Answers
Professional Level Options Module, Paper P6 (MLA) Advanced Taxation (Malta) June 2011 Answers 1 Notes for meeting with the shareholders of A Company Limited (ACL) Prepared for: Tax Manager By: Tax Assistant Date: xx June 2011 (i) 2011 change in ACL s share capital Income tax implications When a change in the share capital of a property company produces a reduction in the value of the shares held by a shareholder with a corresponding increase in the value of the shares held by other shareholders, there is a deemed transfer of value by that shareholder which is subject to tax. The value that is transferred (Y) is the excess of the market value of the shares held by that shareholder immediately before the change in the share capital over the market value of the shares held by that shareholder immediately after the change (A B), increased by the price (C), if any, for the acquisition of the new shares: Y = (A B) + C. Tutorial note: the formula in the Capital Gains Rules also caters for cases where the change in the share capital includes a reduction in the share capital but this is not relevant in this case. Following the change in the share capital of ACL: there was a reduction in the value of the shareholding of John Formosa, Peter Zammit and Michael Micallef, none of whom paid any consideration; and there was an increase in the value of the shareholding of Joe Johnson, who paid 200,000 for the allotment. The effect of this shift in value is that John Formosa, Peter Zammit and Michael Micallef are deemed to have transferred value to Joe Johnson of 27,309, 30,343 and 136,543 respectively, as per the calculations in Schedule 1. In determining the capital gains arising from these transfers, the cost of acquisition (Z) is a portion of the cost of acquisition of the shares held immediately before the change in the share capital (E). The portion is calculated by dividing the decrease in the value of the shareholding (A B) by the value of the shares held by the respective shareholders immediately before the change (A): Z = [(A B)/A] x E The tax payable at 35% by John Formosa, Peter Zammit and Michael Micallef is therefore: Value shift Cost of acquisition Gain Tax at 35% John Formosa 27,309 (27,309/140,580) x 45,000 = 8,742 18,567 6,498 Peter Zammit 30,343 (30,343/156,200) x 50,000 = 9,713 20,630 7,221 Michael Micallef 136,543 (136,543/702,900) x 225,000 = 43,708 92,835 32,492 Stamp duty implications The increase in the value of the shareholding in a property company that is produced by a transfer of value is subject to duty under the Duty on Documents and Transfer Act (DDTA) in the same manner as a transfer of securities. It does not appear that any exemption from duty allowed under the DDTA is relevant to ACL. The increase in value depends on the real value of the company. This is calculated along the same lines as those applicable for determining the market value for income tax purposes, except that in the determination of the real value of property companies for stamp duty purposes, certain liabilities are disregarded. The amount of liabilities to be disregarded is the excess of the liabilities over the value of all assets, excluding the value of immovable property, which in ACL s case would result in a reduction of liabilities of 218,000, as follows: Total liabilities before the change in the share capital 1,000,000 Value of total assets excluding immovable property (782,000) Reduction in the value of liabilities 218,000 This adjustment increases the market value of ACL for stamp duty purposes from 1,562,000 (as determined for income tax purposes (refer to schedule 1)) to 1,780,000. Bank loans relating to the cost of acquisition and improvements of the immovable property and certain debts registered at the Public Registry relating to the acquisition cost of the immovable property are not subject to this restriction, but it does not seem that ACL has any liabilities of this nature. The real value of the company for stamp duty purposes immediately after the share issue remains unchanged since the only difference in the values of the assets and liabilities consists of the reduction in the shareholder s loan by 200,000, which is a disregarded liability in virtue of the restriction referred to above. 15
