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Donald Vella |
Mark Galea Salomone |
On December 29 2015, the Maltese Inland Revenue Department published guidelines (the Guidelines) for the implementation of EU Council Directive 2014/107/EU of December 9 2014 amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation in Malta and the Common Reporting Standard (CRS).
The Guidelines were issued in terms of Article 96(2) of the Income Tax Act which vests in the Inland Revenue Department the power to issue guidelines, explanations or instructions relating to domestic tax law. The Guidelines are to be read and construed alongside Legal Notice 384 of 2015 entitled 'Cooperation with Other Jurisdictions on Tax Matters Regulations' (the Regulations), which implemented DAC2 and CRS into Maltese domestic tax law. The Regulations are effective from January 1 2016.
The financial institutions covered by the Regulations include custodial institutions, depositary institutions, investment entities and specified insurance companies, unless such institutions represent a low level risk of being used for tax evasion purposes. Malta has no financial institutions that are to be treated as non-reporting financial institutions. The financial information to be reported with respect to reportable accounts includes interest, dividends, account balance/value, income from certain insurance products, sales proceeds from financial assets and other income generated with respect to assets held in the account or payments made with respect to the account. Reportable accounts include accounts held by individuals and entities (including trusts and foundations) and the Regulations include a requirement to look through passive entities to report on the relevant controlling persons. Malta has no account that is to be treated as an excluded account.
A Malta financial institution is obliged to register with the Commissioner of Inland Revenue by the later of June 30 2016 or 30 days after the date on which an entity becomes a 'Malta financial institution'. However, a Malta financial institution that has already registered with the Commissioner for the purposes of FATCA will not be obliged to register again but will be obliged to provide information to the Commissioner, including its classification and the type of financial accounts it holds. For taxable period 2016, the Inland Revenue Department has clarified that information needs to be reported by no later than April 30 2017 in relation to pre-existing high value individual accounts, new individual accounts and new entity accounts. For pre-existing low value individual accounts and pre-existing entity accounts identified as reportable accounts by December 31 2017, reporting to the Commissioner for taxable periods 2016 and 2017 is to be done by no later than April 30 2018.
Malta has opted for the wider approach under CRS, enabling reporting Malta financial institutions to collect and maintain information on the tax residency of account holders irrespective of whether or not the account holder is a reportable person. There is no obligation to report such information and the obligation to maintain this information lapses after five years. The information is to be reported once the relevant jurisdiction becomes a reportable jurisdiction and there is a basis for exchange of information.
CRS constitutes an important tool in the context of recent international developments, which are attempting to increase the efficiency and effectiveness of tax collection and simultaneously strengthen the fight against tax fraud and evasion. To this end, in publishing the Guidelines the Inland Revenue Department has, for the most part, sought to converge with the OECD's CRS Implementation Handbook.
Donald Vella (donald.vella@camilleripreziosi.com) and Mark Galea Salomone (mark.galeasalomone@camilleripreziosi.com)
Camilleri Preziosi
Tel: +356 21238989
Website: www.camilleripreziosi.com
