Capital gains tax : a comparative analysis

Abstract

This dissertation aims at making a detailed and comparative analysis of the taxation on Capital Gains under Article 5 of the Income Tax Act (ITA) and of the provisions on such a tax found in some other foreign jurisdictions ('the reference countries') with which Malta shares a common thread of legal traditions. The comparative aspects of the study are mostly focused on the UK and Irish legislation although the Australian, U.S. and Canadian provisions are also referred to. The introductory chapter discusses the aims of fiscal law and deals in depth with the historical background to the introduction of capital gains tax legislation in Malta and in the reference countries. The chapter also discusses the fiscal needs to which capital gains tax provisions sought to respond. Chapter 2 focuses on the ongoing debate regarding the classification of the nature of a transaction, with particular reference to the classification of transactions as being of a 'capital', 'revenue' or 'trading income' nature. This chapter centres around an analysis of Maltese and UK case law and also discusses tile identification of 'badges of trade' which offer a guideline in determining whether a person is performing acts of trade. Chapter 3 focuses on the importance of the concepts of residence and domicile with regard to jurisdiction to tax capital gains. Chapter 4 gives a detailed analysis of Article 5 of the ITA read in conjunction with the Capital Gains Rules (L.N. 5 of 2005) and compares the respective articles with those found in the Taxation of Capital Gains Act 1992 of the UK and the Taxation of Capital Gains Act 1975 of Ireland. Exemptions granted in Article 5 of the ITA are analysed and compared separately in Chapter 5 through Maltese and foreign case law. The taxation and relief of foreign source income is separately discussed in Chapter 6 where, apart from discussing double taxation relief available under the ITA, an analysis is also made of Article 13 of the OECD Model Convention with regard to those aspects of it that deal with Capital Gains The Chapter also identities a number of permutations from the Model Convention which are found in Double Taxation Agreements to which Malta is a party. The specific and general anti-avoidance provisions relating to taxation on capital gains are discussed in Chapter 7. The position of trusts which are now also regulated under Article 5 of the IT A is discussed in Chapter 8. The conclusion draws upon the analysis of the different aspects of taxation on capital gains made in the study and puts forward a number of suggestions and proposes amendments to the legislation currently in force.