The increase in the value of Joe Johnson s shareholding is calculated by reference to the same formula that applies for income tax purposes, except that the value to be determined is the negative of the corresponding decrease: Y = (A B) + C. The increase in the value of Joe Johnson s shareholding for stamp duty purposes is therefore 125,486, calculated as follows: Proportion of shares held before the allotment was 36% (36,000 shares out of a total of 100,000 shares) so their value was 1,780,000 x 36% 640,800 Proportion of shares held after the allotment is 54.2857% (76,000 shares out of a total of 140,000 shares) so their value is 1,780,000 x 54 2857% 966,286 325,486 Less: cost of acquisition of additional shares (200,000) 125,486 The value of the immovable property owned by ACL is more than 75% of the value of its current assets, other than immovable property, the applicable rate of duty on the transfer in value is 5 per 100 or part thereof. The duty therefore amounts to 6,275. Schedule 1: Shifts in value following the 2011 change in share capital Position before the share issue Position after the share issue Market value ( 2,127,000 ( 2,127,000 1,000,000 + 800,000 + 1,580,000 435,000) = 1,145,000) = 1,762,000 1,562,000 Number Appropriation Number Appropriation Y = of shares of value (A) of shares of value (B) (A B) + C John Formosa 9,000 140,580 9,000 113,271 27,309 Peter Zammit 10,000 156,200 10,000 125,857 30,343 Joe Johnson 36,000 562,320 76,000 956,515 (194,195) Michael Micallef 45,000 702,900 45,000 566,357 136,543 (ii) (iii) 2012 transfer of shares by Peter Zammit When a person makes a transfer of value, and subsequently transfers shares which he had held before the change in the share capital, the cost of acquisition for the purpose of that subsequent transfer is deemed to be the portion of the actual cost that was not taken into account in determining the chargeable gain on the shift in value on the change in share capital. The cost taken into account on the transfer of value by Peter Zammit (as calculated in (i) above) was 9,713 and the original cost of the shares was 50,000. The cost for the purposes of the transfer to be made in 2012 will therefore be taken at 40,287. 2012 transfer of shares by Joe Johnson The cost of acquisition of shares acquired by a person as a result of an increase in share capital which included a transfer of value to that person is the actual consideration increased by the taxable amount of the value transferred. Where, as in Joe Johnson s case, shares were held in the company before the increase in the share capital, the increase is applied pro rata to his aggregate shareholding. The value of 194,195 (as calculated in (i) above) deemed to have been transferred to Joe Johnson on the change in share capital must be added to the actual cost of his 76,000 shares. The actual cost of his shares was 5 per share and this is therefore increased by 2 555 per share ( 194,195/76,000) to 7 555 per share. The cost of acquisition of the 10,000 shares that he will transfer in 2012 will therefore be taken at 75,550. The Income Tax Act grants an exemption from tax on capital gains derived by persons who are not resident in Malta. However, this exemption does not apply to gains arising from transfers of shares in a company whose assets consist principally of immovable property situated in Malta. The bulk of ACL s assets consists of immovable property situated in Malta and so, even though Joe Johnson is not resident in Malta, he will not qualify for the exemption. 16
2 International Operations Limited (a) Report To: The shareholders of International Operations Limited (IOL) From: Tax Consultant Date: xx June 2011 Maltese income tax implications for IOL and its shareholders Income tax treatment of IOL s income IOL is taxable in Malta on its worldwide income because it is domiciled and resident in Malta by virtue of its incorporation. The standard rate of tax on company profits is 35%. Business income The business income is derived from business activities operated through a branch situated in Graceland. A branch constitutes a permanent establishment in terms of the OECD Model Convention. Business profits arising through a permanent establishment situated outside Malta are allocated to the foreign income account (FIA). Relief for double taxation As Malta has a double taxation agreement with Graceland, IOL may claim treaty relief in respect of the tax paid in Graceland on its branch profits. However, as IOL s business profits stand to be allocated to the FIA, the company has the option to claim the flat rate foreign tax credit (FRFTC), in lieu of the treaty relief. If IOL claims treaty relief, its business profits will be grossed up by the tax paid in Graceland and taxed in Malta at 35%. The tax paid in Graceland will then be allowed as a credit against the Malta tax, but the credit cannot exceed the Malta tax. Under the FRFTC method, the business profits will be grossed up by a deemed amount of foreign tax equivalent to 25% of the income net of the tax paid in Graceland. The grossed up amount will be taxed at 35% and the deemed foreign tax is then allowed as a credit. This means that the Maltese tax after