Malta Releases Guidance On EU Anti-Tax Avoidance Directives

Malta Releases Guidance On EU Anti-Tax Avoidance Directives

Malta’s Commissioner for Revenue published on 31 August 2020 a Domestic Legislation Guide for the implementation of the EU Tax Avoidance Directives.

To date, the EU has issued two Tax Avoidance Directives known as ATAD 1 and ATAD 2. These include provisions that member states were expected to adopt as part of a pan-European response to the OECD recommendations.

ATAD 1 contains five legally binding measures to combat tax abuse that all member states were required to implement against common forms of aggressive tax planning.

ATAD 1 includes:

• an interest cap rule;
• exit tax, the general rule against tax abuse;
• controlled foreign company (CFC) rules;
• measures to eliminate hybrid mismatch mechanisms.

In the meantime, ATAD 2 introduced new provisions that the Member States were to introduce from 1 January 2020. ATAD 2 was designed to counter hybrid mismatches of all types to avoid taxation in the EU, even if agreements concern third countries. ATAD 2 eliminates hybrid inconsistencies for non-EU countries.

Anti-hybrid rules are designed to prevent multinational corporations from gaining unfair benefits through the use of hybrid tax non-compliance mechanisms.

The new principles provide practical explanations for the application of the rules on the restriction on deduction of interest expense, the effect of the exit tax, and the CFC rules.

The exit tax is intended to remove tax advantages for companies that develop intangible assets in the EU but move them to low or zero taxation territories before they receive taxable income. It is intended to allow member states to tax the value of a product before the intellectual property is transferred elsewhere.

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