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Automatic exchange of information
Deloitte Malta Tax Alert
At the end of 2016, the Cooperation with Other Jurisdictions on Tax Matters Regulations, Subsidiary Legislation 123.127 of the Laws of Malta (the Regulations), were amended through Legal Notice 400 of 2016 to include the necessary changes relating to the implementation of Council Directive (EU) 2016/881 introducing Country-by-Country Reporting (CbCR) amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.
With an ever increasing number of instruments to facilitate the automatic exchange of information between tax authorities, this alert provides a concise summary of the principal reporting obligations that arise in terms of local regulations implementing the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard (CRS) and CbCR respectively and which fall due during 2017.
Initially introduced in 2014, we are now in the third year in which reports for FATCA purposes should be filed by Reporting Malta Financial Institutions with the Malta Inland Revenue Department (IRD). Furthermore, all transitionary provisions have at this time come to an end with regards to due-diligence and reporting requirements, making 2017 the first year in which Malta Financial Institutions must comply with the full scope of FATCA as implemented locally.
In line with the FATCA provisions as implemented in Malta and pertaining to qualifying trusts which fall to be regarded as Financial Institutions and which have no US reportable accounts and are therefore not required to register with the IRD for FATCA purposes, certain additional yearly reporting obligations that arise for the trustees of those trusts, continue to be applicable in order for the IRD to monitor the level of compliance with FATCA as implemented in Malta by those qualifying trusts.
- 30 April 2017 – This is the reporting deadline for Malta Financial Institutions in respect of US Reportable Accounts for reporting year 2016 and the submission deadline of the form in relation to the compliance measures relating to trusts for the basis year 2016.
As from 1 January 2017, the global standard for automatic exchange of financial account information in tax matters, as developed by the OECD and commonly known as CRS has been adopted by 47 additional jurisdictions which shall be undertaking the first information exchanges by 2018, bringing the total number of participating jurisdictions up to 100.
With CRS having come into effect in Malta at the start of 2016, Malta Financial Institutions should have completed their review of high value individual accounts held prior to the introduction of CRS by 31 December 2016. During the second year of CRS, Malta Financial Institutions are expected to complete the necessary review of the remaining individual accounts and entity accounts held prior to 1 January 2016 whilst also filing the first CRS reports with the IRD with respect to information pertaining to 2016.
Similar to the relevant requirements under FATCA, trusts which have no Reportable Accounts and trusts which are deemed to be Non-Reporting Financial Institutions where the trustee itself is a Reporting Malta Financial Institution, do not need to register with the IRD for the purposes of CRS as implemented in Malta. However, in accordance with section 8.2 of the CRS guidelines, trustees that are licensed by the Malta Financial Services Authority, are required to provide the IRD with certain information on the trusts of which they are trustees for each year from 2016 onwards on a yearly basis.
What needs to be done and when?
- 30 June 2017 – Reporting Malta Financial Institutions must report information in respect of reportable accounts following the application of the respective due diligence procedures. CRS does not contemplate any transitionary provisions with regards to reporting and therefore full reporting is required from the first reportable year (i.e. 2016). Where a Reporting Malta Financial Institution has no Financial Accounts to report, a nil return is still required to be filed. Whilst the default reporting deadline for CRS is that of 30 April, the IRD has extended this to 30 June 2017 for 2016 CRS reporting purposes.;
- 31 December 2017 – By this date the review of accounts held prior to 1 January 2016 by entities and those individuals with a balance below $1 million is required to be completed, unless certain optional de-minimis threshold is availed of.
Originally, CbCR initiated as part of Action 13 of the OECD’s project on Base Erosion and Profit Shifting, which proposed rules and regulations to increase transparency on the activities of qualifying multinational groups. With the EU pursuing further tax transparency initiatives, CbCR has been adopted within the EU and the necessary legislative changes have been introduced in Malta through an amendment to the regulations.
With CbCR having come into effect as from 1 January 2016, CbCR requires certain information to be filed with the IRD by the ultimate parent of any qualifying multinational group which is resident for tax purposes in Malta and which has consolidated group revenue of €750 million. The report is required to contain certain information on a country per country basis in respect of the multinational group’s worldwide operations. Such information would, inter alia, include information on revenues between unrelated parties and related parties, income tax paid, income tax accrued, stated capital, and number of employees, amongst others.
Obligations also arise for affiliates of a qualifying multinational group parented abroad in terms of CbCR as implemented in Malta. A notification by the affiliated entities resident for tax purposes in Malta is required; the purpose of which is to inform the IRD with respect to the identity and tax residence of that entity within the multinational group which shall be filing the CbCR. However, an affiliate of a qualifying multinational group, resident for tax purposes in Malta and which is not the ultimate parent of the group, may also be required to file a CbCR with the IRD under specific circumstances, inter alia including where the jurisdiction of tax residence of the ultimate parent entity does not require a CbCR to be filed or if there is no automatic exchange of information mechanism for the timely exchange of the CbCR between Malta and the jurisdiction in which the CbCR has been filed.
- By the tax return date – Each Malta resident entity of a qualifying multinational group must file a notification with the IRD to indicate whether it is the ultimate parent entity of the multinational group or the designated entity of the multinational group which shall be filing the CbCR, or a qualifying affiliate, in which case it is to notify the IRD of the identity and tax residence of the entity within the multinational group which shall be filing the CbCR.
- The tax return date of a Malta registered company is the earlier of nine months from its financial year end or the 31 March following its financial year end, whichever comes later. Therefore, should the financial year end of a company fall on 31 December, the default tax return date would be the 30 September of the following year. Whilst the IRD may grant, at its sole discretion, an extension to the deadline for filing of an income tax return in electronic form, such extension would not necessarily be applicable to any notification for the purposes of CbCR.
- 9 months following the last day of the fiscal year of the multinational group – Should the ultimate parent of a qualifying multinational group be resident for tax purposes in Malta or should a Malta affiliate of a qualifying multinational group be designated to file the CbCR, it is required to fulfil CbCR requirements on behalf of the multinational group and submit the CbCR within nine months from the last day of the fiscal year of the multinational group.