Rules on the taxation of fringe benefits : recommendations for an update

Abstract

PURPOSE: The Fringe Benefits Rules and Guidelines in Malta have not been significantly updated since their inception in 2001. This dissertation aims to determine the relevance of such Rules in today’s local context as well as their effectiveness, especially when considering the fact that methods used to calculate the value of most fringe benefits seem to be of an arbitrary nature. Local research has indicated that employers and employees were not in favour of the introduction of such Rules prior to 2001. Foreign studies have shown that laws need to adapt to market changes and therefore regular updates are necessary. DESIGN: Seventeen (17) semi-structured interviews were carried out with local tax practitioners and one (1) interview with a representative from The Commissioner for Revenue. Questionnaires were also distributed to Trade Unions and Employers’ Associations which represented the employees’ and employers’ perspective on the subject matter. FINDINGS: The findings have demonstrated that the effectiveness of the Rules was hindered. Due to the lack of regular updates, such rules do not reflect modern practices of remunerating employees in kind. Additionally, the findings indicate that the methods used to calculate the value of a fringe benefit are arbitrary. CONCLUSIONS: In conclusion, it was established that the Fringe Benefit Rules in Malta do not represent a true reality. In addition to this, by taking into consideration the methods used to value fringe benefits, there exists no justification on how the Commissioner for Revenue determined these calculations. Which supplements the findings that such methods are of an arbitrary nature. IMPLICATIONS & VALUE: These conclusions may lead to a number of implications, which may also result in tax abuse. Subsequently, it is hereby being suggested that the Fringe Benefits Rules are regularly updated, and stricter anti-abuse provisions are put in place to ensure that tax avoidance is minimised as much as possible. Supplementary research is required to better understand the implementation of the revised Rules and to recognise which areas need more reinforcement.