Amid all the press and industry comment on the Overseas Transfer Charge, what has gone almost unnoticed is the implementation of the EU Council Directive regarding the mandatory automatic exchange of taxation information.
Amid all the press and industry comment on the Overseas Transfer Charge, what has gone almost unnoticed is the implementation of EU Council Directive 2014/107/EU of 9 December 2014, amending Directive 2011/16/EU with regard to the mandatory automatic exchange of information in the field of taxation (DAC2). This is generically called the ' Common Reporting Standard.' (CRS).
CRS and pension schemes
It is to a degree jurisdictionally dependent, but in Malta the Common Reporting Standard issued in terms of Article 96(2) of the Income Tax Act (Chapter 123 of the Laws of Malta) requires all pension schemes to collect and report certain information about an account holder's tax residence.
Each jurisdiction has its own rules for defining tax residence. In general, tax residence is the country in which you live. Special circumstances (such as studying abroad, working overseas or extended travel) may cause you to be resident elsewhere, or resident in more than one country at the same time (dual residency). The country/countries in which you pay income tax are likely to be your country/countries of tax residence.
If a member's tax residence is located outside Malta the Pension Scheme may be legally obliged to pass on the information in this form, and other financial information with respect to your financial accounts, to the competent authority in line with the provisions of Regulation 8 of the Cooperation with Other Jurisdiction on Tax Matters Regulation (LN 295 of 2011 as amended). This data needs to be submitted by 30 April 2017.
No longer will members of pension schemes be able to 'fly under the radar' on disclosure of their pension fund income in foreign countries.
The Penalties imposed upon Pension Scheme Trustees will encourage compliance.
Failure to report
Where a Scheme fails to report the information required to be reported in accordance with regulation 41 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations within the time provided in section 9.3 above, the Trustees will be subject to a penalty of:
- €2,500 and
- €100 for every day during which the default existed: provided that this penalty shall not exceed in total €20,000.
Failure to report in a complete and accurate manner
Where a Trustee fails to report the information required to be reported in terms of regulation 41 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations in a complete and accurate manner, the Trustees will be subject to a penalty dependent on the nature of the breach of the obligation, in line with regulation 44(1)(e) of the Regulations.
In the event that the information reported is corrupted or incomplete, the Commissioner shall contact the Trustees directly to try and resolve the problem. Examples of minor errors could include:
- data fields missing or incomplete
- data that has been corrupted
- use of an incompatible format.
Where this leads to the information having to be resubmitted this will have to be via the Commissioner.
Continual and repeated administrative or minor errors shall be considered as significant non-compliance where they continually and repeatedly disrupt and prevent transfer of the information. For this purpose, 'continually and repeatedly' means more than two times in a row. Guidelines for the implementation of the DAC2 and CRS into Maltese legislation v.1| Reporting 112.
In cases of minor errors, the Trustees will be subject to a penalty of:
- €200 and
- €50 for every day during which the default existed: provided that this penalty shall not exceed in total €5,000.
Significant non-compliance will be determined by the Commissioner subsequent to communications and sufficient proof given by a foreign competent authority with which the Maltese competent authority automatically exchanges information. Where this occurs, there is an 18-month period from the date of such notification in which the Trustees must resolve the non-compliance.
In such cases of significant non-compliance, the Trustees will be notified in writing indicating:
- What the non-compliance consists of and
- An 18-month period from the date of such notification within which the Financial Institution must resolve the non-compliance.
The Commissioner will also engage with the Trustees to:
- Discuss the areas of non-compliance
- Discuss remedies/solution to prevent future non-compliance
- Agree measures and a timetable to resolve its significant non-compliance.
Such engagement from the Commissioner's side does not exempt the Trustees from any applicable penalties. In the event that issues remain unresolved after a period of 18 months, the Commissioner will apply any relevant penalties under the Income Tax Acts, Chapters 123 and 372 of the Laws of Malta, and regulation 44 of the amended Cooperation with Other Jurisdiction on Tax Matters Regulations.
In cases of significant non-compliance, the Trustees will be subject to a penalty of €50,000.
The following are examples of what would be regarded as significant non-compliance:
- Repeated failure to file a return or repeated late filing
- Ongoing or repeated failure to register, supply accurate information or establish appropriate governance or due diligence processes
- The intentional provision of substantially incorrect information
- The deliberate or negligent omission of required information.
The Commissioner will inform the foreign competent authority that would have communicated such non-compliance to the competent authority of Malta of any updates in the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.