Malta Institute of Taxation reacts
to Budget 2004
The Malta Institute of Taxation (MIT) yesterday noted
with dismay and serious concern some of the budget proposal regarding
taxation and the consequential measures in Bill 19 dated 26 November
"In his budget speech the Minister specifically declared that appropriate
measures were to be taken in relation to tax evasion on property sales,"
the MIT said. "The institute however notes that the only apparent
direct measure in relation to evasion is the proposal regarding promises
of sale. All the other legislative proposals seek to create hurdles
against legitimate commercial transactions. It is agree that attempted
tax planning may at times surpass acceptable thresholds, but the proposals
will do away with the structuring of commercially feasible transactions.
The proposals will consequently restrict certain important economic
activities at a time when the economy requires all the help it can get,
not obstacles and hurdles."
The MIT said it agreed in principle that promises of sale in connection
with immovable property should not be used as a means of evading taxation.
"The proposal to levy a duty on the value shown in such promises
of sale is therefore appropriate. However it should be noted that unless
promises of sale in this regard are also made obligatory at law, there
is risk that evasion will still occur by people simply not entering
into a promise of sale."
With regards to the proposal not to allow the deduction of liabilities
of immovable property-related debts on the transfer of shares in companies
which own immovable property or property rights is a "further legislative
measure aimed at dismantling the distinct juridical personality of companies.
This is the second such measure related to the valuation of shares.
"The first was introduced in 2000 distinguishing between immovable
property and other current assets. The lifting of the corporate veil
for the purpose of combating any measure which goes against public policy
should be left to the Courts to decide in appropriate cases. Our Courts
have in the interest of justice shown themselves perfectly willing to
The MIT said that the proposed suppression of the exemption in connection
with the merger and division of companies is bound to have adverse repercussions
on a useful economic and commercial tool, which has been in the company
legislation since the sixties as regards mergers, and since 1995 as
"It is appreciated that these provisions could in some extreme
cases be utilised for the purpose of tax avoidance tantamount to tax
evasion. However the Income Tax Act has had defence mechanisms against
such schemes ever since its inception. These were strengthened in 1978.
The Duty on Documents and Transfers Act has also had such defences since
its enactment, and these are now being strengthened by the addition
of anti-avoidance measures that have been borrowed from the Income Tax
Act. Although we appreciate the thinking behind this measure there can
be little doubt that it is out of proportion to the problem which it
seeks to cure: a patient is not cured by being killed."