive towards regulation surely affects the tax practice. Businesses are being put under the microscope and conformity with all the statutory reporting and obligations is becoming more complex and demanding. Now, more than ever, the role of tax professionals, particularly in the area of international taxation, is under constant pressure and great responsibility as it requires the need to deliver more with less, while keeping it cost efficient for clients.
4. What are the efforts in your region / jurisdiction to promote tax transparency both in the EU and internationally?
Malta is continually strengthening its tax legislations and internal procedures in order to promote tax transparency and exchange information with other jurisdictions in an effective and efficient manner. Malta is committed to tax transparency, as its belief is that a fair and transparent tax ecosystem establishes good governance. Malta entered into multiple legal arrangements for the Exchange of Information including the sharing of information with other Competent Authorities upon a request, and the automatic exchanges of pre-established data with other Competent Authorities in different jurisdictions over an agreed period of time.
Recently, Malta has transposed the provisions of the DAC 6 Directive on the mandatory disclosure of defined cross-border arrangements by certain intermediaries and taxpayers and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). It also supports the initiative for global tax transparency through the Common Reporting Standard (CRS) and is a signatory to the Intergovernmental Agreement with the USA, and implemented the US Foreign Account Tax Compliance Act (FATCA).
5. What do you see as direct impact of COVID-19 in your practice?
Undoubtedly, COVID-19 heavily impacted the financial and commercial sector. While many countries are very focused on the direct and immediate impacts of this pandemic, one must also notice the ancillary effects COVID-19 is leaving on the economy and the provision of professional services. Particularly within the tax industry, while the government introduced several fiscal incentives to assist businesses in distress, including the extension date of tax filings and deferral of certain tax payments, the same incentives were not granted to all types of businesses and to all types of tax payments. Given the unpredictable situations which COVID-19 brought and may continue to bring with it, our practice needs to constantly be mindful of and coordinate properly the complex calendar of future filings and payment dates, which needless to say is in perpetual flux.
COVID-19 also posed some challenges to consulting projects, restructuring, and new business ventures as certain clients requested the modification, postponement or even cessation of projects with the aim of preserving cash flow. Additionally, the effect of COVID-19 is making it more challenging for clients to meet their due payments. Other clients took the opportunity during this time of distress to reorganise their business and expand their business ventures.
As it stands today, the full and true impact of COVID-19 is yet unknown and unsure. The best thing one can do during these extraordinary times is to act vigilantly and professionally, be informed and open to adapt to change; change which is our only constant in our reality.
