Malta’s Tax Compliance Unit Shifting Into Top Gear

by Robert Lee, Tax-News.com, London

11 April 2005

Malta’s Tax Compliance Unit, established in 2001 to audit business taxpayers and self-employed sole traders, has now concluded some 200 cases, bringing in some Lm7.6 million for the government’s coffers (EUR17.7 million), according to a report in the Times of Malta.

Of this total, 54% of the cases involved companies, which have contributed an additional Lm4.7 million in income tax, while the remainder, made up of sole traders, contributed Lm1.2 million. An additional Lm1.7 million has also been recouped in VAT.

According to TCU, 89% of all taxpayers are shown to be in default of taxes, and, after fines, penalties and interest have been added, it is thought that the Lm7.6 million total could double.

Set up in 2001 as a semi-autonomous specialised unit within the Ministry of Finance in order to combat tax evasion and tax fraud, the TCU falls under the general remit of the Ministry of Finance.

Its main weapon is an extensive information database which helps the unit spot discrepancies between declared income and the amount of tax paid by a business or individual, and although it does not have access to information on domestic bank accounts, it is able to observe interest accruing from accounts held in countries with which Malta has a double taxation agreement.

"If a taxpayer is being audited - and only then - we can request information from the overseas tax authority. But there is no regular flow of information; it has to be done in the context of an investigation, and provided that the foreign country's banking laws permit such exchange of information," noted Paul Barbara, head of the TCU, in the Times report, which stated that almost 2,500 reports on specific taxpayers or groups of taxpayers were extracted from the data warehouse during 2004.

"We also discover quite a few tax avoidance schemes, especially in the construction and property business. Some of them are legitimate, in which case we recommend ways to close the loopholes," added Mr Barbara.

He went on to warn: "We are going through the sectors one by one and reaching agreements. We haven't yet started with lawyers, accountants and architects, for example, or even technicians, for that matter. But unless there is a change of heart by the authorities, we will go through them all.”

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