Tax audits are getting smarter

• Non-submission of returns often is an indicator of broader compliance issues, including:

  • Inaccurate or incomplete tax declarations
  • VAT non‑compliance
  • Employment tax issues
  • Transfer pricing shortcomings
  • Regulatory reporting gaps 

• Nevertheless, filing all statutory filings does not automatically mean that a taxpayer is fully compliant: accuracy, completeness, and documentation quality remain critical. 
  

• The Maltese Tax Authorities have recently designated a cohort of entities and high-net worth individuals as large taxpayers and established a dedicated office to manage their affairs.

• Companies and individuals that have been designated as large taxpayers should have already been notified by the Maltese Tax Authorities. Nevertheless, entities and individuals that meet the eligibility criteria outlined below should assess their position and begin the necessary preparations in a timely manner.

• Who may be eligible?
  
  • Companies may qualify where annual turnover exceeds €20 million and they also meet either the employee threshold of 50 employees or VAT supplies exceeding €10 million.
    
  • Individuals may qualify where they meet high-net-worth criteria, including substantial company shareholdings, property acquisitions exceeding €3 million, or declared income exceeding €2 million.
    
    Classification is generally retained for three years.

• Benefits for these companies/individuals include:

  • Faster response times
    
  • Direct communication channels
    
  • A more structured and predictable relationship with the authorities 

• However, this also places these companies/individuals under a more concentrated spotlight:

  • Being singled out may naturally increase scrutiny.
    
  • Inconsistencies may be identified and escalated more quickly.
    
  • The probability of attracting a tax enquiry is therefore higher.

• However, entities and individuals that are not classified as large taxpayers should not view this as a reason for complacency. The same commitment to full tax compliance remains essential for all taxpayers, as the tax authorities are now better equipped and increasingly focused on identifying compliance gaps and safeguarding tax revenues.

• If an investigation is triggered and non‑compliance is uncovered, repercussions may include:

  • Expensive legal and related fees.
  • Distraction from more important and value adding activity.
  • Assessments of unpaid tax.
  • Interest and administrative penalties.
  • Potential criminal exposure in severe cases.
  • Reputational damage for both companies and individuals. 

• For businesses operating in regulated or cross border environments, the reputational impact can be particularly significant. 
  

To mitigate these risks, organisations and individuals should adopt a proactive approach to tax governance: 

• Regular tax compliance health checks

  • Understand whether the large taxpayer classification is relevant.
  • Identify statutory changes that were previously unnoticed.
  • Identify red flags, housekeeping shortcomings, and inconsistencies early.
  • A low-cost, high‑impact exercise that enables timely corrective action.
  • Re-evaluating the continued validity of past legislative interpretations of significant relevance to the tax declarations filed.
    

• Staying up to date with evolving tax laws

  • Domestic and international tax rules continue to change rapidly.
  • Tax functions and individuals with complex tax affairs should ensure they are sufficiently upskilled to detect reporting gaps, inconsistencies, or opportunities.

• Voluntary disclosures

  • Proactively addressing underreported income or unpaid taxes can significantly reduce exposure.
  • Demonstrates good faith compliance and mitigates the risks and costs of a potential investigation.