A case for a definition of legitimate company tax planning

Abstract

Tax planning has always been influenced by legislation and case-law which continue to change its boundaries and the rules themselves. Indeed the latest legislative developments have seen the suffocation of the concept of tax avoidance in order to try and curb companies from any possible abuse. This thesis is meant to examine the present day situation which is suffering from legislative changes which are putting in one basket two completely distinct notions - tax evasion and tax avoidance. Until fifteen years ago it was an accepted practice that a company could choose the most advantageous route such as tax reliefs or refraining from consuming a tax product in order to limit tax liability and maximise on profits. Until then the government did not combat activities of this kind. The distinction between tax evasion and tax avoidance was still widely accepted. This thesis should try to define legitimate company tax planning as opposed to tax evasion, as well as examine tax avoidance practices deemed to be of a degree too close to tax evasion. This is due to the fact that there is no complete definition of tax avoidance and a distinction could be made between acceptable and unacceptable avoidance. Indeed, legitimate company tax planning has never been really examined in order to verify what is accepted and what is not allowed by law. One would obviously have to discuss certain modern trends which are being continuously mentioned m order to see whether these practices fall within legitimate tax planning. This thesis will examine in depth Sec 51 (2) of Chp. 123 of the Laws of Malta relating to tax avoidance. The latest amendments in 1996 have seen the notion of tax avoidance suffer a 'setback' - the law states that the Commissioner may determine the liability to tax or the entitlement to a refund or set-off of tax, in any case where he feels that the sole or main purpose was that of obtaining any advantage which has the effect of avoiding, reducing or postponing liability to tax. This amendment to the law has brought about a change whereby 'any person' who makes use of an advantageous scheme may have such scheme altered by the Commissioner. The consequence of such a legislative measure is that of having the concept of tax avoidance obliterated. Again, one would have to examine which are the situations whereby the Commissioner may justly determine the liability of such person, and which are the situations where the Commissioner is acting ultra vires. I would therefore be referring to issues such as transfer pricing, CFC rules, unfair competition and others which have conditioned tax planning in recent years. In order to make this thesis a deep study of the situation, the international scene must be examined, especially vis-a-vis the European Union. This thesis will therefore seek to define the limits of legitimate company tax planning in the light of the most recent trends.