Assuming that Tax Authorities “will not find out” is an obsolete strategy
When taxpayers behave on the assumption that Tax Authorities do not have access to complete information, especially if held in a foreign jurisdiction, they are likely to fall into the temptation to neglect the importance of keeping complete and accurate information.
Governments across the globe are making use of tax information exchange tools to fight this tendency in combating tax evasion and avoidance - and they are getting better at it.
As part of this joint effort, the Maltese government has entered into arrangements for the reciprocal exchange of information with a large number of foreign tax authorities and has implemented regulations to this effect.
Recently there has been a demonstrable increase in the number of requests by foreign tax authorities to the Maltese Commissioner concerning the exchange of information (and we presume, vice versa).
Did you know?
The Maltese Commissioner has the widest possible powers to obtain and exchange information with foreign tax authorities including full and free access to all business and residential premises.
Under the regulations, individuals, entities and trustees are required to keep reliable books of account (including underlying documents such as invoices and contracts) to enable the determination of their financial position with reasonable accuracy and the preparation of financial statements.
The regulations also mandate a minimum retention period of 5 years - this retention policy also applies to entities/trusts that have been liquidated or are no longer in existence.
The obligation to exchange information may just be a first step. The taxpayer may also face the burden of an administrative inquiry by the Maltese Commissioner to obtain the information requested by the foreign tax authority or as a result of the information being exchanged.
Think compliance is expensive? Try non-compliance...
Taxpayers who are not compliant with the regulations may face penalties of up to €30,000 together with an imprisonment sentence of up to 2 years.
However, this is not the full picture, since an exchange of information request is normally triggered as a result of an ongoing tax investigation. Besides the business disruption, reputational damage and psychological stress that a taxpayer might experience when undergoing a tax audit, the taxpayer also has the financial cost of the tax on unreported income sources, plus interest and penalties. In certain cases, a tax audit may also lead to a criminal investigation. The consequences here are considerable.
How can we help?
Through our tax dispute resolution team, we can help you with addressing any inquiries you may have received - and if you have not received any, we can help you make sure that you are prepared for one - and help avoid any embarrassing questions in the future.
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