Malta Tax and Customs Administration: Large Taxpayers’ Office
Building bridges
When the International Monetary Fund first raised the concept of a service aimed at large taxpayers, the officials at the Malta Tax and Customs Administration (MTCA) were taken aback. After all, Malta was a small jurisdiction. Was it relevant?
However, the recommendation had come as part of the transformation journey at the MTCA and it did not take long for the officials to realise how many other jurisdictions around the world had a Large Taxpayers’ Office (LTO), and how effective this was not only to the jurisdiction but also to eligible taxpayers. The rationale behind this specialised office becomes particularly compelling when we consider that companies qualifying as large taxpayers contribute to more than 60% of the total tax revenue.
These large taxpayers, often comprising multinational corporations and major domestic enterprises, represent a significant portion of the economic activity and, consequently, the tax base. Their complex financial operations require dedicated focus to ensure compliance, efficiency, and effective tax collection
Indeed, the setting up of the Office was included in the MTCA’s Strategic Plan and it officially opened earlier this year, in the capable hands of Sergio Ebejer.
The past year was instrumental in establishing the parameters for taxpayers, as well as for building up the team that would form the Office. For the setting up of this Office, the Malta Tax and Customs Administration had the support and guidance of an IMF expert who is still giving ongoing advice on the operations of the LTO.
There is no magic formula for LTOs and the thresholds vary greatly worldwide. Many jurisdictions limit eligibility to the company’s turnover only, but this would not have been the optimal solution for the Maltese economy, Mr Ebejer explained that this single threshold was not going to cast a wide enough net given the specificities of local operators, and the eventual criteria include the number of employees, as well as the amount of VAT paid.
“When we did the modelling based on various thresholds, it was important to capture those entities and individuals that had a presence in Malta, and the result was a wide variety of financial institutions, constructions and tourism companies, investment firms and more. And many have Maltese involvement, including shareholding,” he said.
In this context, the eligibility criteria for the LTO have captured around 320 companies and 250 high-net-worth individuals. These entities, now designated as large taxpayers, have been directly notified of their qualification. This designation signifies a shift in how they will interact with the tax administration, as they will now engage with the LTO as a one-stop shop for all their tax-related matters which includes compliance and payments as well as audits and verification.
“The concept of the LTO is to create a bridge to large taxpayers which reflects the complexity of their operations, which may be multinational for example. Our remit is to provide the expertise to create channels of communication to ensure that we can work as partners to resolve problems – which are often technical issues of interpretation,” he said.
“The ultimate aim is to assist them to comply with their tax obligations, filing on time and paying on time, which is beneficial for the MTCA and ultimately Malta, and for the taxpayers themselves.”
Certainly, the LTO hit the ground running. The team was able to identify pending issues with the taxpayers and started to unravel them, often through face-to-face meetings.
“Looking at the whole picture from a distance is not the most efficient way to pick up trends. This is one of the reasons that the Strategic Plan prompted a more sectorial approach, and we now have Compliance Improvement Plans for various sectors, such as tourism, construction and gaming,” he explained.
Over the past 18 months, the MTCA has drawn up risk profiles for each sector, and the substantial investment in IT of the past year has enabled important tools such as real-time dashboards and data analytics. Mr Ebejer is also anticipating that Artificial Intelligence will play a major role going forward, refining the risk profiles and identifying important trends using algorithms.
“The initial response from taxpayers has been somewhat overwhelming as it brought to the fore complex issues that are being given immediate attention and follow-up.
The LTO is not only working directly with companies and HNWI, of course, but it also reaching out to the tax practitioners and advisers, creating an alternative channel of communication, and is planning to allow them to get written authorisation from their clients to be copied in on correspondence, streamlining the process even further.
One of the major thrusts for the MTCA is that issues brought up during the consultation period will not get overlooked. Indeed, the LTO is already looking to future initiatives, some of which are part of the national strategy for financial services, such as making Malta more attractive to Family Offices.
“For example, at the moment the LTO looks at eligibility for the parent company, but tax practitioners and advisers have suggested that we should also consider subsidiaries going forward,” he explained. “So as we evolve and grow, we will look at different fiscal units, subsidiaries, family wealth and so on.”
Of course, a team is only as strong as its members, and training has been a major thrust of the preparations.
“The regulations and legislation are very complex. For example, the team only recently completed training on transfer pricing, which largely affects multinationals,” he said.
Given the relatively large sums of tax involved, the LTO is expected to have a disproportionate impact on revenue collection – all of which is being closely monitored, allowing it to justify its eventual expansion.
“The reaction from companies and individuals that fall under our remit has been very positive. The LTO is quite new for Malta and they have welcomed the open channels of communications – and many have had in-person meetings with our directors general and with the Commissioner himself.
“This is where Malta’s size is not a limitation but a competitive advantage. Indeed, many say to us: ‘This is why we chose Malta!’,” he said.