The Maltese imputation tax system : its interaction with double taxation agreement, EU law and the tax systems of selected other countries

Abstract

With the accession of Malta within the European Union (hereinafter referred to as the EU) in 2004 Malta found upon itself the obligation of ensuring that it complied with EU law and also, case-law emanating from the European Court of Justice (hereinafter referred to as the ECJ). This, also within the realm of taxation, where although positive law on the matter is little, the ECJ has increasingly sought to regulate the matter. In fact, as a result of a number of judgments decided by the ECJ, such as Manninen and Lenz it became clear that the imputation system operated by a number of Member States was in a precarious position. So much so, that Member States in fact abandoned the said imputation system opting for a scheduler system in its place. Notwithstanding this line of action adopted by the other Member States, Malta, however, has succeeded in convincing EU authorities that its imputation system does not violate EU law (Code of Conduct for Business Taxation and State Aid) and neither does it violate the principles emanating from such cases as Manninen and Lenz decided on by the ECJ (following a few amendments to the satisfaction of the said EU authorities). The inspiration for the writing of this thesis in fact arose from this point. How far does the Maltese imputation system in fact comply with EU law and principles? Is it fully compliant as some argue it to be, or are there certain aspects of it which would be considered to run counter to EU law and principles? In order for me to analyze this issue it was essential to first and foremost analyze the Maltese imputation system in detail. Such analysis is dealt with in Chapter 2 of this thesis whereby the Articles of the law providing for the Maltese imputation system are analyzed. In this Chapter I also point out th I then go on to analyze, in Chapter 3, landmark ECJ case-law which affected imputation tax systems including Lenz, Manninen and Avoir Fiscal and apply the principles emanating from such cases to the Maltese imputation system in order to see whether it complies with the same. This is achieved by comparing a strictly domestic scenario with an equivalent cross-border scenario and considering whether the treatment of foreign shareholders and foreign dividends is equal to the treatment of domestic shareholders and domestic dividends, thereby not infringing the Four Freedoms and the discrimination provisions of the EC Treaty. The final Chapter then deals with the interaction of the Maltese imputation system with double taxation agreements between Malta and selected other countries and how imputation countries used to share their tax take and provide a credit to foreign shareholders. It also briefly touches upon the interaction of the Maltese system with the tax systems of other countries. Conclusions to each issue raised in this thesis were provided for within each Chapter, an overview of which is that Malta's imputation system is indeed an imputation system as it imputes on to shareholders not only the underlying tax paid by the distributing company but also the benefit of foreign tax credits and tax benefits; though it is largely compliant with EU law there are nonetheless a number of issues which, when looked at closely, constitute covert discrimination between foreign shareholders and foreign dividends. It may be observed after analysing numerous cases decided by the ECJ that Malta would have great difficulty in justifying these discriminatory provisions were a case to be brought against it. Finally, problems arising with other countries granting a credit for the Maltese integrated tax are identified and the position that certain countries may take or have taken as regards Malta's tax refunds are discussed.