globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload |
05 September 2018 OECD releases Malta peer review report on implementation of Action 14 minimum standard On 30 August 2018, the Organisation for Economic Co-operation and Development (OECD) released the fourth batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms.1 Malta was among the assessed jurisdictions in the fourth batch.2 Malta requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying best practices report.3 Overall the report concludes that Malta meets almost all the elements of the Action 14 minimum standard, although several elements were not available for assessment at this stage due to Malta's limited experience with the Mutual Agreement Procedure (MAP). Notwithstanding this limited experience, the Stage 1 peer review report appears to indicate that Malta generally has the tools to be able to resolve MAP cases satisfactorily. Malta has indicated that it is committed to address any shortcomings identified in its Stage 1 peer review report. In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.4 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a member of the Inclusive Framework (IF) on BEPS implements the minimum standard based on its legal framework for MAP and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the member of the IF on BEPS takes to address any shortcomings identified in Stage 1 of the peer review. Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum.5 In summary, Stage 1 consist of three steps or phases: Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs' to adopt the report for publication. The report includes a number of recommendations relating to the minimum standard. In general, the performance of Malta with regard to MAP has proven to be satisfactory in their respective reports. Overall, Malta meets almost all the elements of the Action 14 minimum standard. Malta in principle meets the Action 14 minimum standard concerning the prevention of disputes. All of its 76 treaties, except for 2, enable competent authorities to endeavor to resolve any difficulties or doubts regarding the interpretation or application of the treaty provisions. It is expected that, upon entry into force, the Multilateral Instrument (MLI) will modify the two treaties to include this possibility too. Additionally, the Maltese competent authority is authorized to enter into bilateral and multilateral Advance Pricing Agreements (APAs), with roll-backs also being possible. Malta meets almost all requirements regarding the availability and access to MAP under the Action 14 minimum standard. Its policy is to provide access to MAP in all eligible cases, including cases involving transfer pricing, anti-abuse provisions or where the taxpayers and tax authorities have already reached an audit settlement. Malta has published clear and comprehensive guidance on the availability of and procedural steps surrounding MAP, and does not limit access to MAP in eligible cases when the taxpayer has complied with the relevant information and documentation requirements listed in these guidelines. In order to protect taxpayers' rights, Malta has in place a bilateral consultation or notification process for those situations in which the Maltese competent authority, being the only competent authority with which the particular taxpayer can submit a MAP request, considers the objection raised by taxpayers in a MAP request as not being justified. This provides the other Contracting State with the opportunity to provide its views on whether the MAP request is justified.
It is expected that a number of these treaties will be modified to include the Action 14 minimum standard through the coming into force of the MLI. Moreover, Malta intends to initiate bilateral discussions to amend the treaties which will not be modified through the MLI. In principle, Malta meets the majority of the requirements under the Action 14 minimum standard concerning the resolution of MAP cases. Its competent authority operates fully independently from the Tax Compliance Unit, the audit function of the Maltese tax authorities, its organization is adequate and the performance indicators used by it are appropriate to perform the MAP function. Peers have reported that communication with Malta's competent authority is easy and with timely responses. With respect to the suitability of Malta's tax treaties, the overwhelming majority of tax treaties contain a provision requiring the competent authority, having determined that the objection raised by the taxpayer is justified and that it cannot provide a unilateral solution, to endeavor to resolve the objection raised by mutual agreement with the competent authority of the other treaty party with a view to the avoidance of taxation which is not in accordance with the tax treaty. It is expected that the treaties which do not contain an equivalent provision will be amended accordingly. One of the treaties will be modified to include the Action 14 minimum standard through the coming into force of the MLI, while the remaining four are expected to be amended pursuant to bilateral discussions. Malta has also opted for part VI of the MLI, via which a mandatory and binding arbitration provision is to be inserted in Malta's double tax treaties, to the extent that the other signatory to the treaty has opted for this too. Moreover, Malta is a signatory to the European Union (EU) Arbitration Convention, which provides for a MAP supplemented with an arbitration procedure for settling transfer pricing and permanent establishment profit attribution disputes between EU Member States. No MAP cases were received or resolved by the Malta competent authorities during the Statistics Reporting Period, with the two cases which were pending at the start of this period, on 1 January 2016, being still outstanding at the end, on 31 December 2017. This suggests that Malta is not adhering to the recommended 24-month average timeframe for resolving MAP cases. However, Malta has noted that it does endeavor to meet this timeframe. As Malta did not resolve any MAP cases during the period under review, it was not possible to assess whether it meets the Action 14 minimum standard with respect to the implementation of MAP agreements. However, Malta has a domestic statute of limitations for implementation of MAP agreements, for which there is a risk that such agreements cannot be implemented where the applicable tax treaty does not provide that the MAP result is to be implemented notwithstanding any time limits outlined in domestic law. Seven of Malta's tax treaties do not provide the above-mentioned provision. Three of these tax treaties are expected to be modified to include the Action 14 minimum standard through the coming into force of the MLI, while the remaining four should be amended pursuant to bilateral discussions. Each assessed jurisdiction can provide information and request feedback from peers on how it has adopted the best practices identified in the BEPS Action 14 final report. The Best Practices report for Malta contains a general overview of the adoption of best practices by Malta. Few comments by peers were made on the adoption of the best practices. Malta is already working to address deficiencies identified in its peer review report and will now move on to Stage 2 of the process, where Malta's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Malta shall submit an update report to the Forum on Tax Administration's MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the Stage 1 peer review report. In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Malta's peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process. Furthermore, the peer review report for Malta provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis. With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Malta and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD's assessment of tax administration's MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result. 1 See EY Global Tax Alert, OECD releases fourth batch of peer review reports on Action 14, dated 4 September 2018. 4 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016. Document ID: 2018-6045 |