relief will amount to 18 75% of the income receivable by IOL after charging the foreign tax. Further considerations apply where deductions are allowable in Malta against the company s income, but IOL does not qualify for any such deductions. Refunds to the shareholders The distribution of IOL s profits will entitle the shareholders to a refund or partial refund of Maltese tax. As the shareholders are not resident in Malta, the refund will not be subject to withholding tax. The calculation of the refund depends on whether or not the company claims relief for the foreign tax paid and, if it claims relief, on whether it opts for treaty relief or FRFTC. If treaty relief is claimed, the refund will be two-thirds of the Maltese tax before relief. If the FRFTC is claimed, the refund will be two-thirds of the Maltese tax after the credit. If no relief at all is claimed, the company will be taxed in Malta on its business profits net of the foreign tax paid and the refund available will be six-sevenths of the Maltese tax. Application of these options to IOL To determine the net results of the various options it is necessary to take into account the tax paid in Graceland. The capping of the tax to 100,000 per annum means that the Graceland tax on IOL s income for 2010 is charged at an effective rate of 5%, while that for 2011 is charged at an effective rate of 7 14%. If IOL claims treaty relief, with the consequential two-thirds refund to its shareholders, the net Malta tax for 2010 after the refunds (the tax leakage) will be 6 67% (i.e. one-third of 35% less the treaty credit of 5%) of the gross business profits. For 2011, it will be 4 53% (i.e. one-third of 35% less the treaty credit of 7 14%). If FRFTC is claimed, the two-thirds refund will be calculated on the Malta tax after the credit and will therefore amount to 12 5% (i.e. two-thirds of 18 75%) of the business income net of the Graceland tax. This means that the tax leakage will amount to 5 94% (6 25% of (100% 5%)) of the gross business profits for 2010 and 5 8% (6.25% of (100% 7 14%)) of the gross business profits for 2011. If no relief is claimed, Maltese tax will be charged on the profits net of foreign tax. As the shareholders will in this case qualify for a refund of six-sevenths, the tax leakage will be one-seventh of 35% of the profits net of the Graceland tax. For 2010 this will amount to 4 75% (i.e. one-seventh of 35% of 95%) and for 2011 it will amount to 4 64% (i.e. one-seventh of 35% of 92 86%). Recommendations The most beneficial options for the shareholders of IOL are therefore, for the company: (1) not to claim any relief in respect of the business income for 2010; and (2) to claim treaty relief in respect of the business income for 2011. Dividend income Dividends arising outside Malta are allocated to the final tax account (FTA) if they qualify for the participation exemption, but if not they are allocated to the FIA. The participation exemption applies to income derived from a participating holding, under certain conditions. An investment qualifies as a participating holding if it is a holding of the share capital in a company that is not a property company, which entitles the shareholder to at least any two of the following three rights: a right to votes; a right to profits available for distribution to shareholders; and a right to assets available for distribution on a winding up of that company. The shares held 17
in Notax Limited (Notax) only grant IOL the right to receive distributions of profits. Therefore, the investment in Notax does not qualify as a participating holding. In the circumstances, the dividends are subject to tax and are to be allocated to IOL s FIA. Relief Notax does not pay tax on its income, but IOL can still claim FRFTC under the system discussed above, since this relief is available in respect of any income allocated to the FIA regardless of whether that income has been subject to any foreign tax or not. IOL can also choose not to claim any relief at all. The manner in which the dividend income is taxed under these two scenarios and the respective rights of the shareholders to a refund upon a distribution are similar to those applicable in the case of business income, as discussed above. Maltese law also grants the right to relief for underlying tax. This right is granted even when there is no tax treaty between Malta and the country where the income originates or where the underlying tax is paid. It arises when a dividend is received from a non-resident company out of taxed profits or out of the proceeds of a dividend that it has received, directly or indirectly, from a related company. Melita Trading Limited (MTL) is in this context related to Notax since the latter