An analysis of the accounting and taxation aspect of trusts in Malta and related accountability issues

Abstract

This thesis dwells into the accounting and taxation aspect of trusts in Malta and examines related accountability issues. One of the duties of the trustees is to be accountable to the beneficiaries and accounting is one of the means to achieve such accountability. However, the Maltese law is silent about the manner in which the accounts are to be kept and the format in which financial statements are to be presented to the beneficiaries. In view of this, the United States Trusts practice offers a good basis for trust accounting since they follow the Uniform Principal and Income Act 2000 The new tax provisions which were introduced by virtue of Act XIII of 2004 are examined. These tax provisions can be considered as an 'upgrade' to the general tax rules intended to bring no change in the tax incidence of the parties if they become parties to a trust. The trustees are accountable to the beneficiaries for computing the tax to be paid. Maltese legislation gives some assurance to the beneficiaries by providing for liability of the trustees for breach of trust, however it does not mention an audit. An audit might enhance accountability since auditors form and express independent opinion on the financial statements. Finally, the extent of liability of trustees is discussed in view of the fact that the law imposes duties on the trustees and if they fail any of their duties they will be liable for breach of trust. In view of this, it is important to offer some protection to trustees in order to avoid the possibility of the beneficiaries abusing of the protection offered to them by the law.