The implementation of ATAD II in Maltese legislation

Abstract

Purpose: In 2017, Council Directive 2017/952 was issued for MSs to implement by 1 January 2020. Malta adopted the rules via Legal Notice 348 of 2019. Commonly addressed as ATAD II, the directive aims to combat hybrid mismatch arrangements. This research aims to identify the perception of Maltese tax practitioners on the measures used to adopt the directive as well as to analyse the opinions of local practitioners on the rules introduced. The research further analyses the impacts, benefits and drawbacks of implementing the rules in Malta. Design: A preliminary means of obtaining information was through the analysis of the current literature available on the subject. Furthermore, 15 semi-structured interviews were carried out. The interviewees comprised 12 tax practitioners, 2 members of the Maltese Institute of Taxation as well as an official from the Office of the Commissioner for Revenue. Findings: Findings indicated that the measures used to adopt the ATAD II directive were perceived in a negative light. Additionally, extra burdens pertaining to the introduction of the rules were identified. The corrective mechanisms adopted by the directive were considered as pragmatic, however, a number of issues and interpretation differences were brought up. The results also show that the adoption of the rules in Malta does not hinder investment or relationships with other jurisdictions, however, benefits relating to the adoption of the rules were found to be minimal. Overall, the lack of guidance currently made available by local authorities was a recurring theme. Conclusion: It can be easily concluded that the introduction of anti-hybrid rules bring about an added layer of complexity. The implementation of the directive in a short period of time also led to criticism, however; MSs were losing high amounts of tax revenue, justifying the fast-paced implementation. Issues and lack of definitions provided by the directive shed light on the need for guidance to be issued in order to increase knowledgeable personnel. In this regard, recommendations to provide training for practitioners, increase harmonisation and to clarify the impact of the rules were provided. Value: This study is the first to analyse the impact of anti-hybrid rules in the Maltese jurisdiction. The research shed light on issues pertaining to the directive and well as the applicability of the rules. Valuable insight on the effect in the local jurisdiction is also provided.