company holds not less than 10% of the voting power of MTL. In these circumstances, IOL may, instead of the FRFTC, claim relief for the tax paid in Malta by MTL. Relief for underlying tax is calculated in the same manner as treaty relief, that is to say, the dividend is grossed up by the amount of the tax paid on the profits out of which the dividend originated and that amount is then given as a credit against the tax charged on the grossed up dividend amount. As the relief in this case represents Malta tax paid by a Maltese company, it is equivalent to the rate of tax payable by IOL on the dividend and so will neutralise IOL s tax on the dividend income. Recommendation Underlying tax relief is therefore the most beneficial option for the shareholders as far as the dividend income is concerned. (b) Tax payable by IOL and tax refunds due to its shareholders Year of assessment 2010 Business profits Gross income 2,000,000 Deduction for foreign tax suffered (100,000) Taxable income 1,900,000 Tax at 35% 665,000 Credit for foreign tax 0 Tax payable by company 665,000 Refund available 570,000 Year of assessment 2011 Business Dividends profits Gross income 1,400,000 Deduction for foreign tax suffered 0 Net income 130,000 Grossing up for dividend underlying tax 70,000 Taxable income 1,400,000 200,000 Tax at 35% 490,000 70,000 Credit for foreign/underlying tax (100,000) (70,000) Tax payable by company 390,000 0 Refund available 326,667 0 18
3 Leslie (a) (b) As Leslie is domiciled in Malta, and as he is to be treated as having retained his Maltese residence notwithstanding his employment in Heaven Republic, he is subject to Maltese tax on a worldwide basis. The income from his employment in Heaven Republic is therefore subject to Maltese tax, together with his rental income and his capital gains. Since his contract of employment required Leslie to perform his services outside Malta, and since he was not employed on board a ship, aircraft or road vehicle owned, chartered or leased by a Maltese company or in any service for the Government of Malta, the foreign employment income qualifies for the preferential 15% rate of tax [article 56(17) of the Income Tax Act]. Under this provision, the foreign income will be treated as the first part of Leslie s income for the year in question, so the 100,000 earned from his employment will absorb the tax free portion and the income bands taxed at the progressive rates up to the 35% limit, with the consequence that any other income that is taxable for the year will attract tax at the highest rate. Leslie qualifies for treaty relief. This will be given as a credit equivalent to the foreign tax paid but not exceeding the average Malta tax rate. Since the tax in Heaven Republic has been paid at an average rate of 13% it will be available as a credit in its entirety. The rental income from the St Julian s apartment is taxable. The deductions that may be claimed against rental income are regulated by special rules. These allow a deduction for interest and ground rent (or other burdens on property) and then a further deduction of 20%. Any other deductions are disallowed, so the estate agency fees cannot be taken into account. The Income Tax Act grants an exemption from tax on gains derived from the sale of one s own residence. This exemption is available on condition that the house has been owned and occupied for a period of at least three years immediately before the transfer and providing that the residence is sold within 12 months from the date the premises was vacated. For this purpose, the period of residence includes absences from Malta on account of foreign employment. However, Leslie took up his foreign employment in May 2009, which is more than 12 months after the date (February 2008) on which he vacated the property and therefore he does not satisfy all the conditions for the exemption. The transfer of the St Julian s apartment during 2010 will therefore attract tax. Tax on transfers of immovable property in Malta is regulated by article 5A of the Income Tax Act unless the transfer is excluded from the provisions of that article. This imposes a final tax on transfers of property equivalent to 12% of the higher of the price and the market value. The law envisages a number of situations where the transferor can opt out of the final tax system and the transfer will, in those cases, be taxed by reference to the actual gain determined in accordance with article 5. The instances when this option is available, subject to the relevant conditions, include transfers made within seven years from the date of the acquisition, and transfers of property situated within a special designated area (SDA). The option relating to property situated within