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Tax Audits - are you next on the Revenue’s hit list ?

The tax environment is becoming increasingly complex and challenging - tax authorities are constantly under pressure to carry out more tax audits and to strengthen the tax administrative / penalty systems to combat tax evasion and non-compliance. 

As part of this global effort, Maltese tax authorities have also been revamping the current tax administration practices to crackdown tax evasion.  As also announced by the Minister of Finance in the last Budget speech, annual interest rates on outstanding income tax and VAT balances are expected to increase to 7.2 % (more than twice the current rate) with effect from 1 June 2022,  with reductions on interest/ penalties expected to be more difficult.  

1. Who may be subject to a tax audit ?

Anyone can be investigated. 

A notification letter would be issued by the Tax Compliance Unit (investigative arm of the Inland Revenue) to the taxpayers that a tax enquiry will be conducted on their tax declarations and, where relevant, on any related parties - this means that where the taxpayer is a company, such a tax investigation may potentially also extend to directors and shareholders.

Tax Audit investigation

2.  How far back can the tax authorities investigate ? 

An income tax assessment may be issued not later than five years from the end of the year in which the tax return or further return for that year is filed -  this means that the mere filing of an adjustment form will automatically extend or re-open the assessment period for that year in question.

The above prescription period will not apply where a taxpayer would have made incomplete disclosure of material facts or wilful disclosure of incorrect or misleading information in the income tax return/s.

With respect to VAT assessments, the prescription period is limited to six years from the end of the relevant tax period or the filing date of the said tax return (whichever date is the later).

Tax Audit investigation

3. What are the implications of a tax audit for a taxpayer? 

In addition to being held liable for payment of tax on undisclosed income sources, a taxpayer may be charged with significant interest and administrative penalties - such charges accrue at varying rates depending on the type of default, the timing of settlement and the year/s in which the default arises.  

It may be possible through guided assistance and advice, to request the Commissioner for Revenue to grant a reduction on such interest/ penalties (the possibility and extent of such a reduction is at the sole discretion of the tax authorities).

In certain cases, the tax audit may also lead to a criminal investigation. 

The ultimate implications very much depend on the success of the dispute resolution proceedings.

Tax Audit investigation

4. How long does a tax investigation take ?

A tax investigation may be completed within months or a number of years - the duration thereof would highly depend on the complexity of the case in question.

Tax Audit investigation

How can we help? 

We can help you prevent, manage and resolve tax audits and enquiries. 

From routine tax enquiries to in-depth tax investigations or assistance in bringing your tax affairs in order through voluntary disclosures, our dedicated tax dispute resolution team can guide you through every step of the process. We are uniquely positioned to give you clear, straight talking and solid tax advice to help you achieve the best possible outcome - including helping you avert the problem from occurring in the first place. 

We can help on a wide range of tax investigation matters including corporate tax, personal tax, VAT and FSS audits. 

Contact us

Neville Gatt

Neville Gatt

Head of Tax, PwC Malta

Tel: +356 2564 6791

Bernard Attard

Bernard Attard

Tax Partner, PwC Malta

Tel: +356 2564 6726

Roberta  Gulic Hammett

Roberta Gulic Hammett

Senior Manager, Tax, PwC Malta

Tel: +356 2564 6757

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