Some aspects of the Malta Income Tax Act relating to limited liability companies

Abstract

One of the main problems encountered when discussing Revenue law is the tendency of getting caught up in detail. The Maltese Income Tax Act, as is surely the feature of many Income Tax Acts, is a complex and intricate law with many cross references and provisos. The effect being that in considering a particular section, one would also have to consider a number of other sections concurrently. This point must be borne in mind when reading through this thesis because at times the relevance of some of the points discussed will only emerge at a later stage. When dealing with the position of limited liability companies under the Income Tax Act one finds that in many instances they are treated in the same way as individuals. Only in relatively few instances are these sections which deal specifically with companies. Companies in Malta are subject to Income Tax and there is no counterpart to the British Corporation Tax. In an attempt to formulate a coherent discussion on the Income Tax position of limited liability companies under Maltese law, emphasis has been placed on those sections which deal specifically with companies rather than on those sections which treat individuals and companies alike. The Income Tax Act is a very special law which in many instances defines its own terms and references. Thus the first chapter deals with the definition of the word 'company'. Here an attempt has been made to explain how this definition differs considerably from the commonly accepted interpretation. The second chapter examines the notions of domicile and residence of companies. These two terms are not defined by the Act, and therefore reference has been made to English Private International law, which has formed the basis of interpretation of these two terms. The third chapter considers the distribution of dividends. An examination is also made of the effect of such a distribution or deemed distribution on the shareholder. This is a very important chapter in practice because the shareholder is directly effected. The final chapter, which is divided into two parts, deals with certain special tax concessions. The first part considers the tax concessions under the Aids to Industries Ordinance. These concessions can be quite considerable and any company which could qualify for a tax benefit under the Ordinance must surely take it into account in planning its financial future. In the second part an attempt was made to discuss briefly some general aspects of Double Taxation Agreements. It would be impossible to discuss this topic exhaustively as it would entail a consideration of the whole Income Tax Act in relation to the relative foreign Income Tax Acts - something which is surely not to be expected of half a chapter of a thesis. Immediately following are the Appendices, the first two being the more important. Appendix I is a list of the double taxation agreements with Malta. Here one will note the number of agreements which are in force but which have not yet been published in Malta. The second Appendix is a gist of some of the more important provisions of the O.E.C.D. Model Double Taxation Agreement, 1977 which forms the basis of nearly all the double taxation agreements with Malta. As has already been pointed out, the Income Tax Act is a very complex law, which is further complicated by the fact that where companies are concerned, it is the result of a series of staggered amendments. This leads to a number of inconsistencies, and in some instances the wording of the law is quite indecipherable. Lord Reid's comment in a recent British case in respect of one of the British Finance Acts are applicable also to some of the provisions of the Maltese Income Tax Act: "I have suggested what may be a possible meaning but if I am wrong about that I would not shrink from holding that the subsection is so obscure that no meaning can be given to it. I would rather do that than seek by twisting and contorting the words to give to the subsection an improbable meaning. Draftsmen as well as Homer can nod, and Parliament is so accustomed to obscure drafting in Finance Bills that no one may have noticed the defects in this subsection."