The European Commission has approved Malta’s recovery and resilience plan, which includes measures to curb aggressive tax planning practices. As provided in the annex to the Proposal for a Council Implementing Decision on the approval, the measures include the following:
Reform C6-R9: Aggressive Tax Planning (ATP) – Code of Conduct Group
The objective of this measure is to remove the possibility of exempting the dividends derived from bodies of persons resident in jurisdictions listed in the Code of Conduct Group list of non-cooperative jurisdictions from being taxed in Malta.
The reform shall abolish the so-called participation exemption which allows dividend income or capital gains derived from a participating holding (usually an equity shareholding of at least 5%) to be exempted from tax in Malta. Specifically, dividends derived from the body of persons resident in jurisdictions that have been listed in the ‘Code of Conduct Group’ list of non-cooperative jurisdictions for at least three months shall not qualify for such an exemption. To apply this new provision, the reform shall also increase the number of investigators dedicated to the scrutiny of taxpayers’ declarations.
The reform shall be implemented by 30 September 2022.
Reform C6-R10: Specific Transfer Pricing Legislation
The objective of the measure is to prevent loss of public revenues through international tax arbitrage.
The reform shall introduce enabling provisions for transfer pricing legislation in Malta’s legislative framework. A consultation process shall follow before specific rules on transfer pricing relating to the arms-length principle and advanced pricing agreements are proposed. Finally, such specific transfer rules on transfer pricing shall enter into force. Training of involved parties (such as tax administration staff and private tax practitioners and company representatives) shall also be carried out before the rules become applicable.
The reform shall be finalized by 31 December 2023.
Reform C6-R11: Study on the relevance of measures relating to inbound and outbound dividend, interest and royalty payments
The objective of the measure is to provide the government with guidance for the formulation of policy to mitigate aggressive tax planning risks in the area of inbound and outbound dividend, interest and royalty payments.
The reform shall include an independent study to analyse the state of play and provide recommendations for legal measures necessary to address outbound and inbound dividend, interest and royalty payments, between companies established in Malta and related companies established in jurisdictions that either form part of the EU list of non-cooperative jurisdictions or that are considered to be zero-tax or low-tax jurisdictions. The study shall contain concrete proposals to strengthen anti-Base Erosion and Profit Shifting measures to prevent tax fraud and tax evasion and to promote fair taxation. The government shall follow up with legislation to mitigate the risks identified by the study.
The measure shall be implemented by 30 September 2024.
Reform C6-R12: Mitigating against ATP risks by individuals
The objective of the measure is to mitigate aggressive tax planning risks stemming from the citizenship-by-investment scheme.
The reform shall implement a due diligence procedure to determine the original jurisdictions of tax residence of applicants of the Citizenship by Naturalisation for Exceptional Services by Direct Investment and inform the tax authorities of the original jurisdictions of tax residence about the applicants being granted Maltese citizenship. The entry into force of the procedure shall be determined by the publication of the respective revised guidelines and application forms.
The measure shall be implemented by 31 March 2022.