an SDA can be exercised only by the person who was the owner of the property at the time that the area in question became an SDA. This option is therefore not available to Leslie. However, Leslie can still opt out of the final tax system on account of the fact that the property was sold within seven years from the date of acquisition. In this case it is more beneficial for Leslie to opt out of the 12% tax (which would result in a tax of 43,200) and to have the tax calculated on the resultant gain at 35% (see computation below). Tax computation for the year 2010 Income from foreign employment: 100,000 Tax at 15% 15,000 Income from rent 12,000 Further deduction (2,400) Taxable rental income 9,600 Tax at 35% 3,360 Capital gain: Consideration 360,000 Cost of acquisition (200,000) Deduction for inflation: (200,000 x 758 58/646 84) 200,000 (34,550) Deduction for maintenance: (200,000 x 0 4% x 6) (4,800) Taxable gain 120,650 Tax at 35% 42,228 Total Malta tax 60,588 Credit for double taxation relief (13,000) Malta tax payable 47,588 If Leslie was not resident in Malta in terms of Maltese domestic law, the tie-breaker rule under the treaty would not be relevant and Leslie would be treated as solely resident in Heaven Republic. In which case, Leslie would be subject to tax in Malta only on income arising in Malta and his foreign employment income would be taxable only in Heaven Republic. 19
Malta would still be entitled, in terms of the Income Tax Act and the treaty, to tax the capital gain and the rental income derived from immovable property situated in Malta. Such income would be taxable in Malta at the rates applicable to non-resident individuals. Further, if capital gains and rental income arising outside Heaven Republic and derived by a resident of that country are subject to tax under its domestic law, Leslie would be subject to tax in Heaven Republic on that income but would be entitled to claim treaty relief in respect of the tax paid in Malta. The treaty does not exclude Heaven Republic s right to tax this income. 4 (a) RM Returned migrants qualify for the remittance basis of taxation. Although RM is ordinarily resident and domiciled in Malta and should, in the absence of the special scheme, be subject to tax on a worldwide basis, one benefit offered by the scheme is that income arising outside Malta is only taxable in Malta if this is received in or remitted into Malta. Furthermore, capital gains from the disposal of foreign assets are not taxable as a result of the scheme. As a result, the royalties received by RM during 2010 are not taxable in Malta and neither are the capital gains from the disposal of the shares held in the companies incorporated outside Malta subject to tax in Malta, even though these gains were received in Malta. Tax computation: Rents (net of 20% allowance) 12,000 Dividend (gross of imputed tax) 20,000 32,000 Tax-free portion (4,200) Income taxable at 15% 27,800 Tax on passive income 4,170 Professional fees 12,000 Tax on income from profession at normal rates 2,500 Total tax 6,670 Tax at source (as imputed on dividends) (7,000) Provisional tax (1,000) Tax refundable (1,330) Tutorial note: the professional income is taxable at normal tax rates without the tax-free portion (b) AA Ltd Maltese income tax legislation contemplates an exemption from tax on capital gains arising from the disposal of shares of companies listed on the Malta Stock Exchange. However, recent changes have limited this provision to those gains that are attributable to the period post listing when the person transferring the shares also held the shares immediately before they were admitted to listing. The gain is taxable at a flat rate of 15%. Transfer value market value before listing 25,000 Cost of acquisition 12,000 Taxable gain 13,000 Tax at 15% 1,950 (c) CC Ltd Consideration for the total units 470,000 Cost of acquisition: 250,000 Inflation allowance: (250,000 x 770 00/743 05) 250,000) 9,067 Maintenance allowance: 250,000 x 0 4% 1,000 (260,067) Cost of development: capped at 209,933 (209,933) Gain/(loss) 0 DD Ltd is a related party. The deductions accorded to CC Ltd for the development costs cannot exceed the consideration, to the extent that it represents the price paid to DD Ltd for the construction. 20
