The beginning of the year has brought into effect Regulation 6 (GAAR) by virtue of Subsidiary Legislation 123.187, of the Income Tax Act, Chapter 123 of the Laws of Malta. This legislation has implemented the provisions of Directive (EU) 2016/1164 (ATAD I).
This anti-abuse measure is not new to Maltese tax legislation since Regulation 6 is tantamount to the anti- abuse provision already found in Article 51 of the Income Tax Act. At any rate, ATAD I sought uniformity in application across the European Union and its implementation affirms Malta’s commitment towards fairer and more efficient corporate taxation in the EU.
The General Anti-Abuse Rules (GAARs) are introduced into in tax systems to intercept abusive tax practices that have not been dealt with through specifically targeted provisions. The GAARs main function is to provide a blanket provision to general tax avoidance, which should not affect the applicability of specific anti-abuse rules.
Regulation 6 provides that:
where an arrangement or a series of arrangements has or have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or scope of the applicable law, and which does not reflect economic reality, the Commissioner shall ignore such non-genuine arrangement or series thereof and the person concerned shall be assessable accordingly.
This provision empowers the Commissioner of Inland Revenue to deny any tax benefits of transactions or arrangements which do not have any genuine commercial substance or consideration other than achieving the tax benefit.
