Authors: William Cassar, Manager, Tax Compliance and Stephanie Aquilina Galea, Tax Supervisor
Several governments acknowledge that abusive tax practices can result in unfair tax competition. In an attempt to address tax avoidance and ensuring that profits are taxed in the country where the economic activities are generated and where value is created, the EU council has identified a list of jurisdictions which are regarded as non-cooperative. The motive is not to name and shame these jurisdictions, but to foster positive change and tax practices through cooperation.
Does your Company have a nexus with a country which is listed in the EU Non-Cooperative Tax Jurisdictions List?
In this Q&A edition we would like to bring to your attention the new reporting requirements and other tax implications involved related to the EU Non-Cooperative Tax Jurisdictions List.
Which countries are regarded as ‘Non-Cooperative Tax Jurisdictions’ by the EU?
The full list of jurisdictions can be found here. Such list is updated regularly, and a jurisdiction can be listed and de-listed in the same year.
What happens if a Maltese company has a nexus with a country which is listed in the EU Non-Cooperative Tax Jurisdictions List?
Essentially there are two key points that one should consider:
1. Additional reporting requirements in the corporate income tax return
2. Potential restrictions from the application of the outright participation exemption on income (dividends) derived by a Maltese Company from a qualifying participating holding.
What are the additional reporting requirements?
The Maltese corporate income tax return includes a particular Tax Return Attachment (TRA 110) which needs to be duly filled in if the company has any nexus with a jurisdiction listed in the EU Non-Cooperative Tax Jurisdictions List.
The questions raised in the income tax return are the following:
1. Did the Company have any nexus (including through incorporation, residence or fixed place of business, or through any transparent entity or arrangement) with any of the jurisdictions listed in the EU List of Non-Cooperative Tax Jurisdictions?
2. Did the Company carry out any transactions (including through any transparent entity or arrangement) with any arrangement or person incorporated, resident or carrying out any activity (including through a fixed place of business or transparent entity or arrangement) in any of the jurisdictions listed in the EU List of Non-Cooperative Tax Jurisdictions?
3. Did the Company have any links through ownership or governance (including through any transparent entity or arrangement) with any of the jurisdictions listed in the EU List of Non-Cooperative Tax Jurisdictions?
The answers to the above questions need to be filled in the income tax return on an annual basis.
What is the potential restriction on the application of the outright participation exemption?
A new proviso was recently introduced to the existing Maltese participating holding regime. Such regime provides for an outright exemption on income (dividends) or gains derived by a Maltese company from a qualifying participating holding.
Effectively the new proviso in question states that if the qualifying participating holding is resident in a jurisdiction which is included in the EU Non-Cooperative Tax Jurisdictions List (see link above) for a minimum period of three (3) months during a particular year, then subject to certain exceptions, the outright participation exemption on income (not gains) at the level of the Maltese company will not apply.
What do I need to do if a nexus is identified with a country which is listed in the EU Non-Cooperative Tax Jurisdictions List?
In the event that you identify such occurrence, we strongly suggest that you get in touch with us by sending us an email on taxenquires@fenlex.com