Analysis of tax consolidation in Malta and its effect on compliance

Abstract

Purpose: The purpose of this study is to review the impact of the introduction of the Consolidate Group (Income Tax) Rules in Malta on both the tax services profession and on the companies themselves. This is deemed to be possible by understanding the changes that are to be expected and seen upon adoption of the rules, also by weighing the benefits and costs which shall come about from this change. Design: In pursuit of these objectives, semi-structured interviews were carried out with local tax practitioners, whose main line of service would be advising on and preparing tax returns for corporate taxpayers. All practitioners interviewed work for Big Four and mid-tier accounting firms in Malta. A representative from the Office of the Commissioner for Revenue of Malta was also interviewed whose main work involves the management of the review process for the refund claim forms. Findings: The findings obtained suggest that the Consolidated Group (Income Tax) Rules shall not reduce significantly the compliance costs for the eligible groups of companies. However, it was found that the benefits outway the costs to adopt this optional legislation mainly for cashflow and timing reasons. The take up in the first year of application is expected to be minimal mainly due its novelty in the Maltese tax system and practitioners still having areas of unclarity in the legislation. The perception of the reason behind the introduction of this piece of legislation was to align Malta with other Member States and keep competitive by increasing efficiency. Conclusion: To conclude this study it was discussed how the primary concern for the authorities should be to issue guidance on the legislation as it stands. Also possibly implementing an extra-territorial scope to the Consolidated Group (Income Tax) Rules in order to enhance the integrity of the Maltese tax system. Practitioners are ready to incentivise the adoption of these rules as they feel that there are benefits to gain even with additional costs expected to transpire.

Value: Due to their first year of application being this year, their implications have not been studied yet which is what this study mainly tried to achieve. It gives insight on the various aspects to take into account when a group of companies applies to become a fiscal unit. Both practitioners and the tax authorities may benefit from this study as its gives both of their perceptions on this topic.