5 (a) X Changes to the place of supply rules on services introduced in Maltese value added tax (VAT) legislation with effect from 1 January 2010 mean that some of the original advice provided to X in 2008 is no longer fully consistent with the requirements of the current VAT legislation. The new rules still provide for a general rule and a number of special rules, and the distinction between consultancy and other services is still relevant, but there have been changes to both the general rule and the special rule on consultancy services. Under the current general rule, the place of supply of services when the customer is a taxable person is the place where the customer is established. In all other cases, the general rule is unchanged from that in 2008, i.e. the place of supply is where the supplier is established. Administrative services are governed by the general rule. Accordingly, as from 1 January 2010, the administrative services provided by X to A1 and B1, who are both taxable persons, are deemed to take place outside Malta and no VAT is chargeable in Malta on those services. In the case of the services supplied to A1, VAT will be payable by A1 in the EU country in which A1 is established under the reverse charge system. In the case of B1, the payment of the VAT, if any, will be regulated by the laws of the country where B1 is established. Administrative services provided to non-taxable persons are still treated in the same manner as they were in 2008. The only difference is that, for the purpose of the current place of supply rules, taxable person includes non-taxable legal persons who are identified for VAT purposes. Consequently, the advice tendered in 2008 is still valid with respect to the services provided to A2, but only as long as A2 is not a legal person registered for VAT in his own country, and is also still valid with respect to the services provided to B2. In both cases therefore, the services are still treated as supplied in Malta and subject to Maltese VAT. The place of supply of consultancy services was, and still is, governed by special provisions. From 1 January 2010 the special rule on the services of consultants is that services provided to non-taxable persons established outside the EU are treated as supplied in the country where the customer is established. Otherwise the general rule applies. As stated above, the general rule today is that services supplied to taxable persons are treated as supplied in the country where the customer is established. This means that the special rule on the services of consultants has the same effect today as the old special rule in 2008, which treated the services as supplied in the country where the customer is established except where the customer is a non-taxable person established in the EU. The only difference (as above) is that taxable person today includes non-taxable legal persons who are identified for VAT purposes. Consequently, the consultancy services provided to A1, B1 and B2 will continue to be treated as supplied outside Malta, with the reverse charge system being applicable to the services supplied to A1; and the services supplied to A2 will continue to be treated as supplied in Malta unless A2 is a VAT-registered non-taxable legal person. If A2 is a VAT registered non-taxable legal person, the consultancy services provided to him will be treated as supplied in the country where he is established and the reverse charge mechanism will apply. (b) Scenario 1 Z Specific rules apply to the place of supply of services relevant to the valuation of movable tangible property but these rules are only relevant where the service is supplied to a non-taxable person. Where, as in this case, the customer is a taxable person, the general rule applies. Therefore, the service is deemed to be supplied in the country where the customer is established, that is, in Italy. Accordingly, the supply by Z will be taxable in Italy, the reverse charge rule will apply and the liability for the payment of the tax will lie with the Italian customer. Scenario 2 G Specific place of supply rules also apply to legal services, but these rules are only relevant where the services are provided to a non-taxable physical person who is established outside the EU. In all other cases the general rule applies. As both F and E are established within the EU, the place of supply is regulated by the general rule. Under the general rule, B2B supplies are treated as taking place in the country where the customer is established while B2C supplies are treated as taking place in the country where the supplier is established. F is not a taxable person, and consequently the legal services provided to F are to be treated as a B2C supply in the country where G is established, that is, in Malta. Although E is a non-taxable legal person, he is treated as if he were a taxable person for the purpose of the place of supply rules since he is identified for VAT purposes. Consequently, the supply by G to E is regulated by the general rule on B2B services and is treated as taking place in the country where E is established. The supply will be taxable in the UK, the reverse charge rule will apply and the liability for the payment of the tax will lie with the customer, E. 21
