Tax considerations involved in the structuring of EU direct investment in Malta

Abstract

This dissertation examines the considerations impacting the manner in which EU residents, intending to carry on business activities in Malta, structure their operations. The way a business is structured may have certain direct and indirect tax implications, thus the aim of this research is to highlight the areas where differences between the different forms of structures are to be found. The structures under investigation are the formation of a permanent establishment, also referred to as a branch in certain circumstances, and a subsidiary, where a comparative analysis in dealing with specific transactions is made between the two forms of structures. Before the comparative analysis commences, the concept behind permanent establishment is analysed thoroughly to provide an insight to the reader. Chapter three and chapter four are the midst of this dissertation and these assume practical transactions and analyse them in the light of the different structures, both with respect to direct and indirect taxation. For direct taxation some cash-flow disadvantages where observed in both structures in different situations. Some main differences were observed concerning the treatment of cross-border group loss relief, exit taxes and withholding taxes. The practical difficulty with which the permanent establishment is faced in the attribution of profits is also highlighted, since this contrasts with the certainty that the subsidiary formation enjoys. In the context of indirect taxation, consideration was particularly given to supplies of services occurring between intra-firm transactions, where the distinction favours the branch formation. With reference to recent case laws, a number of issues are raised in relation to discriminatory provisions concerning the freedom of establishment contained in both the Maltese law and double taxation agreements. Ultimately apart from taxation matters, the investor needs to consider non-taxation considerations since the chosen structure has to fit within the firm's strategic planning.