Issue link: https://maltatoday.uberflip.com/i/1367395
4 maltatoday | SUNDAY • 2 MAY 2021 NEWS NICOLE MEILAK MALTA has been ranked 21st in Tax Justice Network's Corpo- rate Tax Haven Index, making the island's financial services centre responsible for 1.72% of the world's corporate tax abuse risks. The tax haven index, in which governments siupply TJN with answers on their internation- al tax rules, is a measure of any jurisdiction's tax systems allow- abce for corporate tax abuses. An index result of zero means that there is absolutely no scope for such abuse, while 100 signals that there is unrestrained scope. Malta's haven score stands at 79.1. The Corporate Tax Haven Index is published every two years. Back in 2019, Malta reg- istered a 73.5 haven score and was ranked 23rd place, making Malta responsible for 1.37% of the world's corporate tax abuse risks. Now it has increased its ranking. A notable increase was seen in the Public Company Accounts indicator, which assesses wheth- er a country requires all compa- nies to keep accounts with a gov- ernment authority. While plenty of legal require- ments are in place governing the availability of accounting infor- mation, TJN said in Malta "no systematic monitoring and su- pervision activities carry out by the Commissioner for Revenue since the last round review". "Moreover, according to the Global Forum, there is a large number of inactive companies (around 14% of the companies registered with the Registry), which are not sufficiently moni- tored on their obligation to keep accounting records and underly- ing documentation." The same report found that only 50% of companies comply with the obligation to submit an- nual accounts to a government authority. "The average annual filing rates of accounts (finan- cial statements) was about 50%, which is low, and may cause concerns on the availability of the accounting information of companies and partnerships by the Malta Business Registry, as illustrated during the current re- view period." On the other hand, Malta saw advancements in its reporting of tax avoidance schemes. The 2019 Corporate Tax Haven In- dex report noted how Malta did not require tax advisors to re- port on tax avoidance schemes they sold or marketed through- out the year. The same applied for taxpayers, as they were not required to report on uncertain tax positions for which reserves have been created in their annu- al accounts. In 2021, after transposing an EU Directive on the matter, in- termediaries are now obliged to file information on reporta- ble cross-border arrangements. "The obligation is shifted to the taxpayer only when there is no intermediary, or alternatively where the filing of information by the intermediary would con- stitute a breach of profession- al secrecy," the report reads, quoting a paragraph from the Deloitte website. Any tax avoidance schemes adopted are only reported to the tax administration – not pub- lished. However, there are is still duty for taxpayers or advisers to report on uncertain tax posi- tions. Malta remained with a high 100 score in the Foreign Invest- ment Income indicator, which assesses whether a country in- cludes worldwide capital in- come in its corporate tax base. This is largely due to features in the tax regime that alleviate situations when corporate or individual income is taxable in more than one country. With regards to dividends, Malta offers a participation ex- emption allowing a shareholder in a company to avoid paying tax on dividends received. This is offered given that certain con- ditions are met. For royalty income, Malta for- mally provides a tax credit as unilateral relief for double tax- ation, but Tax Justice Network argued that this tax credit can in effect result in a tax exemption. The Ministry for Finance countered this argument, ex- plaining that companies may claim an actual credit amount they paid or a fixed 25% tax credit on the net foreign sourced income. "Unilateral relief is not available unless the taxpayer has proved to the satisfaction of the Commissioner for Revenue that the income has suffered foreign tax and has proved the amount of that tax," the government ex- plained. But TJN poured cold water over their claim, highlighting in their report that they were unable to verify the claim that the 25% fixed credit on the for- eign net royalty payment would never result in full exemption. "Depending on the situation, the rules appear to even potentially result in more than one exemp- tion, i.e. a subsidy and net pay- out of tax credit on received roy- alty income." Malta also scored highly in the Capital Gains Taxation indica- tor, again at 100. This indicator assesses the lowest available tax levied on corporate capital gains, applicable for large for-profit corporations which are tax resi- dent in the jurisdiction, irrespec- tive of whether the capital gains are taxed as part of corporate income tax or as part of another type of tax, such as wealth tax or an independent capital gains tax. This high score is down to the tax exemption on capital gains derived from a participating holding or from the disposal of such holding. This makes the lowest available tax 0%. Another 100 was scored for Malta's notional interest deduc- tion scheme, allowing high equi- ty companies to deduct fictitious financial costs from its tax base. In February 2020, Malta's score in another TJN ranking, the Fi- nancial Secrecy Index, deterio- rated to push the island further up its top-20 ranking for the world's most secretive financial jurisdictions. It climbed from 20th in 2018 to 18th in the 2020 index where the higher the rank- ing, the more secretive a coun- try's tax practices are. Although accounting for just 0.66% of the global market for offshore financial services ac- cording to TJN, Malta remains a small player compared to other secrecy jurisdictions. nmeilak@mediatoday.com.mt Malta responsible for almost 2% of global corporate tax abuse risks Only 50% of companies comply with the obligation to submit annual accounts to a government authority, according to the Tax Justice Network annual corporate tax haven index