Professional Level Options Module, Paper P6 (MLA) Advanced Taxation (Malta) June 2011 Marking Scheme Marks 1 (i) Change in share capital results in deemed transfers of value 1 Explanation of rules/formula for calculating the shift in value 2 5 Application of principle to ACL s shareholders 1 Calculation of shift in value (Schedule 1): Market value of ACL before and after share issue 1 5 Calculation of individual shifts in value 4 Rule for the calculation of cost of acquisition 2 5 Calculation of cost of acquisition 1 5 Computation of the capital gain and tax payable 1 5 Increase in value on value shifting liable to duty 1 Explanation of what constitutes real value for stamp duty purposes 2 Calculation of real value of ACL, including the effect of the liabilities adjustment 1 5 Calculation of increase in value of shareholding 1 5 Determination of the rate of duty for property companies 1 Calculation of duty payable 0 5 23 (ii) Rule for determining cost of acquisition on further transfer 2 Calculation of the cost of acquisition 1 3 (iii) Rule for determining cost of acquisition on subsequent transfer 2 Calculation of the cost of acquisition 1 Non-applicability of exemption, with reason 1 4 Appropriate format and presentation of notes 1 Effectiveness of communication 1 2 32 23
Marks 2 (a) Taxability of IOL 0 5 FIA allocation for business profits 1 Operation of FRFTC versus treaty relief 2 5 Explanation of refunds to shareholders 4 Application to IOL for 2010 and 2011: Effective tax rates in Graceland 1 Tax leakage under alternative forms of relief (3 x 1 mark) 3 Recommendations 1 Alternative treatment depending on whether participating holding 1 Determination that no participating holding exists, with reasons 2 5 Options for treatment of dividend income 1 5 Availability of relief for underlying tax 2 5 Application to IOL 1 Recommendation 0 5 22 Appropriate format and presentation of the report 1 Effectiveness of communication 1 2 (b) Tax computation of IOL for 2010 1 Tax computation of IOL for 2011 1 5 Calculation of refund due on 2010 profits 0 5 Calculation of refund due on 2011 profits 1 4 28 3 (a) Worldwide basis of taxation and taxability of employment income in Malta 1 Applicability of 15% flat rate to foreign employment income 2 Foreign income constitutes the first part of the total income 1 Foreign tax available as credit in full 1 Treatment of rental income and the corresponding deduction 1 5 Potential exemption on transfer of own residence 0 5 Discussion on applicability of exemption, including reasoned conclusion 2 5 Discussion of general rules on tax on property transfers 2 Leslie cannot rely on special designated area option, with reason 1 Leslie can opt for gains treatment as property being sold within seven years from acquisition 1 5 Computation: Foreign employment income, including tax credit 0 5 Rental income 0 5 Capital gain 2 17 (b) Employment income no longer taxable in Malta 1 Capital gain and rental income still taxable in Malta 0 5 Non-resident tax rates apply 0 5 Heaven Republic s taxing rights over capital gain and rental income 1 3 20 24
Marks 4 (a) (i) Royalties not taxable, remittance basis of taxation applies 1 5 Gains on disposal of foreign assets not taxable 1 5 3 (ii) Grossing-up of dividend 1 20% deduction from rents 1 Tax free portion deducted from non-fee income 1 5 Tax on professional fees 1 5 Credits for imputed tax/provisional tax 1 6 (b) Capital gains exemption on disposal of MSE listed shares 1 Consequence of transferor owning the shares before they were admitted to listing 1 5 Rate of tax 1 Computation 1 5 5 (c) Inflation allowance on cost 1 Maintenance allowance 1 Deductions cannot exceed the consideration DD Ltd related party 2 Capping of deduction and computation 2 6 20 5 (a) Changes are relevant to the services provided by X/not all previous advice remains valid 0 5 New general rule applicable to the place of supply of services 2 5 General rule applies to administrative services 0 5 Application of the rule to the provision of administration services by X 3 New special rule applicable to place of supply of consultancy services 2 5 Application of the rule to the provision of consultancy services by X 2 11 (b) Scenario 1 Special rule not relevant, with reason 1 General rule applies 0 5 Place of supply where customer is established 1 Customer liable for tax under reverse charge rule 1 Scenario 2 Special rule not relevant, with reason 1 General rule applies 0 5 Need to distinguish between B2B and B2C 0 5 Application of rule in case of supplies to F 1 Application of rule in case of supplies to E 1 5 Customer liable for tax under reverse charge rule 1 9 20 25